10 Things to Know About Money Before You’re 30
In honor of my thirtieth birthday, I thought that maybe we’d take a look at one of the articles I’m always seeing on social media about the “things you should know before 30”. First though, I want to caveat this with the fact that it actually took me a long time to find a decent article that was about concepts to understand as opposed to products to purchase. Usually, there are articles detailing “30 things you need before 30” and it’s all just an ad for 30 things to buy.
However, this week’s article “10 Things to Know About Money Before You’re 30” on Money.com is one with which I actually agree. Not to say that these things are only beneficial for you if you’re under 30 as that’s absolutely not the case, but they do give you the added benefit of time to know these concepts prior to age 30.
Negotiating Pays Dividends
What they mean when they say this is that if you negotiate your first salary at a competitive level, every salary you have after that will be exponentially higher. I had an experience like this where I was lucky enough not to have to advocate for myself and over the next 10 years, this will have earned me an extra $280,000 just in a boost in my salary.
Since, my circumstance was very lucky, it’s good to study negotiating strategies in order to get what you are worth. Negotiating shows confidence in yourself and any comparison data you’ve collected in order to know what the position is worth.
80% of those who ask for a bump actually get some—if not all—of the money they request.
Knowing Your Credit Score
This is good information to know about yourself and your current financial situation, especially with the average credit score for millennials being 625 (poor). However, it’s important to note what a credit score is really for:
A credit score is used to acquire the highest quality of debt you can get.
While having a good credit score can mean things like having minimal debt and making all payments for debtors, utilities, etc on time, it’s not important if you don’t need to apply for debt. If you’re not in the market for a home or car loan, then I agree with the simple trick money.com suggests as it’s something I’ve always done.
Keep open old credit cards you no longer use (assuming they are paid off and don’t come with an annual fee). And, of course, always pay your credit card bill on time.
One of the most important things that you can do with your money is to buy yourself some time if things don’t go according to plan (and they never do). Remember the study showing that half of American households don’t have $400 in case of an emergency? That’s what this advice is about.
Most recommend having at least 3-6 months of expenses saved up in an emergency fund. I recommend the same. On average, it takes just over 6 weeks to find a job so having double this amount sucked away is a good starting place. Having this money in place will give you peace of mind and allow you the breathing room to make the best decisions for your long term goals without the fear of running out of cash.
This article is really on point. Stating that while many are confused and stressed about their 401Ks it really all boils down to 3 things:
- Maximizing contributions
- Minimizing fees
- Diversifying Investments
If you’re able to hit the IRS maximum contribution of $19,000 for 2019, then that is A-mazing, but if you can just put in up to your employer match that’s great too. Maximize these contributions as much as your budget allows. A good way to do this is to add all of your raises to what you contribute until you hit the maximum.
Fees. I will be doing a whole other post on fees, but for now let’s just say that these are meant to be kept as small as possible in order to spare your portfolio. In a previous account I had with a financial adviser (non-fiduciary), I was paying 2.75%!!!!! I learned my lesson after doing some research and now pay 0.04% using Vanguard index funds. Here’s a quick comparison on if I had paid $500/month into the two accounts for the next 30 years and you can see for yourself how I would’ve done.
Meanwhile, if you are nervous about diversifying your portfolio yourself, there are services that can help you do this or you can pick a target date fund with a low fee (staying below 0.50%, even with a target date fund is very doable). These accounts balance a mix of stocks and balances that match the year you pick as your target retirement date. If you’re more aggressive in how you’d want to invest, pick a later date. If you’re more conservative, pick a closer date although be careful not to be TOO conservative that you don’t keep up with the markets.
Debt IS Surmountable- If you don’t ignore it
I wholeheartedly agree with the way that Money.com has phrased this. Debt can be worked through and paid off as long as it’s not ignored. So many Americans have credit card and student loan debt it can be staggering to think about. However, ignoring it only allows it to grow quietly, allowing compound interest to work against you. Turn and tackle this head on in order to ensure success.
As soon as anyone thinks about tax planning, there’s a stereotypical thought of an older gentleman duck swimming in a pool of coins. However, tax planning here just means being aware of tax deductions and credits that you may be entitled to. Just a few of examples are:
- Up to $2,500 in student loan interest reduction
- Moving expenses if relocating more than 50 miles for a job
- Deducting pre-tax (401K, 403b, 457 and traditional IRA) retirement account contributions.
A Home Isn’t Always an “Investment”
This is a common cliche passed down from generations before. However, there is a strong argument that a primary home should not be thought of as an investment unless you perform an analysis at the time of purchase about it’s expected ROI over the time you plan to own it and then plan to sell it for the funds in order to live out the rest of your days somewhere else.
However, homes traditionally only increase in value at the rate of inflation and a good chunk of that appreciation with be eaten up by the transaction costs of selling the home. Not to mention, that as the value of the home goes up, the expenses tend to go up with it (taxes, maintenance, etc.) What really counts is that you get value in living there and perhaps you’ll see some return when you sell the home.
Expensive Weddings Are Correlated with Shorter Marriages
Fun fact: The average cost of a wedding in the United States is more than $26,000.
Less fun fact: A recent study found that couples whose weddings cost more than $20,000 were 1.6 times as likely to divorce than couples who spent between $5,000 and $10,000—and those spending $1,000 or less had a lower-than-average divorce rate.
While this may be true, my thought on weddings is that they can be done however the couple sees fit. However, going into debt for a wedding is not the way to get started on your forever path with someone. My wife and I also found that involving our friends in our wedding kept not only our costs down (although still expensive), but it brought a more intimate feel to the whole event.
Whatever you choose for your wedding, assuming you are getting married, choose a path that you and your future spouse can get behind while still working towards your other goals together.
According to the USDA, a 2015 survey found that children can cost over $233,000 from birth until age 17 (not including college). If you do want kids, this is even more of an incentive to ensure that you have good financial footing as soon as possible.
I won’t dictate to anyone when they should or should not have children, but I do strongly recommend working towards consumer debt freedom before that happens. It’s much harder to afford daycare when there’s still a large student loan payment to make each month, not to mention saving for their future schooling.
The Race is Long and with Yourself
This is a great way to end it. Comparison is the thief of joy. Not only can it lead to depression and anxiety, but it can cause overspending and excessive risk taking when it comes to your money. Instead of trying to keep up with the Joneses, spend your time and money working on yourself to find contentment. I will leave you with one last thought:
Today and a day 40 years from now are both equally important. Allocate your resources (money, energy, focus) accordingly.
Was this advice helpful? What else would you have wanted to know by age 30? Let me know in the comments below!