Alison Southwick: Alright, step number three: establish a line or two of credit, if you
haven't already.
Johnnie Weathersby: Yes. This is basically encouraging people -- I hear a lot of my friends
that started credit cards later in life, they've never owned any kind of property, they haven't
bought a car, made any car payments on anything. So, most people, you end up graduating about
now, and the only credit to your name is a student loan or something like that. You really
want to look at things like building up with a credit card company over a certain amount
of time, and managing that properly. Don't always max out your card, try to keep your
spending within 30-50% of your balance, just little things like that.
Southwick: So, we actually had a letter from a listener named Chris. He's a college student
looking to create some financial infrastructure in his life, but he can't get a credit card
to purchase to rent a house because he makes very little income. So he wants to know, what
can he do to establish roots in a financial life? Now, Bro, that was your homework, to
figure out what you do when you can't get a credit card.
Robert Brokamp: Well, first thing, some people think that if you use a debit card, if you
deposit money in your bank and you said, that will establish credit. Generally, it won't.
Even if you swipe it at a store and hit the credit button, that doesn't do it. What you
might need to get it what is called a "secured credit card." It's similar to a debit card
in that you have to send money to the credit card company first, then, that's your spending
limit. But then, many of these cards, after you've maintained that and paid off your bills
for 12 months, it becomes a regular credit card. And actually, I'll point people to a
great article from NerdWallet, recently, by Virginia McGuire. Best college student credit
cards of 2016, because she did a great job of actually highlighting specific cards that
are good for students in specific situations, even those who have good grades. So, I would
definitely take a look at that. Southwick: Alright!
Brokamp: But I will say, this happened to me. I didn't have credit cards when I was
younger, and then when I first tried to apply for a mortgage, I couldn't get it because
I had no credit record. So, it definitely makes sense to just put a little bit on a
credit card, and pay it off every month.
Southwick: Step #4: if your job offers a 401(k), put money into it!
Weathersby: Yes. Not enough people take advantage of that.
Southwick: Which is crazy, right?
Weathersby: It is. It's crazy, when you think about it. Just make sure, not to use a clichéd
term here, but don't leave money on the table. If your job is saying they'll match, say ...
Southwick: 7%.
Weathersby: Yeah.
Southwick: Of, I don't know, what's average? Do you know?
Brokamp: The average is $0.50 on the dollar, up to a contribution rate of 6%.
Southwick: I knew Bro would know. I knew I could look at him and ask.
Brokamp: At 6%, the company throws in another 3% for a total of 9%.
Weathersby: And then you're good. Don't leave that extra 3% on the table.
Southwick: So, if it comes down to, even paying off student loans or paying off high-interest
debt, do you still put the money into your 401(k)?
Brokamp: Student loans, yes. Credit card debt, it really depends on how big it is and the
interest rate. If you're paying 20%, 25%, 30%, it's pretty hard to beat that by putting
money into a 401(k) and investing it. Plus, there's a psychological value of just getting
rid of the debt. Southwick: Right, off your back.
Brokamp: Do everything you can to get rid of the debt, then start new.
Southwick: Step #5: increase your financial literacy. Learn, learn, learn. Johnnie, you
have a favorite book that you wanted to recommend.
Weathersby: Yes, there's this book called "How to Invest $50-$5,000." And there's other
stuff in the name.
Southwick: I can give you the full title: "How to Invest $50-5,000: The Small Investor's
Step-by-Step Plan for Low-Risk Investing in Today's Economy."
Weathersby: Boom. That book.
Southwick: (laughs) I don't know how you didn't have that whole title memorized, but ...
Weathersby: But that book, it's a fun read, it gives you very good practical advice. And
it's talking in terms of money that you can easily have on hand, even if it's something
where you don't make a lot of money and you don't have a lot to set aside. The first thing
it deals with is $50. You can squirrel away $50. Just try, believe in yourself, $50.
Southwick: Johnnie believes in you! Bro, do you have a book you want to recommend? I know
I'm always looking to you for book recommendations. Do you have one?
Brokamp: "Stocks for the Long Run" by Jeremy Siegel is a great history of investing, not
just in stocks, but in all kinds of investments. You also learn about the history of the Fed
and the economy. It is sort of textbook-y, but very enjoyable. I originally listened
to it has an audiobook, and I think it's a great idea.