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Avoid getting into the financial "red zone" with these helpful expert tips

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Money management guru Humble Lukanga shares his tips on how you can avoid staying out the dreaded financial "red zone".

Video Transcript

[MUSIC PLAYING]

MARSAI MARTIN: Welcome back to "In the Know, Money" with Marsai Martin. With all this talk about money, you might have a fear of spending too much and going into debt. I mean, it's important that we all stay out of the red, which of course, is easier said than done. So let's bring in Humble Lukanga, business manager to the stars like Issa Rae, DeAndre Hopkins, and me, to help give us tips on what it takes to avoid that dreaded red zone. All right, Humble, of course, I know about you, but please tell the audience a little bit about yourself.

HUMBLE LUKANGA: A little bit about myself. Man, where do I start? So my name is Humble Lukanga. I'm a business and wealth manager for the stars. I help incredible people and, you know, athletes, entertainers, executives manage their wealth and build generational freedom for their families. So I'm excited to be here. Just a little bit about me.

MARSAI MARTIN: Cool. OK, so let's get into it. What is the financial red zone?

HUMBLE LUKANGA: The financial red zone. You know, the way I think about that is that's the place you don't want to end up, right? That's the place where you're drowning in debt. That's the place where you feel the pressure on your neck from the day-to-day decisions that you're making. That's when you feel like the money that you making, you're not saving. You spending more than you're putting away. And you're not growing. You're actually like sinking every month. So that's the financial red zone that you want to stay out of.

MARSAI MARTIN: And how often do people get in the red zone? Or is it one of those things that's like an on and off situation?

HUMBLE LUKANGA: Yeah, such a great question. You know, the average American, three out of four Americans don't have $1,000 saved up, right? So if you think about it, the average American is $400 away from like not being able to make their ends meet. So the majority of people are in the financial red zone unfortunately. You know, three out of four people.

MARSAI MARTIN: OK, so what are the tips of staying out of the red zone?

HUMBLE LUKANGA: You have to just organize your life and understand that hey, live below your means. No, I'm not saying don't enjoy life, but I'm saying save some money for a rainy day. Put some money away that you can invest, not only in growing your wealth, but also in growing your knowledge or your education.

And then spend a little bit too, you know. But you got to be really organized that you're not getting in a place where either you're living check to check or worse, you're sinking every month. Have a goal. You know, have a goal of where you want to be. And use this very simple formula that I try to teach young people is spend a third, save a third, and invest a third. OK? Keep it that simple, right?

So if you have $100, it's OK to spend $30 of it, $33 of it. Save the other third. And then use the other third to invest in yourself, whether it's reading, whether it's books, whether it's educate yourself further. But if you stay like that consistently, even as your money grows, I think you'll be fine. You'll be able to get out of the-- you'll be able to stay away from that red zone.

MARSAI MARTIN: Do you recommend any applications or tools that can help us track budgets?

HUMBLE LUKANGA: You know, I love this website called Nerd Wallet. I think it's incredible. You go there, and any type of, like, thing you might be thinking about, like, what's the best credit card to get? What's the best student loans to think about? What's-- you know, all those different sorts of questions you have, they aggregate this incredible knowledge base.

It's my favorite-- it's my favorite website that I send all my family and friends who can't afford me to go to. That's where I tell them to go. Just go there. Go there. It has a lot of resources. [LAUGHTER]

MARSAI MARTIN: What exactly is financial freedom?

HUMBLE LUKANGA: That's a really great question again. First and foremost, you have to define financial freedom for yourself, right, because I think a lot of people, they let, like, society or expectations or elders or people like myself define what it is for them. And I think that's a tricky thing. So I'm going to define it how I think it is for myself, right, like how I think about financial freedom.

So how I think about financial freedom, I think about it as in time, right? And the question that I ask myself is, how long-- if your primary source of income-- if your job disappeared today, OK, how long could you live comfortably if your job disappeared today? For some people, it's like I can't, right? And then the key's to get to a place where you're only working because you want to, right, not because you have to. And that's, to me, financial freedom. Yeah.

MARSAI MARTIN: Also many people rely on credit as well. I mean, I see all these dang commercials talking about the credit scores and all that. And I'm like, I don't even understand why-- like, what makes it so important? And, like, what exactly is a credit score?

