Transcription
Hi sir, welcome to Con Bank. How can we help you today?
I'd like to open up a bank account.
Great. Would that be checking or savings? Uh, or do you prefer high yield savings?
A high yield? What? And would you like to open up a credit card as well?
Uh, maybe wait. Why?
So you can start building a credit score.
Credit score? Yeah, it's important to have one if you want to take out a mortgage or loan one day.
Loan? Mortgage? What does that mean? Or actually, do you want to open up a brokerage account so you can start dollar cost averaging into index funds?
Bro, I don't think you're speaking English.
Yeah, that definitely didn't sound like English. So I have a bone to pick. Our schools do not do a great job of teaching students about money. Now, granted, some schools do have personal finance courses, but they usually don't go beyond basic concepts like budgeting. In this video, I'm going to cover some of the concepts that school does not teach you about money. Honestly, it surprises me that we don't really learn about this in school.
So can you tell me the difference between a debit card and a credit card? And no, you cannot look at Google.
All right, so I'm going to go ahead and put this into very simple terms for you. When you're using a debit card, you're spending your own money. And when you're using a credit card, you're spending the bank's money. Now, you might be saying, "Well, gohart, just give me the credit card. Obviously, I don't want to spend my own money." Well, now, that's the thing. You're going to have to obviously pay the bank back. They're not just giving you free money. In fact, they're going to charge you for that money through something called interest. So every single month, the bank is going to send you a credit card bill. And if you pay that bill back on time, fantastic. You don't have to pay any interest. But if you do not pay the bank back on time, they're going to charge you a whopping 15 to 25% interest. Meaning, in other words, if you spend $100 of the bank's money and you don't pay them back on time, you are not going to have to pay them $120 in return. Honestly, that's why credit card debt is one of the toughest forms of debt because the interest is just so aggressive. And I mean, that's the biggest mistake young people make. They'll get a credit card, they'll get super excited, but then they'll overspend, they'll miss their bills, and they'll accrue a bunch of credit card debt.
Okay, so now you might be thinking, "I'm just going to use my debit card to avoid this issue." Well, it's not that simple either. See, there is a benefit to using your credit card. So when you use your credit card, you're building something called your credit score. And in other words, you can think of this as your trustworthiness score. So the higher your credit score, the more trustworthy you are when it comes to borrowing money and paying your bills on time. And the lower your credit score, the less trustworthy you are. And the reason this score matters is because one day you might want to borrow money from the bank, for example, to buy a house or to buy a car. And one of the first things the bank is going to look at is your credit score to see if you're reliable.
All right, so here's my advice. If you're young, you obviously want both of these. And I recommend that you use your credit card semi-regularly, but only spend as much as you know you're able to pay back. This way, you're less likely to accrue credit card debt while also building your credit score. And here's another hack: set up autopay with your credit card so you're less likely to miss your credit card bills.
Okay, so I hope that was. Wait, what's this? I think I just got an email. I just earned 500 travel points. Wow. Okay, so it looks like we're going on a vacation for free.
Well, how does that work though? So credit cards have another benefit called rewards. And man, the more I talk, the more I realize credit cards are so tough if you use them the wrong way, but they are so beneficial if you know how to use them the right way. So rewards are benefits that you get for using a credit card. The most popular type of reward is known as something called cashback. And it's literally there in the name. If you spend money on your credit card, you'll get a small percent of that money back in cash. Now, the question is, how much cashback, right? Because they're obviously not giving you a ton. It depends on the category. So for example, some credit cards will give you 3% cashback if you spend money on gas. Others will give you 2% cashback if you spend money on groceries. And some will just give you 1% cashback all around. The percents and the categories vary all across the board. You can also get more exciting rewards like travel benefits. This includes free flights and free stays at hotels. And here's how that works. For the credit cards that offer travel benefits, they usually have a point system. Meaning that for every dollar that you spend, you get a certain number of points. And then you can take these points and redeem them for these travel benefits. Now, the whole caveat here is that different credit cards are suited for different kinds of benefits. So for example, if you travel a lot, you want to look for a credit card that has significant travel benefits. If you're more of a general spender, then you might look at the cashback benefits. I'm going to go ahead and leave some recommendations in the description of this video. But in the meantime, let's go on our trip.
