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Don’t you wish they taught you more about finance in school? Join this 30 day financial literacy challenge so you can finally take control of your finances.
Over the next thirty days, we will be going over credit scores, buying a house, retirement accounts, mindset challenges and more!
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1. Understanding The Importance Of A Credit Score
Higher credit scores can actually help you save thousands! Higher scores will lead to lower security deposits, utility deposits, car loan and mortgage loan interest payments, and home insurance premiums!
Check your credit score on your bank app or Credit Karma.
2. Do NOT delete your oldest credit card account
Did you know that length of credit history is one of the largest factors that affect your credit score? This is why you shouldn’t delete your oldest credit card account! I still have my student credit card that I got in high school!
The five factors that impact your credit score:
10% Credit variety
10% Inquiries and new credit
15% Length of credit history
30% Credit utilization
35% Payment History
3. Budget Audit
The best way to create a budget is to base it off of your current spending habits. This will help you create realistic categories.
First, take all of your credit card and debit card statements from the last 3 months and print them out. You’ll be going through them line by line!
Gather 5 different colored pens, pencils or highlighters! (You can adjust the number of categories based on your spending habits. Some need less or more, this is just an example!)
Pink: subscriptions- Netflix, Hulu, gym, etc
Blue: Takeout
Orange: Shopping- Target, TJ Maxx, online shopping, etc
Green: Grocery shopping
Purple: Bills
Go through all of your statements and highlight the items accordingly. Add up all of these categories accordingly. Which one is the highest? Are there any categories that surprise you?
Now you can create a sustainable budget based on your spending habits!
Read:
4. Emergency Fund
You need to build an emergency fund ASAP. Your emergency fund is meant to cover unexpected expenses like health issues, broke cars, vet visits, etc. The best emergency fund is never used, but if you ever do need one, it’ll help you from accumulating more debt.
I recommend saving at least 3-6 months of bare expenses. Enough to cover your necessities like bills, food, and shelter.
Until you can fully fund this emergency fund, you shouldn’t worry about covering more than the minimum towards your debt.
5. Open This Bank Account To Earn 10-12x More Money
The average interest rate you earn on a traditional bank account is 0.04%. If you switch to a high yield savings account, you can earn closer to 0.5% (These fluctuate, please check current rates!)
The reason high yield savings accounts offer drastically higher rates is because they are typically online banks and have less overhead.
Take 15 minutes to open a high yield savings account and put your emergency fund in there! Here are the best high yield savings accounts.
Read: How To Choose A High Yield Savings Account
6. Pick A Debt Payoff Method
There are two main types of debt payoff methods. The Snowball and the Avalanche methods. These are designed to help you tackle your debt in an organized and efficient manner!
Snowball Method– popularized by Dave Ramsey. Focuses on paying the smallest balance first! This helps you build momentum quickly!
Avalanche Method– Focuses on targeting the highest interest balances first. This saves you more money in the long run!
You can always mix the two methods to create a hybrid that works for you! No matter what method you choose, you still have to pay the minimum monthly payments though!
Read: The Best Debt Payoff Method
7. Get A Cash Back App
Fetch Rewards helps you get cash back just by scanning your receipts and referring friends! You can earn gift cards to Amazon, Adidas and more!
8. Use The One For One Method
Next time you go shopping, donate an article of clothing for every item you want to buy! This will help you clear out your closet and keep you from buying unnecessary items. It is also more sustainable and keeps you from falling for fast fashion trends.
Do the same for skincare too! Make sure you finish your skincare products before you buy new ones!
Read: How To Stop Online Shopping
9. Keep A “Needs/Wants” List On Your Phone
Keep a running shopping list on the notes app and budget for the items. Be on the lookout for sales and periodically comb through the list- you’ll be surprised at how many things you don’t actually want.
10. Review Your Free Credit Report
You can get a copy of your credit report for free! Go to Annual Credit Report and review what’s on there! Sometimes they have incorrect items so it’s important to regularly check your report.
11. What Is Your 401k Employer Match?
Does your employer match your 401k contributions? What does this even mean? Today’s challenge is to call your HR and find out if they have a 401k contribution plan!
Two of the most common types of matching are:
Dollar for dollar matching up to x%
This is the most favorable type. The employer will match your contributions dollar for dollar up to a certain percentage of your salary.
Example: $60,000 salary and the employer will match up to 6% of your salary.
