Getting Started Young: Your Path to Financial Freedom

In the past, we have written posts about financial mistakes. These articles are helpful; they allow those of us on the brink of a financially disastrous decision the opportunity to foresee the future, based on the problems encountered by others. However, these stories really don’t lay out what to do in an ideal life journey through finances. So let’s take a look at how to ensure excellence in finance when the road ahead is long.

A Young Couple, a House and an 813 FICO Score

When I worked in mortgage lending, I was never more impressed with anyone’s credit than I was with a young married couple. Sure, I had seen FICO scores in the 800s before, but I had never before or since seen a pair of perfect credit scores on a couple in their early twenties.

Of course, being the chic geek that (I hope) I am, I had to find out more about how a couple of 23-year old, fresh-faced youths (yes, I am dating myself here…) could manage the financial wizardry required for perfect credit from their dorm rooms, and this is what I found:

  • They had Credit Cards: Each person in this party of two had a credit card since mid-teens. That being said, both used them as tools to build credit, not as open invitations to charge that unaffordable pair of shoes. Instead, these savvy teens used the cards for affordable necessities and paid them off each month.
  • They were Employed: Both worked since they were old enough to collect paychecks. Through high school and college, this pair bussed tables, wrangled calves, and generally worked their fannies off to make a few bucks.
  • They Saved: Squirreling away cash allowed each person in this dynamic duo the opportunity to build a sizable savings account by the time collegiate efforts were complete.
  • They Found Free Money: Each of these young ‘uns also figured out they could basically be paid for their grades: landing scholarships and grants allowed them to attend college for free or nearly for free. This also meant they could squirrel away even more cash into the post-college savings accounts.

Continue to Save for Large Goals

This pair of financial wizards met and married young, and by 23 years old, they were sitting in my office, waiting for home loan approval. They didn’t have to wait long: their scrimping and saving (and general credit-savviness) landed them the starter home of their dreams. With their $40,000 down payment and combined 813 credit score, this young couple bought a small house with a $60,000 15-year loan.

They bought well below their means so that they could continue to save for things that were really important to them: early retirement, a vacation home, and a few children. With priorities set, they were able to lay the groundwork for a lifetime of 813 FICOs.

If you or a loved one are just beginning your financial journey, take heart: you too can make all the right choices to guide you through life with excellent credit. Not all hope is lost for those of us who have made some financial mishaps: if we all start now to live beneath our means, pay off our credit cards, and save our cash, we can all come out ahead in our own financial paths.

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Anonymous's picture

Leigh wrote:

Wed, 09/14/2011 - 15:25 Comment #: 1

That's a great story, Christa! Thank you for sharing. I am in my early twenties and I love hearing stories like this about young people who are also great at saving.

Anonymous's picture

Alex | Perfecting Dad wrote:

Wed, 09/14/2011 - 17:37 Comment #: 2

This is just like my wife and I. When we go to the lenders for a mortgage they tell us they are impressed. Most couple have at least a missed bill payment, or excess credit, or something, but ours are top unblemished credit scores and we never have a problem with getting great rates and other concessions. It's just like you said, stay responsible even at the beginning when you're poor and everything will be easier later. This is a great post since it's a real example!

Christa Palm's picture

Christa Palm wrote:

Wed, 09/14/2011 - 18:55 Comment #: 3

Leigh, I'll tell you, those in finance are always impressed with young people who are on top of the finance ball -- kudos to you for your own awesome journey!

Alex, congrats to you and your wife -- it always amazes me when people have never missed anything! Even while working in finance, I made a few mistakes while young, so to see the amazing successes of young, responsible people is superb!

Anonymous's picture

Miss T wrote:

Thu, 09/15/2011 - 02:03 Comment #: 4

I can relate to this story. Many people tell me and my hubby that we are ahead of the game and are doing so well despite being young. We are much farther ahead than our peers when it comes to our financial situation. We actually try to have a positive influence when we can. Just like you said, start early and things will be much easier later on.

Anonymous's picture

MoneyCone wrote:

Thu, 09/15/2011 - 18:54 Comment #: 5

A truly fantastic story! I think they didn't accidentally get such good scores, but were very prudent with money.

With good credit scores and an ability to pay 40K in down payment, I'm sure they could've afforded a much bigger house, but I think they chose not to.

They could've done a 30 year, but they chose a sensible option of saving money by getting a 15 year loan.

I'm sure their future is very bright!

Christa Palm's picture

Christa Palm wrote:

Fri, 09/16/2011 - 17:50 Comment #: 6

Miss T, congrats for being so ahead of the pack -- starting early is the way to be! *Sigh*, I wish I had the foresight when I was in my teens, but it's all good now ;-)

MoneyCone, yes, this couple definitely had mad money skills to be able to land such impressive scores. Definitely no accident by any means. Their choices were great as well!

Anonymous's picture

The Better Investor wrote:

Tue, 09/20/2011 - 19:19 Comment #: 7

Agree - the sooner one starts saving and investing, the better. For one thing, the compounding effect is enormous and secondly, investing over the long term is less risky than looking for short term gains and trying to time the market. From an investment perspective, its worthwhile spending time creating an appropriate asset allocation that reflects your time horizon and risk appetite - and then investing as soon as you can, periodically rebalancing each year.

Christa Palm's picture

Christa Palm wrote:

Tue, 09/20/2011 - 19:41 Comment #: 8

The Better Investor, very true! Thanks for your input!

Anonymous's picture

Best Of The Blogosphere! | CREDIT wrote:

Fri, 10/07/2011 - 14:15 Comment #: 9

[...] Christa@MomVesting with some very good advice with the post: Getting Started Young: Your Path to Financial Freedom [...]

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