Basic financial literacy 101 - Or things I wish I knew 15 years ago.

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Some advice for those of you who are fresh out of college and have a lot of student loans, mostly for US residents:

some terms:
Loan principle (aka principle, principle amount, etc): the original amount of money loaned to you.
Interest (aka "financial services fee" in some cases): this is the money you pay to have the "privilege" of taking out the loan, almost always calculated as a percentage of the original loan amount. If you have a loan, this is your number one enemy. Your primary goal while your repay is to reduce your interest wherever you can.

You will have 6 months grace period before you need to start paying the loan. If you're lucky enough to have a job right out of school that pays decent enough, use those first 6 months to build up your emergency savings. This should more or less be 6x whatever your monthly expenses are including rent/phone/utilities/food/etc. If you're one of many who aren't able to land a decent job right out of school, the same rule applies with the time offset. Save until you have enough for emergencies. Once you have your emergency savings, every single cent needs to go into paying your student loans down. It doesn't matter if it's 5 dollars more or 500 dollars more than the monthly required payment, pay the principle down as much as you can. This will reduce the amount of interest you end up paying because interest is calculated on a daily basis based on your principle amount. Another thing to note is that some loan servicers give you a 0.25% discount on your interest rate if you setup auto-pay. Definitely do this. It may not seem like much currently but over the course of the loan repayment it'll add up.

If you're up-to-date on your payments, most likely within a few months you'll start receiving refinancing offers from other student loan servicers. Refinancing is basically taking out a separate loan to immediately pay down the original loan. It is likely the refinance offer you get will have a lower interest rate than what you're paying on your current loan, usually 1-2% less. If your interest rate is already under 5%, you're unlikely to get a further reduction. Anything below that is usually reserved for car or home loans. If the terms of the refinanced loan reduce your interest rate, considering refinancing. It'll generally reduce your monthly payment but you should still continue paying as much as you.

One caveat with refinancing: If you have gov't student loans, it may not be advantageous to refinance those to a private loan. Gov't loans usually have more protections and you never know when your favorite president might just write-off the rest of the balance. It won't happen but I know some one of you zoomers and millenials hope it does.

If you're a young adult just starting to build credit, you may also receive credit card offers that have special terms like 0% interest balance transfer for first x months, usually 12. You can use this to your advantage by transferring part of your loan balance to the credit card as a balance transfer. Assuming you're given a 5000 limit on your new credit card, move 4500 from your loan to your credit card and try to pay this down within the time limit provided by the credit card company while also paying the student loan. You're essentially paying no interest on this part because 1) it's not part of your student loan that accrues interest daily and 2) it's part of a new loan that has 0% interest for the first x months. You should ensure this balance transfer is paid off within the time limit set by your credit card company. Don't panic when your credit score tanks when you do the balance transfer. It tanks because you're almsot maxing out the credit limit on the card, which is usually a big no-no for credit agencies. However, as long as you pay off the balance transfer within the time limit, your credit score will recover and likelyh receive a further boost because you've established more payment history.

Absolutely do not try to pay your loan with the credit card. Balance transfer is a specific action that doesn't fall under the terms of the standard credit card statement. It uses your credit limit to essentially take out a loan. For some new customers, they are offered 0% interest balance transfers as an incentive to sign up.

Some of you may have been told to not pay loans upfront because it's taking away the money you could invest to make more money. While this is true, most of us are too lazy or too dumb to do that. You're better off paying the loan down as soon as possible. Some people end up having student loan payments that are higher than their mortgage payments.
 
This post is bad and you should feel bad. OP is one of those people who know just enough to be dangerous. Everyone else has beaten him to death on these, but I thought I'd put it all in one place and explain exactly why OP is wrong.

I can't quote him because Null is a literal retard whose site is broken, but off the top of my head:

Debt & Credit
  • OP completely neglects to tell you that credit cards come with a grace period. Every month, you get a statement; you typically have 21 days to pay off the balance of that statement at 0% interest. If you do this religiously (or even automatically at some banks now), you can typically call your bank if you are late on your payment for whatever reason and get the interest forgiven, so long as it's only once in a blue moon. This is how responsible adults use credit cards.
  • Those credit card rewards are great, if you stick with the above philosophy. Despite what OP has to say, no "rich person" is going around carrying a balance at 8 or 9% interest. Rich people typically get credit cards that actually require you to pay an annual fee, under the assumption that the rewards will outweigh the fee. This can vary from cash back (mine is 4% on gas and groceries; 2% on everything else, and costs $125 a year) to travel miles, spot-rate FX, and free airport lounge access (marginally more valuable than the cash back if you travel often). Certain cards, usually AmEx ones, have much higher fees but basically offer a concierge service that will do things for you that you don't have time for, like buy and send your wife a bunch of flowers or find you a pair of tickets to a sold out concert--they are also a status symbol.
  • Credit card companies are happy to allow you to use their cards even if you never pay any interest because they charge stores money to accept credit cards; typically 3% but some are up to 5% (like AmEx, which is why that Michelin Star restaurant takes AmEx but McDonald's does not).
  • Having an active credit card is important to build your credit score. It will likely be your only factor of credit score until you rent an apartment or start paying your own bills. Having no credit score is almost as bad as having a bad credit score.
  • As stated, rich people don't go into credit card debt when they need more money than they have access to at the moment. One of the major reasons rich people might want to access credit (confusingly, debt is also called "credit"; as in "credit card" or "credit score") is that they have their money tied up in assets that aren't easily divided or turned into actual cash. How easily you can turn your wealth into cash is called "liquidity".
  • For wealthy people, access to credit allows them to use their illiquid assets as collateral for loans. This is what's known as "a line of credit". You tell the bank "I need money, if I don't pay you back, you can have this thing I own" and the bank says "okay, we will let you borrow up to $x; you decide how much you want to borrow out of it" and because the bank knows it can get most or all of its money back if you don't pay back the loan, they are willing to lend at much lower interest rates than pretty much any other source of cash. Sometimes you can borrow more money than the thing you're offering up for collateral, but the interest rate will be higher because there is a risk the bank won't be able to recoup the entire value of the loan by selling the thing you offered to give them.
  • When the thing you offer them is your house, a line of credit is sometimes called a HELOC ("home equity line of credit") or a "reverse mortgage". This is what your boomer parents are using to afford all those cruises and BMW X5s, leaving you with little or no inheritance. In business, there are other variation of a LoC, sometimes called things like a "revolver loan".
Investing
  • Mutual funds are a largely antiquated form of diversified investing. They have high fees, shady salesmen and generally poor performance for someone your age.
  • The one exception is in registered accounts like your IRA, pension fund, or 401k. In this case, you can only put qualifying investments into those accounts, and they tend to be mutual funds. These accounts are tax-advantaged and the tax savings far outweigh the poor performance of mutual funds. Your employer will likely be partnered with a provider of mutual funds. Because most employers do some sort of contribution matching, it's a good idea to contribute the maximum amount your employer will match, and to pick a "middle of the road" investment profile--your goal here is not to get rich; it's to maintain the principal in the account and milk your employer for their matching program. If offered, choose an ETF-based plan over a mutual fund-based one, but don't worry about it too much.
  • A savings account is not a good place for any significant amount of money. The only reason they're offered is because old people remember when they yielded 10%+ rates of interest. I keep between $10-20k in my bank accounts; just enough to cover living expenses and emergencies.
  • The Exchange Traded Fund (ETF) has replaced the mutual fund as the diversified investment of choice. Like mutual funds, an ETF is an investment fund that contains many other investments--often other public stocks, but also government or corporate bonds, private equity, real estate, etc. The difference is that an ETF is traded on the stock market like other stocks. Each day, the fund declares what the market value of everything they own is, and that determines what the ETF's share price will be.
  • Because there are no salespeople involved with selling ETFs, the fees tend to be much lower than other types of bundled products (typically between 0.5-1%). The fees are built in to the ETF's share price. The amount of assets managed under a lot of these funds is very large, meaning you get very skilled money managers at a tiny cost.
  • There are many types of ETF, variously focusing on growth, or stability, or particular types of products or industries. A good example is $PEJ-A, an ETF focused on the post-COVID recovery of the economy--if you want to bet on the recovery but don't know exactly how, you might want to buy some shares of this. Others, like $SPY, buy the stocks found in the S&P500; a collection of stocks that make up the 500 largest companies in America.
  • A good way to invest for the non-investor is to use a so-called "roboinvestor", like WealthSimple. There are many companies that offer these, and they usually have an app. They will ask you questions about your life and your goals and will develop an appropriate investment portfolio for you. These will automatically invest your money in a variety of ETFs, gold and bonds, and will track the market fairly closely if you choose an equity-heavy portfolio. A "classic" split for young, risk-tolerant investors is 80/20 equity/bonds. Fees are between 1-2%.
  • Rich people don't do their own investing. They take their money to wealth management firms, who will use their savvy to find opportunities that are not available to the general public. A specialized type of wealth management fund is called a "hedge fund", who usually have a larger client base, and also don't have to follow the same rules around reporting and disclosure that funds like an ETF, or mutual fund or pension fund have to. This allows hedge funds to employ their strategies in private, so they can get the edge on the competition and the market. For the same reason, the privacy also allows fraud to go undetected for longer, which is how people like Bernie Madoff can run a Ponzi scheme for so long.
I'm sure there's more, but this post is long enough... if anyone wants to know more about something or a better explanation, just ask. The retarded TikTok zoomers and their McJob savings deserve something better than the nonsense OP has to offer, or a bunch of cryptospergs shilling their coin of the week.
 
On the first page, someone says "DON'T USE OR GET CREDIT CARDS"
Yet how am I supposed to build credit to get an apartment or a house lol
I use a charge card for daily purchases and I pay it off when the payment is due in full, keep my money in the bank.
For big purchases, I have a 90 days rule regardless of what incentive the cc have(for example, no interest for a year) to pay off the item within 90 days. Further more building up my credit usage and them seeing me paying it off
 
Spasticus Autisticus said:
There's nothing wrong with using a credit card for daily expenses if you have the discipline to not run up a balance that you can't pay off in full.* In fact by using your credit card and paying it off every month, your credit score will increase, which allows you to qualify for better credit cards with cashback rewards or points programs. It also makes it easier to churn credit card signup bonuses. Plus, when/if you want to buy a house, having an established credit history helps in getting better deals on mortgages.

* This is not including privacy/data collection issues which is a whole other can of worms.
Click to expand...
Correct.

I lay my card off in full every month.

It eventually gave me an "Excellent" credit score that made my car loan IR be ridiculously low.
 
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