0.06*60,000= $3,600
So, the employer will match dollar for dollar up to $3,600 for the year. So in order to receive this full $3,600 contribution you need to first contribute $3,600 yourself!
Partial Matching or 50% matching up to x%
The employer will match 50 cents for every dollar you contribute up to a certain percentage of your salary.
Example: $60,000 salary and the employer will match half of every dollar up to 6% of your salary.
Your contribution: 0.06*60,000= $3,600
Employer contribution: 0.5*3,600*=$1,800
The employer will contribute half of what you contribute up to 6% of your salary. This one is a bit harder to wrap your head around. To calculate the employer contribution, take your maximum contribution and divide that in half.
In this particular example, in order to receive this full $1,800 contribution you need to first contribute $3,600 yourself!
The employer 401k match is literally free money. If you can, I would try to contribute enough to reach this match every year!
BONUS: Ask when your employer match is vested! Some employers only allow you to access their matched funds when you’ve stayed with their company for a few years. This keeps you around longer.
12. Where should you invest first?
NOT ROBINHOOD! Robinhood is actually the last place you should invest your money. The first place you should invest is a 401k. Then you should max out your Roth IRA, then you go back to a 401k and max it out.
401k and Roth IRAs provide tax advantages. Robinhood has no tax advantages. With Robinhood, you get taxed on the money going into the account and the money coming out. With 401k and IRas you get to avoid one of those taxing moments!
Here are some brokerage accounts where you can open an IRA or an individualized brokerage account. You can also open a 401k if you’re self employed with these too.
13. Roth IRA
Roth IRAs are popular retirement accounts with tax advantages. You pay taxes on the money you contribute now but not on the money you withdraw later. The money on the Roth IRA grows tax free. There are both income limits and maximum contribution limits on these- be sure to check what they are before contributing!
Read: How To Open A Roth IRA
14. The documents mortgage lenders need for a pre-approval
If you’re looking to buy a house, you have to get pre-approved for a mortgage first. This takes about 30 minutes but is made easier if you gather all the documents the loan officer needs!
Here are the items a mortgage lender will look at in order to pre-approve you:
- Credit score and history- different loan types will require credit score minimums
- Two most recent bank statements
- Last two pay stubs
- Last two years tax statements
15. How To Calculate Your Net Worth
By setting net worth goals, you will be taking a well-rounded approach to your finances that includes all aspects of your current finances.
Tracking your net worth is also the best way to track your financial progress every year. You can either do this manually with pen and paper, or create graphs that will allow you to see your lifetime progress.
The net worth calculation is very straightforward! You just add up all of your assets and then sum up all of your liabilities and subtract the liabilities from the assets. In math terms it is:
Net Worth = Assets – Liabilities
Read: How To Track Your Net Worth
16. How To Find A Side Hustle
Do you have any skills that could be monetized? Are you a social media whiz? Perhaps you’re really crafty? Pay attention to your talents over the next few weeks. Ask your friends to share what they think you’re good at! You’d be surprised.
Read: 47 Lucrative Side Hustles
17. Sell Your Old Clothes!
Declutter your closet by selling/donating old clothes you never wear!
Check out Poshmark, Mercari, and Facebook Marketplace to sell gently worn clothing! Facebook Marketplace requires the least amount of effort because the buyers will meet you and you don’t have to worry about shipping anything.
18. Read A Money Book (or blogs!)
Some of the terminology in the finance world can be utterly confusing. The best way to take control of your finances is by immersing yourself into money books, blogs and social platforms.
My favorite books are: Rich Dad, Poor Dad (mindset based), I Will Teach You To Be Rich (a mix of strategy and mindset), and Broke Millennial Takes On Investing (more technical).
I would read them in that order since they gradually get more technical!
My favorite blogs are: Making Sense Of Cents, Fitnancials, and Millennial Money Man.
19. How Tax Brackets Work
Our tax bracket system isn’t as straightforward as you might think. The general premise is that lower income households pay less in taxes than more affluent households.
There are seven tax brackets and you’re charged progressively at multiple brackets depending on your salary.
Think of it as a ladder- your first $9,875 in income is taxed at 10%. The next portion of your salary (up to $40,125) is charged at 12%. So, in other words, you’re paying 10% on $9,875 and then 12% on any income that exceeds $9,875. (These numbers are based on single filers from 2020)
Check out Investopedia’s article on tax brackets for the full rundown of the 7 tax brackets and how they work.
