Be Smart Now and Rich Later: How Teens Can Win with Money

As a high school teacher who talks openly about money and investments with my students, I am often asked about money. Even for the student who doesn’t want to pay attention in math class, they often get excited when we start talking about money.

However, even though every one of my students wants to have money when they are older, many of them feel that investing takes too long. Many of them want to become rich now … not when they are in their 40s, 50s, or even 60s. And every single one of my students doesn’t want to hear about things that they can do when they turn 30.

Just like me, you probably want to hear about what you can do right now to win with money!

Although I can’t help you or my students get rich quick, there are definitely a few things that you can do to get on the right path financially.

So whether you are a teenager who is about to graduate high school, a college student, or a parent of a teen, here are a few great tips for teens who want to win with money!

Tip #1: Avoid (or at least minimize) debt

Every single adult that I talk to is seriously bummed out by debt. Even many adults that are age 40 (like me) still have tens of thousands of dollars of student loan debt. They may have so much debt that they have to pay $500 or even $1,000 per month just to pay the interest on this debt.

Could you imagine going to a job where your first 1 or 2 hours of work every single day is just used to pay the interest on your student loan?

Instead of earning $20 per hour and having it go to pay rent on your apartment or buy groceries, you would have to use this money just to pay for your student loan debt. Yikes!

I know that it isn’t easy to avoid going into debt when you are in college. I also completely understand that college is very expensive. However, it is also really difficult to pay for your student loans when you are in your 40s!

So let’s make sure that you do everything that you can to avoid accruing a lot of debt while you are in college!

Apply for scholarships

Spend a few hours a week applying for every scholarship that you see. I’ve even received scholarships that I wasn’t qualified for because I was the only applicant that applied.

Become a resident assistant

This is a great way to get your room and board paid for at college. My wife was an RA during her last two years of college. Not only did she get free room and board, but she also met some great people who she is still friends with today.

Get a part-time job

If you are attending college, your grades and studies should always be your number 1 priority. However, you can easily work 15-20 hours per week while still maintaining good grades. I delivered pizzas during the school year and was also able to work 50-60 hours during the summer to save up money for college.

Attend a community college

If you are concerned about not being able to afford college, you can always attend community college for your first few years and save tens of thousands of dollars. Although I graduated high school with a high GPA, I attending my local community college for my first two years.

Not only did I get two years of college credit, but I also received opportunities that I wouldn’t have gotten at a larger university. For instance, I participated in national business competitions and international trips while at community college. Plus, I met my wife there : )

Avoid college spending

I know … your roommates probably want to decorate your dorm room with the coolest new things from Target. You also need a $2,500 computer, a brand new TV, and a budget for parties. Right???

Instead of all this, I’m going to challenge you to keep your expenses low in college. Don’t stay in the fanciest apartment, buy a late-model car, or get the nicest things. If you have to go into debt to attend college, you don’t want your debt to be primarily made up of Starbucks coffees and furniture from Target. Instead, live like a broke college student.

Tip #2: Start building your credit

I know that Dave Ramsey and many other people will disagree with me on this, but I think that it is very important to start building your credit as soon as possible. Of course, we are not trying to build our credit so that we can buy a new car right after college, which would be a complete financial disaster.

We also don’t need that free tee-shirt that the credit card companies offer when you sign up for a card, although that was one of the reasons that I got my first credit card!

However, most adults realize that it is important to build credit, even if we are not trying to maximize our debt in the future. Having good credit as an adult can help you to get a mortgage, get cheaper rates on car or home insurance, or even to get some jobs.

Having good credit is also extremely important for travel hacking. Basically, travel hacking involves signing up for credit cards and taking advantage of the lucrative sign-up bonuses that credit cards offer. My wife and I have received over $30,000 in free travel, cash, and gift cards. Unfortunately, these lucrative sign-up bonuses are only available for people with good credit scores!

The best way to start building your credit in college is to sign up for a credit card. Make sure that this credit card doesn’t have any annual fees and is with a reputable bank. You will want to keep this card for as long as possible because having a long credit history is important when trying to build your credit score.

