Financial Advisr

Dear Credit Builder,

Three simple things you can do:

1) Open a checking account
2) Open a credit card on your parents’ account (If their credit is good.)
3) Open a gas card (Shell, Chevron) [If you can open a credit card on your own, please do so.]

IMPORTANT GUIDELINES TO FOLLOW!

1) Pay off your credit card in full!
     1a) If you can’t pay the full amount make sure you have 70% open on your credit limit. (Example: $1,000 Credit Limit, make sure you never have anything over a $300 balance.)
2) Pay your credit card bills on time! Late payments will haunt you and not give you any leeway or leverage when using your credit score.
3) As much as possible, don’t close credit cards that have no annual fees. Closing credit cards have a negative impact. (Not a huge impact, but an impact regardless.)

Dear Lifeguard,

You are definitely a smart, hard worker to be working at 13 and still wanting to save. I applaud you.

Okay, there are two parts to this answer:

Yes and No.

1) I don’t think you should be putting money into your 401K unless you are being offered a match. Some jobs offer matches up to 5% or 50 cents for every 1 dollar up to 10%. For example, if your company offers 50 cents for every dollar up to 8%, then you are getting a free 4% for putting away 8%. It’s free money! (You’re essentially saving 12% and it’s only costing you 8% of your income!) In conclusion, if they offer a match, save as much as they’re willing to match in your 401K.

2) If they don’t offer a match that doesn’t mean you shouldn’t save your money. Since you are young, there will be many things in your life that are approaching. High school, Prom, Driver’s License, College, Dates, Trips with family and friends. I would create a 3 bucket system:

As a lifeguard, I imagine you are making $750 a month. Here’s what you do:
Every month, set aside: $112.50
Bucket 1: $37.50
Bucket 2: $37.50 
Bucket 3: $37.50

Bucket 1: You can only touch this money in June and in December.
Bucket 2: You can only touch this money a year from today.
Bucket 3: You can only touch this money three years from today.

Don’t worry too much about putting this in a bank because the interest rate is so small. Just use simple shoe boxes. When you turn 16, and you can access your savings, then come back to me and I can give you more tips.

Do you know what’s great about this system? You are saving more than $100/month! So that extra $600 you’re making feel free to spend it or save more! The fact is that it doesn’t matter because you already started the habit of saving.

Keep working hard, Lifeguard!