HUMBLE LUKANGA: Yeah, I think credit is the most important thing in finance, right? And here's why. A credit score pretty much is a credit report on how capable are you in repaying back what you owe, right? So it determines your credit worthiness.

So a score ranges from like 300 to like 850. And pretty much, they pull your credit report. And it's based on, you know, how long-- how much you pay your bills. How much debt are you carrying? How long you've been carrying that debt? Have you ever missed payments? Like it just tracks your ability to stay on top of your debt. And it gives you a score.

So for me, if I'm a bank and you want to get a car loan or a credit card or a mortgage or all these things that I need to loan you money, that credit score lets me know what is the chances that you're going to be able to pay me back, you know what I mean?

And so when you start getting into the 700 and above, you start to become-- you start to have what we call good credit. And then a bank is going to be "OK." A bank will be more willing to lend to you when your credit is high. And if your credit is low, no one is going to give you money. And if they do give you money, they're going to give it to you at an interest rate that is so high that it makes everything, you know, three or four times more expensive. So credit is so important to have a high credit score so you can always get a low interest rate when you borrow money.

MARSAI MARTIN: OK, well, what exactly does it take to have a high credit score? Or is there like high, low? I don't understand none of it. So please elaborate for the kids out there.

HUMBLE LUKANGA: Great question. Yeah, so when you're young, you pretty much don't have any credit, because you haven't taken out a loan. So even like a small credit card. Maybe you took out a small credit card when you're 18, you know, for $500, and you start paying it off. You're starting to build credit. You're starting to build credit. You're starting to show-- there's three credit bureaus that track all of this, right? There's a company called Experian, one called TransUnion, and one called Equifax.

So these three pretty much track-- when you take out any type of credit, they monitor it. So these are the bureaus that are reporting what your credit is, you know. And so it's important to establish credit with a small simple credit card. Start paying it off. And then as you get older, be very, very serious about your credit because if you ruin it, it takes forever to build it back up again. But it's also going to stop you from being able to get a car or get a home and things like that that become really, really important as you get older.

MARSAI MARTIN: Got it. So, like, I mean, when it's up there, it's kind of like your best friend. Like, credit scores just--

HUMBLE LUKANGA: Oh man.

MARSAI MARTIN: It's with you.

HUMBLE LUKANGA: Oh man, when it's up there-- when it's up there, you walk around a different swagger for sure. [LAUGHTER]

MARSAI MARTIN: Got it. Just a different mood. OK, cool. Well, OK. So many people talk about paying student loans.

HUMBLE LUKANGA: Yeah.

MARSAI MARTIN: And so many people are doing it. So do you have any tips on staying ahead on student loans?

HUMBLE LUKANGA: Yeah. That's another great question. I think, first of all, before you even think about student loans, right, OK, take a step back and ask yourself, why am I going to school? You know, make sure that you're going to school because it's something that you want to do. You're not doing it for, like, other motives, like maybe making your mom happy or making your, you know-- or that's what everybody's doing or just falling into what you're supposed to do. Just make sure that going to school and going to college is what's best for you because it's not always what's best for everybody.

But once you decide it's what's best for you, and you need to take out loans, then think about it as an investment, you know. Like, you know what, I'm taking out the loans. I'm going to bust my butt. I'm going to get this degree. That degree, once I have it, is going to make me money when I go get a job. And I'll be able to pay back the student loans. So think about it as an investment.

But you have to be careful because one, don't take out more than you need, right, because it's not free money. You're going to have to pay it back some time. Also try to take out student loans that are subsidized. And what I mean by that is some-- certain loans through the government, if you take it out as a student loan while you're in school, the government pays off the interest for you. So it doesn't keep getting bigger. So it's a subsidized loan.

If it's an unsubsidized loan, when you're still in school, it's getting bigger and bigger and bigger and bigger and bigger. So try to take out loans that are subsidized if you can, OK? If you take out loans that are not subsidized, where you have to pay but the interest is growing as you're in school, then try to get a part-time job just to knock off the interest, you know, as you're in school.

Or when you graduate, just make it your-- like, keep living like a college kid when you get that first big job. Keep living like a college kid. Keep eating the hot dogs and ramen noodles and the beans. And stay-- just keep living like- and then, like, make paying that student loan off like your main focus because if you let it sit there and keep growing, it just keeps compounding.