All right, y'all. So we have made it to our destination. The bank. All right, y'all. This is the exact opposite of a trip. It is absolutely freezing right now. And I don't know why I didn't bring my jacket. But here we are at the bank where I'm going to tell you about how to open your first bank account.
All right, so you know all that cash that you're keeping stuffed under your pillow? Well, yeah, one day you're going to have to bring all that here to open up an account. I'm going to briefly explain how that works and then tell you what I recommend you do.
Okay, so when you open a bank account, chances are you'll open both a checking and a savings account. A checking account contains the money that you're going to spend, and it's connected to a debit card. And then a savings account, on the other hand, as the name implies, is the money that you save, and it's not connected to a card. So what's the benefit of a savings account then? Interest. Banks will pay you interest to keep money in a savings account. But how much money? So let's say your savings account has an annual interest rate of 0.01%, which is fairly standard. That means after keeping $1,000 in your savings account for an entire year, you will only earn 10 cents in interest. And no, I am not joking. It's kind of sad how banks will advertise savings accounts as a viable way to earn interest. For that, you'll want to turn to something a bit better, like a high yield savings account.
So now the question y'all might have is, well, what's a high yield savings account? Well, as the name implies, it's a savings account with a higher yield. So instead of that 0.01% interest, which is just crazy, by the way, you might earn 3 to 5% interest. So for example, let's say the yield is 5%. Instead of 10 cents of interest on $1,000, you'll instead earn $50 in interest. So what's the catch? And by the way, y'all, I hope you realize that if anything in this world sounds too good to be true, it probably is. So yes, high yield savings accounts offer significantly higher yield, but this often comes with minimum balance requirements or limited withdrawal options. The rule of thumb is to use a normal savings account for immediate access and convenience, and to use a high yield savings account for longer-term financial goals. But the more important question to be asking here isn't which savings account should I be using, but instead, how much should I be saving in the first place?
All right, sit up, sit up, sit up. Welcome to personal finance, Gohar's guide edition. So let's talk about saving money. Let's say, for example, you have $1,000. Now, are you going to spend all of this $1,000? Of course not. And if you said yes, just know that I'm a little disappointed. But the thing is, you're not going to save all of this money either. See, now, some of this money has to go towards your needs, for example, bills, groceries, and gas. And if you're one of my seventh-grade viewers, you're probably sitting there saying, "Gohar, I have none of those needs." Don't worry, this part of the video is still going to be helpful. And now, another part of the money is going to go towards wants, for example, maybe a brand new pair of sneakers, a brand new video game, or maybe a Gucci belt. And then, of course, the remaining part of your money is going to go towards savings for the future. But see now, the looming question is, how much money should go into each category? Well, for that, we can turn to our trusty rule of thumb, the 50/30/20 rule. So around 50% of your money should go towards needs, about 30% should go towards wants, and then about 20% should go towards savings. So in our example here, that's about $500, $300, and $200 bucks. But see now, that rule might not be super helpful because you're just a student. You probably don't have $500 worth of needs. So what should you do with that extra money? Put it towards savings. So instead of the 50/30/20 rule, we might have the 40/30/30 rule. Or if you're feeling extra wise, we might even have the 30/30/40 rule.
Okay, great. So the point here is that you are probably saving a decent chunk of your money. But now, where should you save that money exactly? We have a handful of options. We have a normal savings account, a high yield savings account, and then we also have an investment account. But what the heck are those?
Okay, but before we jump into that, let's talk about starting a small business online, which is where the sponsor of this video comes in. Build Your Store. They've built something interesting: an AI tool that helps you set up a Shopify store without the technical hurdles. It handles that initial setup process that often stops people from even trying. Let me show you exactly how to get started. First, register and choose your niche on the Build AI platform. Second, set up your Shopify store. You can start with their basic plan for just $1 a month for the first 3 months. Third, install the Build Your Store app to let the AI create your unique store look. This isn't a magical solution. You'll still have to learn about marketing, customer service, and business basics. But this does remove that one huge barrier: the technical setup. Their tool handles the store layout and the initial product selection. And through their partner, AutoDS, you also have a supplier to fulfill all your orders. What I like about this tool is that it lets you focus on the more important and fun parts of building a business. So while you're out there talking to customers and developing your entrepreneurial skills, this tool helps you get set up with professional product descriptions, mobile and desktop optimization. And they even give you a free course to help you understand the basics. Head over to the link in my description to set up your store and start making some extra money.