20. Set Financial Goals
I’m a strong believer in setting goals regularly. Every time I reach a goal, I end up setting a new one. It might seem never-ending at first, but as long as you celebrate each achievement, progress will turn into a habit.
Read: 10 Tips On How To Set Financial Goals
21. Should you invest in index funds or individual stocks?
Index funds are a collection of multiple individual stocks. Many long time investors find this strategy to be more hands-off and safer than investing in individual stocks. Do your research and find out which strategy you prefer!
22. What Are Your Down Payment Options?
Most of my clients put less than 20% down on a home. There are multiple loan programs out there geared towards first time home buyers so they can get their foot into the door of real estate.
Common loan programs and down payment amounts:
-
- 0% for VA (veterans) and USDA (rural areas, USDA eligibility map)
- Down Payment Assistance Programs (These typically have a higher interest rate than if you were to cover your own down payment. Here is a tool to find programs.
- 3.5% FHA Loan
- 3% Conventional Loan for first time home buyers (those who haven’t owned a home in the last 3 years)
- 5% Conventional Loan
23. What Credit Score Do You Need For A House?
All lenders are different, but below are a few average scores to aim for
- VA-580
- USDA- 640
- Down Payment Assistance- 620
- FHA- 580
- Conventional- 620
Is your credit score above these minimums? If not, focus on growing it before you start your home buying journey!
Read: 8 Steps First Time Home Buyers Can Take Right Now
24. What Are The Hidden Home Buying Costs?
Unfortunately, the down payment isn’t the only cost associated with buying a home. There are a few other items you’ll need to budget for.
Hidden home buying costs:
Closing Costs(~4% of purchase price): sometimes you are able to negotiate and have the seller cover these.
Home Buying Process Costs (~$1,500): These are the costs accrued during the actual home buying process. The costs below could vary depending on your state, but they are roughly:
-
- Inspection: $600 (could be more or less depending on the inspection types)
- Appraisal: $600
- Survey: $300 (Sometimes the previous seller has one they could provide)
Read: Hidden Costs Of Buying A House
25. How Much Does A Buyer’s Agent/Realtor Cost?
A buyer’s agent/Realtor should be free to use! Some agents charge a transaction fee (a few hundred dollars) to their clients but many do not!
Read: The Future Of Real Estate Commissions
26. What Is The Biggest Roth IRA mistake?
This is a huge mistake that many people make (myself included). If you do not invest your Roth IRA then your money just sits there as cash and doesn’t grow.
Read: Beginner’s Guide To Starting A Roth IRA
27. Should You Keep A Balance On A Credit Card?
No! Do not carry a balance on a credit card if you can! Why pay interest when you don’t have to? This is an old myth that leads people to believe a small balance will increase their credit scores. Carrying a balance does not help your credit score. In fact, it could even hurt it.
28. Can You Retire Younger Than 62?
Yes! The Financial Independence, Retire Early movement is fairly new but it is gaining traction with millennials fed up with corporate America. The original FIRE movement focuses on extreme frugality to the point where you’re sacrificing luxuries in the days before you reach your retirement.
Read: The FIRE Movement And Retiring Early
29. What Is An HSA?
Do you have an HSA? It is a Health Savings Account that you can enroll in if you have a high deductible health insurance plan (you still have to confirm with your health insurance plan that you can get an HSA though! Not all high deductible plans allow it).
The HSA works like a bank account and the amount you contribute can be rolled over into the next year. But, unlike a regular bank account, you can actually invest your HSA in mutual funds, etc!
The HSA has incredible tax advantages too! You don’t pay taxes on the money you contribute, it grows tax free, and you can withdraw it tax free!!
There are two caveats though. The HSA can only be used for qualified medical expenses, and there is a maximum annual contribution amount ($3,600 as of 2021).
30. Treat Your Money Guilt & Celebrate The End Of This Challenge!
You made it! This thirty day bootcamp was designed to educate and challenge you to get to the next level financially! You deserve to treat yourself today and simultaneously work on your money guilt!
Extreme frugality and money guilt are just as dangerous as impulsive spending. Money shouldn’t have such a strong hold over you. Everywhere you look people talk about how important it is to save money and avoid debt, but not many mention the flip side of that- the guilt that can brew as a side effect of being frugal.
Once you learn to approach money as a tool, that is when you truly take control of it. It’s time to live your rich life!
Read: How To Overcome Money Guilt
What was the hardest thing for you during this 30 day challenge?I hope you’re proud of everything you accomplished over this last month! Congratulations!!
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