Mastering Your Money With The Master Of Finance Herself, Niddhi Rambhia
We sit down to talk about the secrets to financial literacy, credit, budgeting and investing.
What Does Financial Literacy Mean To You?
It means being able to budget and taking advantage of different available financing options without falling into any hidden traps. Essentially, it means knowing how to use your money wisely.
When Did You Start Understanding Financial Literacy And How Did You Grow Your Interest?
I felt that I was always good at numbers and math growing up. As I got into college, I opened up my first credit card, and the hands-on learning helped me understand a lot. Through this, a lot of different avenues started opening up, from surrounding myself in similar environments and people who were curious about similar things. My parents were supportive of my curiosity, and later, I was able to start helping them and teaching them about things that even they didn’t know about. After a certain point, it was a way for me to give back to them. So that was nice.
A lot of people in their 20s don’t understand the value of a credit card. MUCH of their hesitance is due to fear. I was hoping you could expand on the importance of credit and what it does for the long haul.
Credit cards are very important, whether you want to buy a car, own a house, or even open up another credit card. You need a credit score to do these things. A credit score is telling your lender how dependable and trustworthy you are in making your payments. The better your credit score, the interest lower rates you end up paying.
One common misconception I see around young adults is that they treat their credit cards like magic money. Say a credit card has a limit of $10,000, doesn’t mean you should spend $10,000. You should be spending on your credit card what you have in your checking or savings account because that will be where you will be pulling your money. With credit cards, you should have a management mindset to not overspend and treat it as if you have the money.
For those who do start off using their credit as “magic money”, are there ways to repair their bad credit?
To start, I would pay off the credit debt as soon as possible. Most credit cards have a high annual pay percentage rate (APR) of about 20–25% and that builds every month. So, it’s important to get that down to 0 and make sure you make your monthly payments on time.
Additionally, you should not be spending over 25–30% of your credit limit. If you do go over that limit, make sure you pay it off before your statement. It’s essential to know what your credit is built from: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).
Changing topics, I wanted to touch on budgeting. Since you have been an avid budgeter, what are the best ways to create a budget if someone has never done it before?
Personally, the 70/20/10 strategy has worked best for me. It’s where you put 70% of your monthly income into necessities like groceries and rent, 20% towards recreation, and 10% into your emergency savings/ “rainy day” fund. I am not an overspender or impulse buyer, so I have put more into my savings fund.
It’s helpful to analyze expenses on a month-to-month basis to see where you can make improvements or which areas you are doing well in. It’s also important to acknowledge you are young in your 20s. So a month where you are traveling is going to be more expensive than when you are home. It’s important to control where moments you can cut back and save a little bit more.
What tools did you use when first getting into budgeting? And what do you use now?
I started with an Excel sheet and still just use an Excel sheet. I plan it year by year, and change it according to how my salary grows or if I have more things to manage with my purchases.
When I first started budgeting, it was at my first job. I would see how much I would earn at my first job, and put aside a certain amount into my savings, and gauge how much “fun money” I generally needed. I feel like I still have that mindset now, so I don’t mindfully budget and have my savings on auto-payment.
A lot of times, people develop a mindset that if I make more money, I have more things to spend. At the end of the day, you are going to be stuck in a cycle of having the same amount of money left over. If your income is growing in the professional world, your spending habits shouldn’t be changing drastically. Budgeting is important, once you start doing It enough, it becomes a habit in your day-to-day life.
Why should someone in their early 20s think about saving for their retirement now?
Truthfully, because we probably will not have Social Security when we retire. Like that is very doubtful and reason number 1.
The earlier you start your savings, the more money you will have because of compounding interest. If you start savings today, your $500 is going to be growing until you are 65 years old, versus if you start in your 30s/40s. You are losing money from years before then when your money could be making a passive income for you. So the earlier you start, the better.
Investing is a form of savings and today there is a huge hype around cryptocurrency. For someone who wants to learn more, where would be the right place to start?
I love Acorns. It’s an app that you can use to invest. You put in your risk portfolio, like if you are a riskier investor (high risk, high reward) or if you want to be more conservative (low risk, low reward). From there, the algorithm will put together a little algorithm of stocks and bonds. Then you can customize if you want to make a one-time or recurring investment.
Another option for a beginner would be to invest in the S&P 500. This is the top 500 publicly traded companies. The main key is not having all your eggs in one basket. For example, if you put all your money into Apple or Microsoft, and that stock drops drastically tomorrow, you will lose a lot of money. But when you put it into the S&P 500, you may not lose as much because if one stock drops, another one can average it out the next day to average it out. Over time, the S&P 500 has yielded its investors around 10% every year, and that builds up. I’d say that is also a safe bet.
How could someone start investing in the S&P 500?
You would have to open a brokerage account. To my knowledge, the most common and user-friendly ones are Robinhood or Acorns. It is easy because it allows me to see how the numbers fluctuate or choose and change my investment strategies.
If you want to be hands-off, you can invest through a brokerage account like Charles Schwab. They have specific people who pick your portfolio and trade stocks for you on the day-to-day. The downside is that you have to pay them a fee, so that’s something for you to keep in mind.
If there is someone who doesn’t have the financial background you have, where do you recommend them to start and build their education?
Honestly, there is so much information on Google, Youtube, financial books, etc. We are in such a technologically advanced world where you have all the information literally at your fingertips. If that doesn’t work, don’t be afraid to reach out to friends or family that can elaborate on your questions.
Since you mentioned technological advancements, while there is so much good on Google, there is also a lot of false information that is shared. How can you gauge which sources to trust and how to differentiate right vs. wrong?
I think it has a lot to do with where you are receiving your information. If it is a simple question like which credit card is best, you will get 100’s of search results saying “This card is the best” or “This card will give you the most points”. At the end of the day, you use the knowledge from the internet as an asset and put your own thoughts to decide which is best for you.
Say you are looking to save for a house, maybe the 70/20/10 budget hack is not the best for you. Maybe you want to change it to 50/30/20. All is dependable on your needs and adjusts with each person. So just take all the information and apply it to your life as best as you can.
Do you have any closing thoughts?
Don’t be scared to venture out into different things, such as stocks or new budgeting techniques. You might lose money but that is a part of life. You should take anything you do as a learning opportunity.
Even with credit cards. For example, if you go into debt, that is not the end of the world and you can come back from it.
It’s important to master these skills as tools to benefit your future. Make the most of your money, and make your money work for you.
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