When Nasty Gal founder Sophia Amoruso was in fourth grade, her parents filed for bankruptcy.
“I vividly remember going with my mum and dad to the credit counselor’s office and watching them slice their credit cards into a jar filled to the brim with the shards of other people’s bad financial decisions,” she writes in her book, “#GIRLBOSS.”
“From that point on, my dad preached a mantra of ‘Cash is king,’ and that has always stuck with me.”
Since that memorable fourth grade trip to the credit counselor’s office, Amoruso went from dumpster-diving as a teen to founding a $100 million-plus clothing business — and she did it all “without borrowing a dime,” she explains.
Not relying on credit and adhering to the ‘cash is king’ mantra forces you to spend within your means, the self-made millionaire explains:
“It’s so simple, yet so difficult for a lot of people to understand: Do not spend more money than you have.
“Sadly, doing just that is not only the norm for a lot of people, but also a signifier of success. Growing up in the suburbs, I saw it all the time: the flaunted backyard pool or new monster truck. These things often weren’t a sign of what these people could afford, but only of what they could borrow.”
Credit cards, which typically only require you to pay 1% to 3% of your balance each month, make it alarmingly easy for people to overspend and succumb to lifestyle inflation: living up to the ceiling of what your income will allow.
Of course, you can’t completely ignore credit, Amoruso notes: “While I don’t agree that the world should reward people for spending money they don’t have, it happens to be that way.” Plus, you’ll need to build good credit early on in order to make big purchases in the future, such as insurance, a car, or a home.
The key takeaways: Don’t spend money that you don’t have; if you’re making purchases with a credit card, ensure that you can pay your balance in full to protect your credit score and to stay out of debt; and keep an eye on even the smallest of purchases.
“It is the little things that can and will wreck your credit,” Amoruso writes. She knows from first-hand experience — when she was 19, a $28 purchase ruined her credit score: “Because I moved so much, I rarely had a steady address, causing bills to miss me as I jumped from state to state. By the time my $28 lingerie charge caught up with me, my credit was wrecked, and I had learned the hard way that you can ruin your credit in one seemingly responsible afternoon, but rebuilding it takes years.”