High school graduation season is in full swing in Utah. What a fun time of life, filled with feelings of accomplishment and excitement for the future. If you’re graduating, you’re about to take the first real step toward real-world living, and with that comes choices. Some are fun — choosing to stay up late (just one more episode!) and eat junk food for breakfast (pizza!). Some aren’t so fun — choosing to pay for something you need (car payment) over something you really want (concert tickets!).
Some advice as you’re making those choices: Always look at the big picture — particularly when it comes to your finances.
It’s hard to see now, when you have thrilling new adventures right ahead of you, but the choices you make early in life really do affect your future. So, in honor of graduation, I’d like to share some financial tips that will help you both now and later. (Even if you aren’t graduating, these are good pointers to share with someone who is, or with any teen!)
5 Financial Tips to Set You Up for Success Now and Later
1. Understand needs versus wants at this time of life.
The concept of needs versus wants is pretty simple. A “need” is essential. A “want” is something you can live without. Where it gets tricky is needs can easily stretch into wants if you’re not careful. When you’re first out on your own, don’t expect the same standard of living as you had with your parents. You need food, but you don’t need to eat out every day. You need clothes, but you don’t need expensive clothes or as many outfits as you think you need.
Think about your last purchase. Did you need it or just want it?
Seeing the big picture: Throughout your life, there will be times when you have to sacrifice something you really want to make sure you have what you really need. Other times, you’ll be able to go ahead and splurge! The key to making those choices is knowing where you’re at money-wise and having a plan for your finances. Continue to tip #2 for how to do that!
2. Go ahead and open your own checking account.
This one may seem pretty straightforward and obvious, but there are quite a few different reasons to open a checking account. Here are my top four:
- It’s a safe place to deposit any money you get (from a job, allowance or as a gift).
- It’s a good introduction to digital tools, such as online and mobile banking and bill pay, all of which help you better manage your finances.
- It’s a great way to track your spending and create budgets.
- It’s an opportunity to get a debit card so you can make purchases and use ATMs.
Just make sure you choose the right type of checking account for you. Many banks offer student checking accounts. Most of the time they’re fee-free, you don’t have to have a lot of money to open them, and you don’t usually have to keep a minimum balance. Many banks also offer other types of free accounts. Always be sure to check if they are truly fee-free and that you can get unlimited access to your money (sometimes you’ll get charged if you make too many withdrawals in a month).
Seeing the big picture: A checking account is a great way to start your journey toward financial independence. Plus, it helps you learn how to organize and track your spending, and manage your money well — skills that will help you throughout the rest of your life.
3. Know where your money is coming from, where it’s going and make a plan.
You have to know how much you’re earning and how much you’re spending every month to know if you can pay for everything you need and to see if you have any extra money to buy something you want (or better yet, to save … but we’ll get to that in tip #4!).
This is where tracking and budgeting is helpful. It may not sound exciting, but the good news is technology is on your side! Many digital tools are available to help you. Remember in tip #3 when I said a checking account is a great way to track your spending and create budgets? That’s because checking accounts usually come with online and mobile banking and a debit card — all things that make it easier to see your deposits and purchases.
Some accounts even come with what we call personal financial management tools. At Bank of Utah, for example, our accounts come with My Money Hub. It helps you visualize and interact with your finances in a fun way. It also gives you the ability to create financial goals and budgets and track expenses.
Seeing the big picture: Tracking your expenses and following a budget are good financial habits for everyone to have. They help you spot troublesome areas and make adjustments. For example, you might realize you’re spending a lot at the local coffee shop, so you might choose to start making your lattes at home. Then, you can put the money you’ve saved toward something you need, or better yet you can save it for the future (continue to tip #4 for more on that!).
4. Open a savings account and start adding to it now.
When you get paid or someone gives you money as an allowance or a gift, your first reaction may be to spend it. That’s OK (as long as your other expenses are paid for!). It’s completely normal to want fun things at your age.
My advice is this, though: When any money comes your way, choose to send a certain amount to a savings account before you do anything else. This is known as “paying yourself first.” It may not seem like a lot in the beginning, but even if it’s just a few dollars, it’s the start of another good habit. Just think: If you choose to save $10 a week for 10 years, you’ll have over $5,200. If you put that money in an account that earns interest, you’ll save even more.
Again, technology can help you with this. Most savings accounts allow you to set up recurring transfers, so you can have your money move automatically from your checking to your savings. You just choose how much and when, and that’s it!
Seeing the big picture: Yes, spending money is exciting, but the earlier and more frequently you start to save, the quicker your money will grow. That means, when a fun opportunity comes up down the road, you won’t have to say, “I don’t have the money to do that” because you will. Or if your car breaks down, you won’t have to ask, “What am I going to do now?” because you’ll have the money to fix it.
5. Start building your credit history.
Credit plays an important role in your financial life. When you go to rent an apartment or get a home or car loan in the future, a landlord or a lender will look at your credit report. Some employers will even look at your credit history before hiring you. It tells them what types of credit you’re using, your payment histories, how long you’ve had your credit accounts open and more. If you have good credit, you’ll be more likely to get that apartment (or that job!), and you’ll qualify for lower rates on that home or car loan.
There are a few ways to start building your credit history.
One is to get a credit card of your own, but be careful. While they are great financial tools, they can also tempt you to spend more. If you do choose to get your own credit card, commit to:
- Making small purchases so you know you’ll be able to pay them back.
- Paying off your balance every month so you don’t have to pay interest (which is a form of debt).
- Paying your bill on time.
Another way to build credit is to become an authorized user on someone else’s credit card, like your parents’ card. This can help you build credit, but it also gives you a safety net. Just be sure you’re responsible for the purchases you make.Seeing the big picture: Building good credit takes time and a lot of responsibility, but it’s worth it. You’ll see the positive outcomes when you go to get approved for loans in the future. To ensure what you’re doing is working well for you, you should check your credit report. You are entitled by law to a free credit report once a year. You can request your report at www.annualcreditreport.com.
Don’t Be Afraid (or Too Proud) to Ask for Help
Congratulations! You’ve made it through high school, and exciting things are ahead of you. My last piece of advice is to always keep learning, and never be afraid to ask for help. I know that’s hard to do when you’re young. I’ve been there, and I have two teenagers myself, so I know! But I am still so happy that I asked adults for advice when I was your age because what you do now sets the stage for financial success for the rest of your life.
If you need help seeing the big picture and creating a plan to meet your goals, we’re here to help, with advice, services, digital accounts — whatever you need. Just reach out.
Alfred Bautista is branch manager for Bank of Utah’s Sandy branch. He received his bachelor’s degree in international business from Westminster in 2005. Because he was encouraged to look at the big picture, he was able to save money in college and start on a good path money-wise. Today, he enjoys helping others create healthy financial habits.