Investments, Credit Mastery, Savings for College and Credit Cards Rewards
Our second arrival to the US came with lots of changes. In particular, the birth of Academic Baby, our new working situation and our plan to settle in the US in our late 30´s implied a whole new level of planification. The financial load towards a retirement strategy, planning our long-term housing and saving for academic baby´s education is a complex challenge that requires a multifactorial strategy. For this we applied what both of us have been trained for… “Identify a problem, read available information, generate a hypothesis and define a strategy to solve the problem”. In this post, both of us (Academic Mom and Dad) will explain our plan to reach financial freedom for the future (and hopefully not fail in the process).
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My strategy (Academic Dad) is based on the experience of what I´ve called ”my finance guru” Ramit Sethi. His book, "I Will Teach You To Be Rich," shows a comprehensive roadmap to financial mastery. SPOILER alert! I will share just a few examples that I am using because they make sense to me and suit the stage of my life (unfortunately, I´m not 25 anymore).
Academic Mom’s guru is Erika Kullberg (@erikankullberg). She even took a course (3D money) where Erika teaches many of the same tips that Ramit explains but sometimes with a different vision.
Investing for our future
Budget: Erika and Ramit’s both say that it’s important to stick to a budget but without restrictions. For example, if you like eating out, do it! But try to cut down other expenses, maybe a recurring subscription you forgot about, maybe a gym fee that you don’t use. Study where your expenses are and create categories to organize and optimize your spending
Start Early (not our case), Invest Wisely: Experts coincide that the journey towards financial security begins with saving and investing. Time is our greatest asset when it comes to investing. The earlier you start, the more you can benefit from compound interest. We started this journey at 39, so we need to be aggressive in saving and investing. We're still in the adaptation process to learn how much we can save monthly. We started investing in a 401(k) (retirement plan) as soon as we started our new jobs. However, ideally we should max the annual amount in both a 401(k) and in an individual retirement account (IRA) as suggested by Ramit and Erika (again, the sooner you do that, the better).
The take home lesson is to invest a fixed amount of money at regular intervals, regardless of market fluctuations. This shields you from the emotional rollercoaster of market volatility.
Diversification is Key: There is no point in having your money in a checking account since it is “not working” there. Our gurus recommend diversifying investments by using saving accounts and buying stocks. The stock market can be volatile, so it is not recommended to put all the eggs in one basket. Diversify your investments across various asset classes, such as stocks, bonds, and real estate (if possible), to minimize risk and maximize returns. "Even sending $50 dollars a month to a high yield savings account for 30 years is much better than having that money in a checking account that won’t gain interest and will succumb to inflation". Brilliant! Now imagine the same scenario buying a few stocks and/or bonds here and there (again, for 30 years). About what stocks to buy you´ll have to read Ramit’s book or take Erika’s course because there are different options and it’s not one size fits all. If I was able to understand this and start investing -I am completely ignorant in this field-, then you can do it!. What is the secret? Building wealth in the long run.
Building Up Your Credit Score Academic Dad: As we’ve mentioned before, we lived in Boston for 4 years and then we moved back to Chile (lived there for 3 years), and then we moved back to Boston. Before moving to Chile I paid my credit card in the US and I closed my checking account. However, I made a terrible mistake, I forgot to close my credit card and at some point an annual subscription was renewed and I had no idea about that. Debt accumulated and ruined my credit score.
Start by obtaining a copy of your credit report to see where you stand. It was only when I got here last year that I realized that my credit score was a mess. I was basically a delinquent for the bank, an initial debt of around $USD 25 ended up being almost $100 including fees and fines.
Understanding the factors affecting the score, including payment history, credit utilization, length of credit history, new credit inquiries, and types of credit accounts is essential to have a good credit score.
Why is it so important to have a good credit score?
The credit score is the way that financial institutions use to evaluate the risk of lending you money. In my case, I had a very low credit score so I was a risky client for banks. An example was when we wanted to get a loan for a car. Since I had this black stain in my credit history, the interest rate that they offered me to get the car was ridiculously high. We are lucky to have Academic Mom in our team, her wisdom and organizational skills have allowed her to build up an “excellent credit score” which means a lower interest rate, namely paying less money during the time that we will be paying the loan.
