10 Things Every 18 Year Old Should Know About Money
When you are 18 years old, there are only a couple of things on your mind and that probably doesn’t include money. I was there, in your shoes and my only concern was what I was doing after high school and girls.
If I could go back, there are a couple of things I would change. Not to say that I have big regrets but there are some slight changes that would have had a huge impact on my current financial story. If you talk to anyone in their late 20’s or older, they would probably tell you the same thing. That’s why today I want to help you avoid that altogether.
You see when I was 18 I had no idea the amount of knowledge that was accessible on the internet. I had no idea about online courses that could teach me all of the essentials about money management like the course Money Made Easy. Who knew you could hire a Financial Coach and after an hour consultation they could point you in the right direction.
Back then those things didn’t exist. Or I at least didn’t know they did.
Below is a list of money-related ideas that I would highly suggest you take to heart. Take these things seriously and you will be ahead of most people your age and the stress of money will be minimal. This will allow you to spend more time doing things you actually enjoy. Let’s hop into it; here are 10 things every 18-year-old should know about money.
1) Open A Bank Account
This has to be number one on this list because it’s an absolute no brainer. Hopefully, your parents already helped you out with this but if you don’t, now is the time. Get ready to take your money out of the piggy bank or that old shoebox and start using a bank account.
If you have a checking or savings but it is under your parent’s name or paired with their accounts it is also time for a change. You are 18 now, technically an adult, so it is time to take the scary leap (it’s actually not scary at all).
The easiest way to do this is to choose a bank that has a location in your city. Go in and tell them exactly what you want to do and they will have you set up in under 10 minutes.
The only thing I want to emphasize here is to make sure to ask if the bank account has any fees. I HATE fees and a simple bank account should never have any.
After you have accomplished this, start using a savings and checking account to their full potential. The first, and easiest, way to do this is by linking your checking account to pay any bills you may have. When I was 18, all I had was my credit card bill (which we’ll talk about next). If you don’t have any bills, don’t fret.
The second thing I would do is put some money into your savings that you don’t touch. Most Americans don’t even have $1,000 sitting around for emergencies. This blog is all about making sure you aren’t the average person so whatever you can afford, put into your savings account and don’t touch it.
2) Open A Credit Card
If I have said it once, I’ve said it a million times; you need to open up a credit card. For some reason, it seems Boomers in particular, hate credit cards and I can’t quite figure out why. You are enlightened though and have read my article: How Do Credit Cards Work? – A Simple Guide With Example.
When you are under 18 years old, most likely you have little to no credit. While this may not seem like a big deal at the time, it will undoubtedly affect you in the future. Your credit score will determine if you get approved for things like a mortgage or auto loan. If you do get approved, it can then determine what interest rate you will pay on that loan. This may seem like “dumb adult stuff” right now but trust me, you want to get started on this as soon as possible.
When a credit card is used responsibly, it can do great things for your credit. After you are done with this post, go back and read the article I linked above. Above all else, I want to make sure you understand the one simple rule of credit cards;
Pay off your credit cards in full every single month and never carry a balance.
Seem like a pretty easy thing to do right? Well, most people struggle with it. Luckily, you aren’t like the average person and you are going to be smart with your money.
At the end of the day, my opinion is that the benefits of a credit card far outweigh the risk. On top of that, wouldn’t you like free rewards just for spending like you normally do? Yes, it’s possible.
If you are looking for recommendations for your first credit card then check out the YouTube video linked below.
3) Open A Roth IRA and Invest
You have opened a bank account and are now becoming comfortable with using your new credit card. It’s time to start building some true long term wealth. Remember when I told you above that most Americans don’t even have $1,000 for emergencies? While this fact is sad, what is worse is that most will NEVER invest in their future.
You should start investing as soon as you can. Yes, I understand when you are 18 that your bills may be high and excess cash may be short, but trust me that there is a huge pay off here. Below is an image from one of my first blog posts ever. The graph is pretty straight forward and as you can see the line labeled “Consistent Claire” is the highest at almost $1,000,000.
Claire did this by starting early and consistently investing every single month. You can see what happens when you start late or quit investing and the cost that it has.
I want to make you Consistent Claire.
So, how do you do this? When you are 18 years old, the simple answer is to open up a Roth IRA. Roth IRA’s are a type of retirement investment account that have certain tax advantages. I’m not going to bore you with those advantages right now just know that they are working in your favor.