No way, no way! The Microsoft stock just went up by 1%. Everyone sell, sell, sell! Wait, no, it just went down again. Go ahead and buy, buy, buy! All right, now, this is not what I mean by investing. It is very hard to predict when certain stocks will go up and when certain ones will go down. In fact, even professionals on Wall Street haven't cracked the code. So please don't get caught up in all this day trading nonsense. Instead, we want to invest our money in a safer way through something like an index fund. Of course, even an index fund is not a guaranteed way of making money. And if there's anybody who tries to tell you there is, just know that they are lying to you. But an index fund is still a lot safer than trying to predict when stocks will go up or down. But what is an index fund? Let me break this down very simply. When you put money into an index fund, you're not just putting your money towards a single stock, but rather hundreds of stocks, which reduces your risk. Think of it this way: instead of investing in a single company like McDonald's or Apple or Google, you're investing in a snapshot of the market as a whole. And whereas the value of individual companies looks a lot like this, the value of the market as a whole looks more like this. More specifically, it has increased by about 10% annually for the past several decades. Now, again, that's not to say there isn't any risk associated with index funds. You could put money into an index fund and very much be in the red for the first couple of years. To reap the long-term benefits here, the idea is to invest your money and to keep it there for years and years, if not decades upon decades. So if you're young, just please listen to me for a second here. I know it is very difficult to think about the future, to think about a world where you might be 40, 50, or 60 years old. But I promise you, if you invest even a tiny amount of money into an index fund every single month, future you is going to be incredibly grateful.
So the magic of investing lies in something known as compound interest. In other words, it's when you earn interest not only on whatever you've invested but also on the interest that you've already earned. I know that probably sounds like a lot of nonsense, so let me go ahead and illustrate that for you. Let's assume you're investing $100 every single month into an index fund. The total amount that you invest might look like this on a graph, but the total amount of interest you earn will look more like this. It'll increase exponentially. And the benefits really start to kick in when you've held your investments not just for a few years, but for a few decades. Now, if you want to put your money into an index fund, you're going to have to do through a brokerage like Vanguard or Fidelity. I'll tell you right now, I personally use Vanguard and know they did not sponsor this. But look, I think this convo is getting to a point where you should probably just talk to your parents because I don't want to get into the nitty-gritty right here. I mean, unless they're okay with me doing so in a future video or maybe even a future newsletter. So subscribe if you haven't already.
Okay, so you're going to put your money into an index fund and not think about it for years. But do you know what you should think about? Probably a lot sooner: college. Today, I'm at Yale University, which is not where I went to college, but Lowy would have loved to go here. Let's go take a walk.
So let me tell you, college towns are pretty expensive. If you want to go out to eat, that's an easy $20 to $30. Then if you want to Uber somewhere, that's another $15 to $20. And then if you add in school supplies and textbooks and everything else you might need, that might be another $100 to $200 a month. So that's why in college, you need to take advantage of two things: free food and student discounts.
All right, first, let's talk about the free food. Throughout the school year, there are going to be a ton of events that offer free food. Go to them. And if you're too nervous, just bring a friend. These events are great because not only will you meet new people, but you might also stumble upon activities that you genuinely enjoy. And also, here's a little secret: if you stay until the end of these events, the organizers might just pack up the food and give away all the leftovers. I know that strat sounds a little nuts, but college is the one time of your life where you can live pretty frugally and not be judged.
All right, and second, let's talk about student discounts. An .edu email is probably one of the greatest assets that you can have in this economy because it can unlock so many different discounts. For example, Spotify has a student plan that includes Hulu. GitHub offers its Pro account for free. Amazon offers a discount on Prime. Tons of museums also offer discounted, if not free, admission. If you're going to school in Boston, by the way, be sure to check out the Museum of Fine Arts. And then, of course, you have different clothing brands, department stores, and the list goes on.
All right, y'all, so that do it for this video. I hope the advice here genuinely helped. If you enjoyed, be sure to like and subscribe, and I'll see you again next week.