Financial Literacy – Credit Score, How it Impacts Your Choices

At 18, most of us start with a fresh credit score. We have no idea what it means but we are excited to be able to use it as an adult. Payments are missed, items are bought, and without even realizing it you directly impact your future options to finance important items. The reason might be that you are just trying to make it to the next check, or you wanted to give everyone a great Christmas, or your car was past its prime. Creditors do not care why you want the money, they just want to absorb you into the debt cycle. Understanding what makes up your credit score is crucial to making it work for you.

When I was 18, I had no idea what made up a credit score. Stubbornly, my decision was to use it as soon as possible. Man, it took years to undo what 18 year old me did. Credit scores rely heavily on payments made and outstanding amounts owed. My credit was showing red in both categories, VERY RED. What did I learn? Pay bills on time and live within my means, oh and get a much better paying job than being a cook at McDonald’s.

Nerdwallet video providing a general understanding of credit scores.

Many of us have heard that checking your credit too many times hurts you score, and this is marginally true depending on who is doing the checking and what the reason is. In reality, your credit score is constantly changing and being updated as new details emerge around the factors in the image above. Credit scores above 750 get preferred rates on auto loans, mortgages, and credit cards with better rewards. The catch-22 with credit scores is that you have to have debt for the score to increase. It seems counterintuitive but the right kinds of debt increase your score.

Credit Score Do’s

  • Open credit cards and pay full balances of credit cards each month.
  • Establish several credit lines and build long histories. (mortgage, auto loan, and a few credit cards)
  • Utilize interest-free credit lines for purchases.
  • Lower Debt To Income Ratio, requires reducing outstanding debts and living within your finances. (Debt to Income is calculated by taking your bills and dividing by your pay)

Credit Score Dont’s

  • Close old credit cards no longer used. Keeping a card open with $0 balance will help your score.
  • Open too many credit lines.
  • Pay only monthly minimums.

In short, if you want your credit score to increase you have to use credit. Credit scores can be repaired over time, but it’s far easier to maintain a good score than to rebuild a broken one.

Financial Literacy – Creating A Budget

Financial Literacy is not rocket science. We can all understand finances and be better at them. Budgeting, credit scores, credit lines, and debt metrics can seem like foreign languages as a teenager. In this financial literacy series, I want to give a high level understanding of important topics. Budgeting will be the first of the series, because everyone loves budgets. (Read this as a playful understanding you may not actually love budgets)

Planning how to utilize resources will directly impact you. A budget is a crucial component to planning. Budgets create your expectations on what will be available for use and the applicable limitations around resources available. Your budget has to reflect what you prioritize and be reasonable enough that you can firmly stick to it. The below list provides steps to beginning your budget, remember a budget regularly needs to be adjusted for circumstance.

Easy Steps to Prepare Your Budget

  • Approximate your available resources.
  • Prioritize your spending.
  • Create a Template. (Office/Google Sheets Pre-built options tied to pay frequency)
  • Input realistic spending.
  • Firmly enforce budget. (Honor system, you’ll know if you stuck to this)
  • Adjust as needed to reflect actual spending

As a finance professional, I admittedly like a good budget but I have doubts on whether everyone else likes them. The truth is, a budget is your grocery list. In order for a grocery list to work you have to know what you have currently in the fridge, and what you want to eat in the future. Budgets aren’t hard to make and they will provide insight into how you are spending your hard earned money. 

What’s Your Why? – Unlocking the Reason to Succeed

Every driven person should have a ‘why.’ A why is the reason you wake up early, stay late, and continue to reach for more when nothing is left. Your why will remind you on a 10-month military deployment that you have to keep giving everything. A strong enough why will keep you motivated when you are at your lowest point. I keep a picture of my wife and children near me at all times as a reminder. Reminding myself of the why helps me remember that working harder is possible.

Eric Thomas is the first person I heard reference finding your why. The video in this article specifically enhanced my focus. Eric and I have not met, may not ever meet, but I will be grateful for the lesson. Defining the reason for success is a very important process. If you don’t have the reason you want to succeed it becomes much easier to give up. After all, without a reason you are only letting yourself down. When you build the deep connection of a personal reason attached to your success, it becomes incredibly difficult to give up.

Start by thinking of the things you can’t live without. Trim the fat from this list, then really think of the one thing that is your motivator. Make sure it’s something deep, tied to your core, and work like hell to satisfy that why. In my case, the original why was to be better than my father figures. Personally, professionally, and in every way my mind could imagine. If they ran faster than me I’d be mad. I’d measure when one bought their first house, got their first new car, earned a certain income. Admittedly, this may not have been a healthy way to drive myself but it was effective.