After signing up for this credit card, put a small amount of spending on it and make sure that you pay off this card each month. No matter what, it is absolutely imperative that this card is paid off each month!

Not only will this build your credit score by showing that you can pay your payments on time, but paying off the credit card each month will help you to avoid going into debt. I even go so far as to pay off my credit card every single week, to make sure that I don’t go into debt.

Tip #3: Start a Roth IRA

To win with money as a college student, the best thing that you can do is stay out of debt. This can often be extremely difficult to do, as you are paying tens of thousands of dollars to get an education.

However, if you have scholarships or enough money to get through college without taking on extra debt, then starting a Roth IRA is a great option to look into. This is especially a great option when you are in college because you will be in a low tax bracket and a Roth IRA makes all of the gains on your investments tax free!

Let’s take a look at an example to see how this might work for you. We will assume that you make $1,000 per month or $12,000 during this year. We will also assume that you don’t need to spend this money on college.

Since the standard deduction for 2019 is $12,200 for an individual, you won’t have to pay any federal taxes on this money!

Out of the money that you made, let’s assume that you can save half of it, or $6,000 in a Roth IRA. If you save this in an index fund in the stock market, it is reasonable to assume that you might get an 8% annual return.

Now here’s the cool thing …

The $6,000 that you invest in your Roth IRA, will be worth around $60,000 after only 30 years! And you won’t have to pay any taxes on it!

By investing in a Roth IRA when you aren’t earning too much money, you can avoid paying taxes on the money now and in the future. Basically, you just earned $60,000 tax free!

Roth IRAs are such a great option when you aren’t earning too much money. If you want to find out more about them, just check out this article that I wrote.

What should you invest in?

Whether you have millions of dollars to invest or are just starting out, it makes sense to invest at least some of your money in the stock market. Since the Great Depression, the stock market in the United States has averaged 10-11% returns. I am not claiming that the U.S. stock market will average these same returns in the future, but investing in the stock market will probably be better than most other investments that we can make.

If we are investing in the stock market, the easiest way to do so is to buy inexpensive index funds. Basically, an index fund is a collection of stocks that is designed to match the return of a stock market index, such as the S&P 500.

Index funds are actually kind of boring! You don’t get to choose your favorite company and try to get rich off of that company’s stock increasing. Instead you just make the same return as the stock market does, every single year.

Again … super boring, but also super profitable because you don’t have to pay huge fees that other mutual funds have you pay. As a matter of fact, investing in index funds can save you over $200,000 during your life compared to investing in other mutual funds!

What I invest in

Since I recommend for you to invest in index funds, it makes sense that all of my investments are also in index funds.

The main company that I use to invest with is Fidelity. They offer a fund called Fidelity Total Market Index Fund, or FSKAX. The reason why this fund is so great is that it has an expense ratio of 0.015% per year (or $0.15 for every $1,000 invested)! Other mutual funds have expense ratios around 1% (or $10 for every $1,000 invested).

Besides investing with Fidelity, you can also find low cost index funds with a variety of other companies including Schwab and Vanguard. Some of these have minimum amounts of money that you need to invest in the fund, but you can usually get around this by signing up for automatic monthly investments.

Action Steps

Step #1: Try to avoid or minimize debt as much as possible. Do everything you can to get out of college with the smallest amount of debt possible.

Step #2: Start building your credit. Sign up for a credit card and pay it off every week or every month at a minimum.

Step #3: Invest in a Roth IRA. If you don’t have any college debt, then begin to put a small amount of money each month into a Roth IRA. Then you can watch as it grows tax-free into tens of thousands of dollars!

If you are able to follow step 1 and step 2, then you will come out of college further ahead than 95% of your peers. And if you are also able to follow step 3? You will be ahead of 99.5% of your peers and well on your way towards living a great life … with the help of money!


Good luck with your journey! And thanks for reading!

~Nathan


Let’s keep living a great life … with the help of money. So what’s next?

But no matter what you decide to do, let’s leave the ordinary behind and take action today!


 

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