Academic Mom: When I got to the US for the first time, I was only offered a secured credit card. This card requires you to provide a security deposit in order to open an account. I decided to maintain my debit card and pay everything with debit. Then, when I got to the US a second time, I needed a credit score to get a car lease but to my surprise, even after living in the US for two years I had no credit score. That’s because the credit score is based on credit! It doesn’t matter that you use your cash wisely and are able to spend with your debit card. The moment you need a loan your credit score won’t exist and financial institutions will doubt to lend you money.
My first card was a discover credit card. It was accepted in the majority of stores and after one year they matched my cash back! That was a nice surprise. When I built a decent credit score I opened a credit card with my bank account. Now, I know better and there are better choices for credit cards out there (see below).
Our strategy to build up credit score.
Pay Bills On Time: Consistently paying your bills on time is the most effective way to boost the credit score. We follow Ramit’s and Erika’s advice which is setting up automatic payments. It takes no time and we will never miss a payment due date again.
Manage Credit Utilization: Keep your credit card balances low relative to your credit limits. Ideally, you should aim to use less than 30% of your available credit. High credit utilization can negatively impact your score.
Diversify Your Credit Mix: Having a mix of credit types, such as credit cards (no more than 3), loans, and a mortgage, can positively influence your credit score.
Do not rely on credit cards if you won’t pay them in full: credit cards can be a double edge sword. You can use them to your advantage and get points that you can redeem for many things, travel, store credit, cash back, etc. However, you need to know yourself and if you’ll only accumulate debt just paying the minimum payment every month, this strategy is not for you. Please think about it before opening a credit card.
Our choice for Credit Cards for Maximizing Rewards: Built and Chase Sapphire Reserve:
BILT Credit Card: If you're looking to build or rebuild your credit, the BILT card is an excellent choice. It offers a simple and transparent fee structure, making it easy to manage your finances. One of the most attractive aspects of this card is that you can use it to pay the rent and get rewards points. These points can be redeemed on travel, amazon credit and even count towards a down payment if you want to buy a home in the future. Responsible use of the BILT card can help improve your credit score over time.
Chase Sapphire Reserve: this card is renowned for its generous travel rewards. Enjoy benefits like travel credits, airport lounge access, and accelerated earning on travel and dining purchases. The Ultimate Rewards program lets you redeem points for flights, hotels, and more.
Saving for College: Securing Academic Baby's Future
College expenses in the US (including housing, tuition and fees, books and other expenses) can add up to $100,000 or even higher. For this reason, it is very important to plan ahead.
U. Fund 529 College Savings Plan: A few weeks after Academic Baby was born, a social worker contacted us and offered to open a 529 account for her. We did the research and we decided to go for it. A 529 plan is a tax-advantaged savings account specifically designed for education expenses. Contributions to a 529 plan are tax-deductible in many states, and withdrawals for qualified education expenses are tax-free.
Scholarships and Grants: We plan to encourage our child to apply for scholarships and grants. There are countless opportunities available based on academic achievements, extracurricular activities, and more.
Teach Financial Responsibility: Instilling good financial habits in our child from an early age can make a significant difference in their ability to manage money wisely in college and beyond.
Conclusion
Investing for the future, building a strong credit score, and maximizing credit card rewards are our strategies to secure our financial well-being. Whether you're dreaming of a comfortable retirement, saving for your child's education, or simply achieving financial freedom, following these steps have allowed people to be on the path to success. Remember, the key is to start early, stay disciplined, and make informed financial decisions. If you did not start early like us, it is recommended to do it as soon as possible and to try to maximize and diversify your investments. With the right mindset and a well-executed plan, your financial future is bound to be mind-blowingly bright!
Disclaimer: Information on academic-family.com is provided for informational purposes only. Our site does not intend to be a substitute for advice provided by a financial advisor, accountant, lawyer or other financial professional.
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