Credit and Investing: How to be financially savvy

Level up to using credit and investing in the future, after having Spending and Saving nailed.

Reminder: I am not a financial advisor, I speak from my won doings. If you need more specifics detail please seek a licensed professional

Credit: Credit Cards

To build any credit you will need one of these. As scary as they are, if you know how to utilise it, you’re less likely to fall into that trap. Other than building credit, they also provide protection. If you book a flight or hotel and something goes wrong sometimes you won’t get a refund from the service. However, there is the Consumer Credit Act 1974, which allows you to get a refund on these large expense things.

Credit: My story

I recently went on holiday to Sheffield to visit the city. I booked an Air bnb1 week before my stay for 2 nights. Everything was fine, until my friend and I entered the flat. The place was not clean. Used towels were in the tub and the bed was slept on. I told the host, and he decided to try and under cut me. Thankfully, I had a friend with me who doesn’t take rubbish from anyone.

Firstly, the host offered me 20 % compensation (£36), to send the cleaner over the next day. He then said if we don’t like that offer, to complain to Air bnb. But would reject a full refund, since we didn’t accept the offer.

We vacated the property and contacted Air bnb. Whilst waiting for them to get back to me, the host called again, and this time was offering 50 % compensation (£94). He said the cleaner was surprised to see the place like that, and that she won’t be available until the next day. We told him we were dealing through Air bnb now, and to wait for them to contact him.

I’ll admit I was a little worried at first that I wasn’t going to get any money back, but then I remembered I used my credit card for the booking. Thanks to the credit act I was covered, so if Air bnb couldn’t refund me, I hadn’t completely lost my money. This gave me a sense of relief. Fortunately, I didn’t have to use it because they did give me full compensation and we didn’t end up staying in Sheffield that weekend. But the credit card gave me that safety net, that my debit card couldn’t. So, credit cards are handy when used correctly.

Credit and Investing: Credit score

You should invest your time into checking this at least once per month. It lets you know if something is not right, and the sooner you get it picked up the easier it can be to resolve. Once something is wrong with your score, it can make it more difficult to get a phone contract, a new credit card or a mortgage. It lets credit providers know that you are trustworthy to lend to, which can allow better interest rates. Places to check it are Clear Score, Experian and Equifax.

Credit: My story

I got a new Wifi provider in July 2022, then got a new phone contract in November 2022. This hurt my score as they both required a credit check, and if you have frequent credit checks, it makes you look untrustworthy as you keep applying for credit. Since I wanted to apply for a rewards credit card, I had to wait until May 2023, before looking. This enables you to make financially sound decisions when it comes to credit, as you have to consider your future financial state as well as your present financial state.

If you need to check anything, always make sure it’s says something along the lines of “this check won’t affect your credit score”. You get some insight on what’s available to you, without it being an official search that knocks your score. It’s something to keep in mind.

Investing

Well, this has become a lot more popular now, with people now encouraging the everyday person to invest. And I agree, we should. Technically if you’re employed you will have a pension, and that pension is an investment. The money that’s in there is in the stock market, and fluctuating with the value of it. In the hopes that in the long run you will have multiple gains so there is money for you to live off at the end of your career.

Instead of just having a pension, it’s now mainstream to have an investment account as well. This is your private pension. You put however much you like of your and you have full reign and control on where your money goes. Pensions tend to have a limited selection of the types of investments your money goes to, but with a private one, you can pick anything and everything.

I opened a brokerage account with Vanguard. They are managing my account, by actually buying the stocks for me. I give them my money, tell them which ones I want to invest in and for this service they will take a really small proportion as a service fee. I invest in an index fund as it contains a small portion of nearly every business in the area, such as the S&P 500. This has the top 500 performing companies in the US. This saves me having to worry about a stock crashing and losing my money, because in the S&P 500, if 1 company crashes I still have 499 making cash. This is the benefit of an index fund, which is what I have learnt from financial influencers like Money Saving Expert and Her First 100k.

Note: In Vanguard I opened a Stocks and Shares ISA, because all the returns I get in there are Tax-free. If you invest outside of an ISA, watch out for Capital gains tax.

Investing: My learnings

Investing is incredibly overwhelming, but what I have learnt so far is:

1. Don’t buy for a short time, ride the wave.
2. If you sell at a loss, then you have truly lost your money.
3. Don’t buy individual stocks, buy the whole market with an index fund.
4. Investing a little now, is better than waiting to invest larger amount later – thanks to compound interest.

The idea of investments is that overtime the money will compound with interest (hopefully in the correct direction), which will result in larger gains over time.

Example:

“Would you rather have 1 million now or 1p which doubles everyday for 31 days” – spoiler after 31 days that 1p is about 10 million, thanks to compound interest. So, you would choose that over the 1 million. It’s just that it’s a short-term pain for a long-term gain, and sometimes it’s so difficult to think like that.

Credit and Investing: Expansion

Along with Vanguard I do have a non-ISA investing account (which is not tax free if I withdraw- which I haven’t yet). This is with Trading 212*. You can also invest in index funds here, as well as individual stocks. There is a chance to simulate what your money could do by investing their “fake money”, and it will show results from the current markets. This shows you what your money could have done if you did invest, but maybe it might also comfort you into taking that small step towards investing. You can also open a Stocks and Shares ISA with Trading 212, however in the UK you are only 1 of each kind of ISA. So, you have options- do your research.

*If you sign up to Trading 212 in this link, you can get a free share worth up to £100 and so will I.

Once you feel comfortable and have some spare cash to experiment with, that’s when you can dabble in other forms of investments. This is like crypto and individual stocks. I am avoiding those two for now, until I have my emergency fund in a healthier state. These, along with investing in property and business ventures, allow you to expand your investment portfolio. Do whatever feels comfortable to you, and that you have researched. For now, I am happy where I am and haven’t had the chance to explore these avenues yet.

I am able to treat myself to trips and experiences, whilst saving and investing some cash for now in low-risk ways, and for me that’s stable enough.

Moral of my story:

• Build that credit – Credit cards are hand for getting refunds on large expenses, as well as setting you up for future spends, such as a house or a car.
• Keep up to date with the score – You can notice and resolve mistakes quicker if you keep an eye on it.
• Index funds are a taste of the whole market – Take advantage of that, even if it’s a small £20 in there.
• Compound interest is handy, use it in your favour – It’s a beautiful thing, use it.
• Expansion comes once you have mastered your current step – Don’t try and rush and spread yourself too thin. Master each level at your pace.
• Do your research – What works for me, might not be what’s for you, but there are plenty of options out there.