Everything You Need to Know About Finances in Your 30s

hey guys you love that we break things down by the decade and we're going to be talking about an exciting one today the 30s the messy middle yeah this is the messy middle you know sometimes we in our 30s we just need a little bit of help we have thousands of things pulling on us whether it's family or job or community or all these things wouldn't it be great if there was a compilation that walked you through the things that you need to be thinking about when you're in this pivotal decade so this will keep you on track keep you motivated and also load you up with tons of free advice it's brian preston the money guy all right so now let's talk about again in your 30s where should you invest and what investment should you avoid so uh brian you use it this whole time now it's time in your 30s you got to grow up you gave the 20 year old counterparts some relief in your 30s you better be saving 20 to 25 i am a son of a gun on this guys and i know trolls you come at me because i'm ready because at this time i'm telling you by the time you're in your 30s you need to be saving 20 to 25 you are freaking grown up at this point act like a grown up and start saving the money so do it make it happen and that you will i promise you your 40 50 year old stealth's going to give you a huge sloppy kiss and a bear hug if you do this thing right so you know it's in in that same vein you are in fact a grown-up so now you do have to focus on things like risk management maybe some of the things that you neglected in your 20s once you have people depending on you like spouses children aging parents whatever it may be you need to make sure that you have the things in place that you need like life insurance like disability insurance like estate documents all the things out there that could potentially derail your plan you do not want life going in the ditch just because you're not here to protect your family so pay attention to risk management target retirement funds we talked about this in the 20s they're still popular but bo something starts to happen when you get to three to four hundred thousand dollars what what are some things when you might be graduating from target retirement that's why we have an asterisk right here because we think that once your assets do get to a critical level you do graduate past sort of the generic solution of target date retirement funds because not only can you focus on just when you want to retire you can start looking at customized asset allocations how you're investing you can start looking at asset location what types of accounts am i building tax deferred tax free after tax you can start looking at strategies to offset income taxes like loss harvesting and capital gain avoidance at a certain point your portfolio just like you grow up in your 30s your portfolio grows up in the same way that is great great i mean we're knocking this thing out let's hit the let's hit the investments now we've been all positive and motivational let's kind of want one of this thing and put in what investments to to avoid now this first one i thought was really interesting we have on here paying down low interest and i'm like bro i thought paying down debt in your 30s that's a good thing that's something we should be encouraging i want everybody to be debt-free in their 50s if you are in your 30s in your 20s and in your 30s you are blowing it if you're paying down that three and a half percent mortgage you need to be look i i love it because we used to speak so like pc on this yeah but you're taking a stand firm you're saying no look that's if you're under 45 years of age you should be paying your mortgage and then and making sure you're getting that 20 to 25 savings for the future you need to be doing the roth ira you need to be loading up the retirement accounts because i'm telling you compounding interest is your biggest asset that time of the money working for you i want you debt-free but you're going to be debt-free in your late 40s and your early 50s there is so much time to get out of debt you don't need to misappropriate that misappropriate those assets while you're in your 20s and 30s which is the ripest richest chunkiest times to get that that that compounding growth so focus on that you know another thing that i do see in my and and paying down low interest that's like the i'm gonna say the good side of it the bad side of it and we see this all the time in the third this is when lifestyle creep starts to happen pretty significantly you buy the bigger house you get the nicer car you just have to have the jet skis or the boat it's where you let your life start to get a little bit out and high school doesn't end at 18 guys you know you're going to be experiencing the same insecurities you had in high school it's just much bigger toys and expenses and credit card debt and other things so so avoid the lifestyle creep you don't have to keep up with the joneses they're all broke i'm telling you i've seen the stats you can take yourself out of that game because just assume all people who have more than you are probably in debt it's a great coping mechanic mechanism so so do that and i think you'll be in a good place so let's talk about we picked on our 20 year olds but let's pick on our 30 year olds too how do they blow the whole investment game they do the same thing they try to outsmart themselves being successful as an investor is incredibly simple until you complicate it and we see this all the time with 30 year old portfolios they have the individual stocks they got into bitcoin they're doing the cannabis they're trying the penny stocks they're doing option strategies all that is fine and well but man if you're not doing 20 to 25 percent in the boring plain vanilla easy stuff and playing over here with this other stuff i