As I see the progress of our first home being completed, I couldn’t help but feel thankful for being financially intelligent when I started earning my own money. And because of that, I need to give credit where credit is due – my fiancé taught me everything I know today about personal finance. Because of him and his teachings, we were instantly approved for a home loan of double what we were asking for and were able to give a 20% down payment on our first home at only 23.
Disclaimer: There’s many ways to handle your finances. Different techniques work for different people – I’m only sharing what has worked for me, what I’ve learned and the lifestyle I’m allowed to have because of it.
Let’s take a few steps back on my financial journey.
My first real world job was my first internship. I was making $30+ an hour and was 21 years old at the time. I was getting paid really well, but I knew absolutely nothing about managing it. I was living in Chicago and my housing was paid for, meaning all the money I was making was for me. Long story short, I made a lot of money in Chicago but came back home at the end of the summer with $0 🙂 I spent it all. If you asked me where the money went I wouldn’t be able to tell you, I still don’t know! All I knew was that after that experience, I had to be more responsible with my money.
My second internship paid more than my first and I definitely learned my lesson. By this time, I was throwing all my extra money in my savings, terrified of spending.
My third internship was at Facebook. As a Facebook intern, I was getting paid $8k a month + $1200 monthly housing stipend (it was virtual so I was living at home, lucky me😜). By this time, my fiancé was already trying to get me to start investing, but I was hesitant. . I did not begin investing into the stock market until I started my full time job at Meta and received my sign on bonus. Since then, I’ve been following the 80/20 rule.
What’s the 80/20 rule?
As someone in the tech field, bonuses come often… and they’re big. The 80/20 rule is a way for you to enjoy your bonus but also be financially intelligent by investing most of it. 20% of your bonus is fun money (yay), 80% goes into the stock market or savings. This is a great way for you to spend comfortably, enjoy your success and not feel guilty or irresponsible about spending. Every bonus/big amount that my fiancé or I have ever received, we’ve followed the 80/20 rule.
Credit
Now, let’s talk credit. When I met my fiancé, I was incredibly irresponsible with my credit but only because I wasn’t educated on it. I had 6 credit cards to say the least. Thankfully, he taught me everything I know today and I learned to use my 6 credit cards to my advantage. I’ve read all kinds of articles on what’s the best way to keep a high credit, do I pay off my card or not, etc. and have seen all kinds of answers. I’m going to share with you what has worked for us and the way we’ve kept both our credit scores above 750.
Every paycheck, pay off your card(s). That’s it. Our credit cards have never carried a balance and we haven’t paid a cent in interest. So in reality, we are never really borrowing any money because we pay it off within the following 2 weeks. Also, something very important that I’ve learned from my fiancé, do not spend more than you have. Simply put, if you don’t have the money that you are about to charge on your credit card already in your bank, don’t swipe it. Therefore, the only way that we benefit from credit cards are points, never borrowed money.
This brings me to my next point. Loans.
Loans
I bought a 2021 Mercedes Benz GLA last year. Now, you might be thinking that’s a nice car, big loan? I only bought this car because I also had the money in cash to pay for it. Don’t get my wrong, I did finance the car. Being financially intelligent is knowing when to pay in cash, when to finance and what you can afford.
When to Finance vs When to Pay in Cash
I waited to purchase my dream car until I had the cash for it but I didn’t pay for it in cash.
Why?
Because the interest rate for financing my car was much lower than the annual average stock market return. Meaning that I would get more bank for my buck if I invested the car’s cost than putting it all down. The average stock market return is 7%, so if I can finance my vehicle at 3%, that’s a clear choice.
Important to note: this will only work if you maintain a good credit and finance at a low interest rate.
This is why it is important to understand your options when given these numbers. Yes, I could’ve paid for my car in cash but that wasn’t the financially intelligent thing to do given the numbers. So, I invested the full cost of the vehicle and added myself a $400+ car payment for a few years… not bad.
Another thing to note, why did I wait until I had the full cash for my car before buying it? You want to avoid going into debt as much as possible. If I’m financing a vehicle that I can pay off any second, I’m not in debt.