My why changed with marriage and children. They became the why. Everything I’m doing is to set them up with a better life. A why doesn’t have to be static. In my opinion, it should be a dynamic, living, breathing, developing cause that you are willing to fight for. Define your why and see how it changes the years, months, days as they go by. 

Solutions, Not Problems

Problem-solvers are sought after in every business. The nature of business is to solve problems internally to provide quality products and services to your customers. Problems in the business world aren’t on paper, or corrected by a professor. They are messy, imperfect, and complex. A person with the ability to sift through information and solve these types of problems are highly valued. If you want to be a future leader of a business, develop this skill and have the abilitiy to contribute to teams solving problems.

Identifying a problem is quite simple. The vast majority of people are very good at knowing a problem exists. Far less people are willing to work at the solution. Even less are willing to make a decision based on the solution they worked at. Unfortunately, humans become paralyzed by fear of being incorrect. In the words of Wayne Gretzky, “you miss 100% of the shots you don’t take.” Take shots in meetings and conversations. Ask questions and learn. Offer suggestions and get recognized, or better yet be recognized for providing a customer value.

  • Identify the Problem (Easiest Part)
  • Think through several solutions. (Find a team to discuss with)
  • Prepare a visual to assist with understanding the options.
  • Be ready to mobilize and execute the solution.

Business problems will be solved. Be the person who is part of the solution. Remember we all learn from practice and repetition. Solutions will fail. Keep attempting or being part of a group attempting to solve problems.

Find Ways to Add Value

Most of us hear the words ‘add value’ and we apply this to corporations or businesses. The truth is, we should all be searching for added value. Is this corporate speak? Absolutely. Even so, it does not make this any less impactful when practiced by individuals. If you are looking for ways to improve, it can happen very simply. Do things daily that add value.

The idea of searching for value should be a lifelong mission. Value is determined by the individual. Value may be meditating, it may be learning a language, or it could be cleaning your house. Identify what you value and prioritize it. Prioritizing things valuable to you will enrich your life. Defining value is very personal. Remember the most scarce resource is time, use time wisely and carefully.

Establish micro goals and complete them regularly. Find ways to complete tasks and progress toward a larger goal. Little victories daily turn into a state of preparedness. Being prepared for opportunities often determines ‘winners’ and ‘losers.’ We never know when a moment will present itself that could change our lives.

  • Identify small tasks to complete early and often each day.
  • Create a mindset that requires full effort.
  • Add 1% more value to each day. (Personally and professionally)

Personally, I ensure I clean my home office desk each night after a remote day at the office. Starting the next morning with a clean slate is very valuable to me. It helps start each day off with a victory. Cleaning your desk may sound trivial but the little victory helps get my day started toward success. Consider what you could do to help yourself. Find value.

“Do something, even if it’s wrong. Just keep trying”

Tyson Smith

Get Back Up

In your roughest moments, the most essential thing to do is to GET BACK UP! Every person has been down. Every person has had challenges that seemed too difficult to overcome. What makes people who succeed different? They GET BACK UP!

In our early 20’s, we are growing and identifying what place we hold in society. Every journey is different and comes with challenges. The challenge for me was to find my way out of mistakes made. Overcoming my own struggles by maintaining a positive mind and thinking past the present….while also getting better every day.

Step 1 is to establish that you will not be stopped and continue to get back up regardless of what is put in front of you. Dark nights can lead to glorious bright days. Do not be afraid to pursue whatever your most ambitious dreams are. If you decide that you cannot be stopped, you won’t be.

Personally, it started with a smart decision. Join the military. It wasn’t immediate. A job was needed to get out of the car being lived in. Pride wouldn’t allow me to walk into a recruiting office without establishing myself in an apartment. Over a year passed. Step by step things were working. A humble job as a cook, a small apartment for myself, and meeting friends. The opportunity to work through an incredibly low moment created a mindset I still find useful today.

Do not go gentle into that good night.

Dylan Thomas

Starting the Journey

In the beginning, there wasn’t a goal. The only objective was to not repeat mistakes of the past. My early adulthood had left me with terrible credit, collection agencies calling, and a nomadic lifestyle of moving apartment to apartment. At the lowest point, an Oldsmobile Delta 88 was being used as a ‘mobile home.’ Picking myself back up from this required grit, saavy, and luck.

Over the coming blogs we’ll go over key moments, lessons learned, and the requirements for finding a way to climb back. Life doesn’t give everyone the same resources but you do have time and opportunity. Let’s discuss how to use them and find a way to succeed regardless of situation.

First Step Fumbles

The original draft of this post had a typical introduction to what this blog will be about. After three paragraphs, it was objectively terrible. Truth is, the blog will be about varying interests. Topics will primarily be football, boxing, wrestling (WWE), entertainment, finance, and other subject matter depending on what comes up. There may be a few fictional stories along the way.