Next, invest your money in a low-cost index fund. There are hundreds of them out there just find one that somewhat reflects the S&P 500 and you are good to go.
Yes, this is about building long term wealth but the more important thing you are doing is creating a new habit. If you can master this habit of investing when you are young, then you will have no problem when your income goes up in the future.
4) Understand Your Expenses
As the years have gone by, I have realized that the strategy of budgeting is worthless for 99% of people. The word itself scares people away and I do not believe in trying to force something, especially when we are talking about money.
What I do believe everyone needs to understand (at a minimum) is their expenses. You see when you are young, your earnings potential is somewhat limited. Yes, I know there are some millionaires out there who haven’t even graduated high school but chances are they are not reading this blog post. Rather, they’re enjoying a fine non-alcoholic drink on the back of a yacht somewhere.
For the rest of us, yes you, we need to manage our money and the first place to start is your expenses.
No matter how much money you make, you will always have expenses. You need to pay rent, put gas in your car, and eat food. Start adding all of these costs together and life gets expensive fast. But if you learn to live below your means and manage your expenses when you are 18, then you will take a huge step in the right direction.
If you follow me on YouTube, then you know I have put out two videos about people who were making millions but still went broke. This was all caused by them simply not being able to manage their expenses.
The key thing to remember is no matter how much money you make, if you can not manage your expenses then you will always be broke.
5) Avoid Debt At All Costs
Debt sucks. What sucks even more, is that when you are 18 you most likely don’t understand debt. I’m not calling you dumb by any means, it is just a reality. Besides the fact that you haven’t experienced managing debt, people that sell terrible loans or promote other poor financial decisions are trained to target people who don’t understand these things. Talk about a recipe for disaster.
Student loans, credit cards, and car loans are incredibly easy for young people to get stuck in well into their adult life. Yes, people that are 50 years or older are still paying off debt from when they were young. Do you want that to be you?
Are there good versions of debt? Absolutely.
Are you going to have access to those when you are 18? Probably not.
When you are young you need to avoid any and all consumer debt. Consumer debt simply put, is buying crap you don’t need to impress people you don’t even care about.
Do you really need that lifted truck that you can barely afford? No
Will, that hand me down car from your grandma get you anywhere you need to go just fine? Yes
It may not be the sexy thing to do at the time but at the end of the day, it won’t matter. If people judge you based on the things you have or buy, then those are people you don’t want in your life. Get rid of them.
6) Realize There Are Dozens Of Ways To Make Money
Of all the things on the list, this should be the most exciting. I don’t care if you are 18, 40, or 70, this is something everyone should realize. If you do happen to be 18 or close to it, then congratulations because you just won the lottery when it comes to making money.
You see, when your parents were kids or even your grandparents, they didn’t have many options. The trajectory of their life was pretty straightforward from when they were born. People now have access to so many resources that open up endless possibilities for what you can do to make money.
The combination of being able to get anywhere in the world in a day and the ability to communicate with anyone instantly is a game-changer. 20 years ago, the story read like this; you go to school, you find a job, and you settle down.
Now, that story still holds true for most, but understand that there are many other options. Here is a shortlist of things that come to mind in terms of making money:
- Do freelance work from anywhere in the world
- Sell a digital product online
- Start a blog or YouTube channel (obviously my personal favorite)
- Write a book (also a favorite)
- Start a small business from home
If you notice these ideas mostly stem around the idea of leveraging the internet. Yes, I’m a huge fan of using this amazing tool but it isn’t the only way. I know people that make a great side income from simply walking dogs or taking photos at weddings.
My point is you don’t need to have a college education to be entitled to making great money. Some of the wealthiest people in the world have done without it, so why can’t you?
If you aren’t convinced then check out some of these resources about making money.
7) Get A Job
While we are on the topic of making money let’s hit the one no one wants to hear. You need to get a job. All too often I see people do one of two things; the first is they simply believe they don’t need to work and when they finish school, their dream job will just appear. The second is that after school, they never get started because they are always waiting for that dream job.
Getting a job can be difficult but getting your dream job starting out is almost unheard of.
When you are 18 (or younger) I think you need to find some sort of job. It probably won’t be your dream job, but it can still be great for you. The benefits of having a job go way beyond putting extra money in your pocket.
First, they teach you people skills. Hanging out with your friends and understanding how to work alongside someone else is two completely different worlds. If you can build the soft skill of communicating and working alongside diverse people at a young age then you are going to set yourself up for a nice career.