What You Can Afford
Financing a car you don’t have the cash for and having a $700+ monthly payment for 5+ years is not the financially intelligent thing to do. I can not stress enough how important it is for you to never spend more money than you have. It will only become a set back in your financial growth. You never want to be car poor or house poor.
Car poor: financing a vehicle you can’t afford. Your car payment should not be more than 10% of your income.
House poor: buying a home you can’t afford. When buying a home, make sure to follow the 28% rule. This rule states that you should spend 28% or less of your monthly gross income on your mortgage payment.
Paychecks
Well don’t we all love payday 🙂
This section will go into detail on how I manage my paycheck. This is what has worked for me although I repeat, different techniques work for different people.
Savings + Investments + Bills + Fun Money
Every paycheck I get, I split into four different groups – my savings money, my investing money (more savings), my bills money (put aside), and my fun money. The fun money is what is used to pay off my credit card each paycheck. This also allows me to know how much fun money I have per 2 weeks. This technique has given me financial freedom at 24. By financial freedom I mean I have never experienced being financially stressed (thankfully), I bought my dream car and first home at 23.
Organize and understand your finances. It’s important. Make sure to fully know your options when buying a car. Learn about interest rates, the stock market, loans, credit, etc. The last thing you want is to be living paycheck to paycheck.
Some popular books on finance that my fiancé learned from and are recommended by finance experts:
Millionaire Habits
Some of the tips I just mentioned are considered millionaire habits.
Steve Adcock is the co-creator of Think Save Retire, a financial blog about how to achieve financial independence. He achieved financial independence at age 35 and quit his full-time work to live a sustainable life out in the middle of the desert. Today, he teaches others how to achieve financial freedom with simple habits. Here are a few that my fiancé and I agree with and most importantly, have already put into practice:
✓ Choose a high-paying career field (technology)
Not too long ago, I was having a conversation with an Engineer at work. He told me, “I’m at Meta because I’m passionate about the mission, not because I need the paycheck. I have enough money in the stock market to never work a day in my life again. I choose to be here.” I respect it. In fact, I admire it. This is an option that is presented to us in this field.
If you’re reading my blog, you’re probably in tech or have some interest in the industry. Pluses all around here 🙂
✓ Never pay a single dollar in credit card interest
As I mentioned above, don’t view credit cards as borrowed money. The only way that credit cards should be benefitting you is by the different benefits/points system that credit cards offer. Do your research on which credit card works best for you and your spending habits.
✓ Automate everything
Investing. Savings. Bills. Everything should be on auto-pilot. As I mentioned above, split your finances into these different categories. They are very important.
✓ Say yes to every opportunity
I wouldn’t be where I am today if I didn’t take chances. Moving to new cities, accepting intimidating job offers, leading projects. Seize every opportunity!
✓ Have “money talks” with your life partner
As most of this blog post covered, a partner who supports and motivates you to grow and do/be better is extremely important. Surround yourself with people who are like-minded and have the same goals as you do. You will only flourish as much as your surroundings allow you to. Be aware of who you’re surrounded by and make sure you’re only learning and moving forward, especially with a life partner.
✓ Index funds = easy vehicle to long term wealth
Index funds were my first step into investing. If you’re not familiar with index funds, do your research on them. You’re missing out on opportunities.
✓ Prioritization. Health > Family > Wealth
And this is the most important in my opinion. Health and family come first 🙂
I hope you find this helpful. Hopefully you learned something new or maybe the topic sparked an interest in learning more about finance and its importance.
I’m also sharing a copy of the excel sheet I use to keep track of my finances (example shown below). I’ve been using this sheet for years. It includes:
- Credit card percent load (automatically updated)
- Target credit card load (automatically updated depending on the target percentage you enter)
- The amount you have available to spend per credit card depending on your target percentage (automatically updated)
- Total load on all credit cards (automatically updated)
- Total Available on all credit cards (automatically updated)
- Credit card load percentage (automatically updated)
- Your total value (automatically updated)
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Catch you next time!
Xoxo,
Paola Terrazas
