Credit Cards and Index Funds: Easy Ways to Promote Financial Health
By Lindsay Gallagher
We’ve been back at school for about a month--a month that for many of us might be full of takeout orders, Venmo payments, Lyft receipts, and even an impulse buy or two. However, just because we're in college doesn't mean it's too early or too difficult to start getting ahead financially. Here are a few tips I've picked up from my role models and my finance classes that aren't too restrictive - you can still set yourself up for success while enjoying your money and having fun with the little things.
Get a credit card that gives you 2% cash back and a $0 annual fee. The travel rewards cards and the clothing store credit cards are sexy, but they often require a pre-existi ng credit score to get a good deal, and cash is cash! You can use it on anything. Use it for all of your everyday expenses -- Starbucks trips, Kelly's tabs -- instead of a debit card, because you'll get 2% off of everything you buy on it. If you are lucky and have parents that have good credit, you can even ask them to add you as an authorized user on one of their credit cards, and you'll be able to absorb part of their credit score.
Another one of my favorite things about credit cards is the security benefit. If someone steals your card and tries to buy something, or if you pay for something and it never comes (this happened to me with a Domino's pizza a couple weeks ago), you're never responsible for the charge. All you need to do is call the company to dispute the transaction, and the professionals will take care of it for you.
But here's the important part -- you need to make sure you pay it off in full every single month, or the costs of having the credit card will far outweigh the benefits. You'll hurt both your credit score and your chances of getting a good interest rate when you try to buy a house.
If you want to increase your savings, stay away from Robinhood, cryptocurrency, and forex trading (especially the ones that advertise on Instagram) at all costs. They're part of a trend called the "gamification" of investing--a phenomenon in which investing can feel more like gambling than anything else if you keep checking your portfolio's performance all the time. If you want to "play" with your money and see if you can make it grow dramatically, maybe designate 10-20% of your savings to put in Robinhood to minimize the risk while still letting yourself have some fun.
Instead, open a brokerage account with a company like Schwab or Fidelity that offers $0 trades, but keep some of your savings in cash as an "emergency fund" just in case you need money quickly and can't wait for the stock market to open. Choose a low- or zero-cost index fund. Academic research shows that even professional managers can't outperform index funds over a long-term horizon if they try to trade individual stocks.
Don't feel like you have to save or invest all the money you make, but do try to make it a priority. A good rule of thumb is trying to save 20% of your income, and then use the other 80% for necessities (and also for the avocado toast and Shein hauls because life is short). Happy spending (and saving)!