The second huge benefit of getting a job when you are 18 is that you learn work ethic and the value of it. When I was young, I worked as a farmhand and I can distinctly remember bucking hay bales on hot Kansas day. For those of you not from the midwest in the United States, bucking bales is simply stacking up big bundles of grass or other plants used to feed livestock.
Anyway, this job sucked (to put it nicely) but I learned the value of hard work from it. I also learned that I never wanted to have to do it again if I could help it so I taught myself other skills.
Now I’m not saying you need to go work for a farmer to learn a good work ethic. What I’m saying is that you should get a job. It doesn’t matter if it is flipping a burger or a bank teller. I don’t care if you make $10 an hour or $20. A job is a job and there is a lot to learn from any of them.
8) Be Careful Who You Trust
Have you ever heard of a pyramid scheme? Well, if you have a Facebook or any other social media for that matter, you will soon see people promoting ways to make millions of dollars fast. It’s not a matter of IF it will happen but a matter of WHEN you will get contacted by someone looking to suck you into selling a crap product.
Yes, they are crap. Some phrases to watch out for are “I quit my job after I started selling (insert product here) because I’m making so much money” or “Join my team and watch your life change in 6 months” or “Hey girl, you would be PERFECT for this and do so well working for my company”. These people make money by taking advantage of the people that work under them. They will recruit and recruit and it’s never actually to help you out.
As I stated earlier when talking about debt, people are going to prey on you when you are young. They will promise you a way to make millions or never have to worry about money again. It’s all a big scam.
Have you ever heard the saying “If it sounds too good to be true then it probably is?”. Well, that saying holds especially true here.
All I’m asking is that you be careful with who you trust and who you give your money to. Once the money is gone, you can’t get it back.
9) You Don’t Have to Wait Until You’re 65 To Retire
I hinted at this when I was talking about the different ways you can make a living in today’s world but I want to expand on it more. Your parents, just like mine, have a mental model that you MUST work until you are 65 years old before you can retire.
This is simply not true.
What if I told you there are people who are barely 30 years old already retiring? Yes, it happens and it could happen to you. I will warn you that this isn’t for everyone and most won’t have this opportunity.
The traditional way to retirement is saving up enough money to quit working. This still holds true but some people are now starting to reverse engineer retirement. What I mean is they are deciding what they want to do for the rest of their life, then figuring out how much money they need to do it.
For example, the 30 something I mentioned above realized he could live off his savings and now owns an Airstream trailer and travels around the country. When you don’t have kids, a mortgage, and are extremely frugal then you can afford to do this and not work.
On the other hand, I dream about custom building my own home someday. This will obviously take much more cash and I’ll have to work longer but it is what I want. Ask yourself what do you want? All you have to do next is plan for it.
10) You Don’t Have To Have It All Figured Out
I’m thoroughly convinced that no one will ever have it 100% figured out. I think we live in a world where no one has any idea what they are doing and they just think they do and are great at faking it. When you are 18, you will DEFINITELY not have it all figured out.
I know this piece of advice strays away from the topic of money but hear me out. You are going to make mistakes. You might miss a credit card payment or overspend one month. It’s going to happen, but things happen right?
At the end of the day, you can only do the best you can. Educate yourself on the things you don’t know or understand and take action towards things you want.
Want to save $10,000 before you are 25? Figure out the math and do it.
Want to travel more? Figure out how much more you need to make and do it.
While we will never have it 100% figured out, you still have control of your life. You choose when you wake up, when you go to bed, who you hang out with, and what you spend your money on. These everyday choices, whether you know it or not, are going to add up to have big impacts down the road.
So, while you will never have it 100% figured out just do the best you can and take responsibility for your actions.
The Bottom Line
Well did you learn something? As I typed this piece, I realize some of the major mistakes I have made. I even went back and did some math on how much I would have saved if I would have opened a Roth IRA earlier, OUCH!
I’m not going to keep harping on the same things but at the end of the day keep seeking out better ways to do things, put those things into practice, and never be satisfied.
If you are already doing the things on this list then here are some challenges for you:
- Find a side income of more than $500 a month.
- Set aside double whatever you are in a Roth IRA or other retirement account.
- Shoot for a savings rate of 30%
If you can do those three things then you are an all-star and well on your way to financial freedom.
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