And then also, like, read the fine print when you graduate. See what interest rates they give you when you first got the loan because you may be able to refinance through different service providers for a lower interest rate. So stay on top of it. But try to get loans that are subsidized. That's my main tip.

MARSAI MARTIN: Main tips. All right. See this is some advice that all the kids need to know for sure because, obviously, student loans are just-- it's a big thing. So thank you for clearing that up. If someone's credit score is low, what is a safe way to get a loan or even a credit card?

HUMBLE LUKANGA: Yeah, if your credit score is bad-- because if your credit score is bad, you want to start to rebuild it. And that takes time. But you can rebuild it. So don't think that if you make a mistake, you can't recover from it. It's not true. Like, you can clean up your credit score.

So-- but if your credit score is low, like you said, and you need something today, then you're going to want to have a co-signer. Find somebody like a parent or somebody that you trust who has a strong credit score that can co-sign for you and pretty much tell the bank, yeah, I know their credit score is bad, but hey, if they fail to make the payments, then it becomes my responsibility, you know?

And so then the bank feels safer giving you the loan because they know that if you default on it and you don't pay it, the co-signer can step in and pay it. So that's how sometimes you're able to build good-- you start to build your credit by having somebody help you, have a parent or somebody help you co-sign.

MARSAI MARTIN: Right. OK, well, no, this has been a great conversation, Humble. I mean, you know, he's my business manager, you all. So I mean--

[LAUGHTER]

It's so good to know-- so good to know this though for sure. And I know other teens and kids feel the same way. But before we end this conversation, do you have any other tips or advice for young people out there?

HUMBLE LUKANGA: Yes, I sure do. I think the advice that I want to share is believe in the power of your dream. And have courage to walk your own path at your own pace, you know. And understand that success doesn't come. It's not an event. It's a process. And just do something every single day to make you better, and it will come, you know. It will come, you know.

But the best thing you have is your youth. Don't waste it. Like, it's the best thing that you have because the world is yours. And so whatever dream that you have, like, start now, you know. Like, go now, and anything is possible.

MARSAI MARTIN: (SINGING) Anything is possible.

HUMBLE LUKANGA: Anything is possible.

MARSAI MARTIN: Yes, OK. [LAUGHTER]

HUMBLE LUKANGA: You're living proof of that, you know. You know. You know.

MARSAI MARTIN: Yes. Thank you so much, Humble. And thank you for doing this with me. This has been a great conversation.

HUMBLE LUKANGA: Hey, it's been-- the honor has been all mine. The honor's been all mine. And keep doing what you're doing. It's incredible.

MARSAI MARTIN: Of course. Thank you so much. It's been good seeing you. I'll see you soon. That is all for this episode of "In the Know, Money" with Marsai Martin. Thank you so much to Humble Lukanga. Now you are armed with tips, tricks, and most importantly, knowledge that will help you stay out of the red, priming for future financial success.

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There's a lot of times I had to say no because I wanted to save my cash. But the one I can think of at the moment is probably when I-- I think I was turning 15. And I wanted-- of course, I wanted a party. And I know dang well that 15 wasn't really as big as a milestone at 16 was because I was like, do I want to wait so I can really turn up and I have a reason to turn up?

It was a very long conversation and series of conversations with my parents to figure out what exactly that I want to do and how I can celebrate. So I wanted to have a roller skating party at first. I was like, we're going to do, like, neon. Then I thought Western. Then I thought, like, Carnival. I thought of so many things. I was just going to go all out.

But it was-- a roller skating rink is just-- I didn't know it could be that expensive. Not including food, because you got to feed the kids. Like, you got to, you know-- and a DJ. And my parents are just looking at me like, do you want to do this? And I'm like, I don't know. I don't know. Does it make sense? [INAUDIBLE] Like, I was turning 15. So it didn't make sense to me.

I can imagine like all the Shirley Temples that I'd have, me turning it up to Megan Stallion, and rolling, rolling in the roller skating rink. Like, I just thought about everything. But I just had let it go and be like, you know what, I won't have a roller skating party.

Instead let's do something smaller and just wait till 16, you know. Just do something light. You know, I ain't got to go this big. I still had, like, my glow up party with neon. But I did it at this little small bowling alley. And it was-- it was lots of fun. It was still lots of fun. And I had a party at the end.

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