think you're missing the mark and you're making a big mistake you know the the worst thing you can do in options oh i know because we've done it you can make money on your first option trade we did it that's good that sets you up to thinking you're a genius don't fall into the trap of thinking oh i'm so smart overconfidence is a true issue you need to be careful of buy into the market buy into the innovation of the future you do not have to recreate the will so pay but experience definitely creates wisdom on that take it from some guys who've blown that in and unfortunately small increments so that the big money can get aggressive play money big money i love that phrasing that's perfect let's do the numbers to build perspective to kind of show them why it's so important that they need to be saving money so again from the bureau of labor statistics we wanted to go look at the average income in this country for a 30 year old as well as a 35 year old and we found that the average income for a 30 year old is 45 000 a year average income for a 35 year old is 54 000 a year well if you want to be a millionaire and you wait until either 30 or 35 to start saving for the 30 year old you have to save two hundred and seventy dollars per month to get to a million dollars for the 35 year old you have to save 452 dollars per month well if you look at that in percentage terms for a 30 year old you have to be saving 7.2 percent to get to a million by the time you get to 65. again good news on average 30 year olds are saving 8.2 so again a little goes a long way and then if you wait till 35 the number goes from 7.2 up to 10 you have to be saving 10 percent of that 54 thousand dollar income to get to a million by age 65. so here's the things the there's several things to take from this first of all we use for a 30 year old we use 9 rate of return because we know that you're not getting what the 20 year old is getting with the 10 percent and then for a 35 year old we even brought it down to eight and a half percent because the older you get the more risk you have to kind of dial down and you're going to add more diversification to your portfolio so you can see to be a millionaire 7.2 percent of your savings on based upon average incomes for a 30 year old 10 for 35 but a million is not going to be the same for for a person who's 30 or 35 years old so let's take into account the 3 million because when we were talking to sarah the next millionaire next door she kind of mentioned that inflation adjusted 3 million is kind of now the ding ding ding that people are really if you want to be when you talk we did a fire episode recently three million is kind of a big threshold where you're living a really good life so what do you need to be saving as a 30 year old it's 21.6 that's that that comes out to 811 per month that's some pretty serious chat and then for the 35 year old it actually goes up to 1 356 or 30.1 of their income of 54 000. so that's why when you hear us talking about you got to be saving 20 to 25 it's amazing to me bo we've been doing that stat for years but when we actually put the data to it you're like it was amazing i mean this is exactly how this all lines up so pay attention to that stuff so okay so we talked about you know what was required to be a millionaire by 65 if you were 20 year old it was 95 well maybe you're in your 20s you didn't figure it out but you're 30 right now and you figured out so how much do you have to save to be a millionaire by the time that you get to 65 by our calculations it's about 270 a month so what does that mean you will over the course of your career have saved a hundred and thirteen thousand four hundred dollars so you've actually doubled what the 20 year old right had to save but that's okay because still 89 of your million dollars was from growth was from compounding interest was from the market was from your army of dollar bills working for you wow what a i mean just those growth levels 95 growth for the 20 year olds 89 growth for those in their 30s guys that's once in a lifetime opportunity so you're probably and i talked about this earlier how do you determine between traditional contributions versus wrath which are tax-free growth but we've kind of we've tried to break it up and i have a we have a kind of an indicator of 30 percent if you take your your federal tax rate your marginal federal rate and then your state income tax rate it's around 30 but we need to go deeper in that because a lot of people will hear that and be like give me some numbers brian i need to know numbers what's the actual details so if you are someone who files a tax return and you file uh as a married filing jointly you want to pay attention to the 24 tax bracket and that happens at 171 thousand fifty dollars for a married couple or about 85 000 for a single couple or for a single couple that doesn't make any sense for a single person if you fall below those thresholds there's a chance that roth makes a lot of sense for you you're in a lower tax bracket go ahead and take advantage of that tax-free growth and it's also that 89 that's talking about value of your army of dollar bills compounding interest tax-free is going to be really powerful but you do need to be mindful as you have more success at work there will come a threshold when you have enough success that you're in those higher tax brackets maybe the the tax deferred growth or traditional way of saving is even better yeah what we figured it's like if you look at the 32 bracket it's like 326 000 for a couple or it's 160 dollars around there for a single person if you're above that pre-tax makes sense well you may have noticed there's there's a big gap right for for couples it's a gap from 170 to 320 and for single that's from 185 to 160 it gets a little varied it gets a little nuanced it depends on your unique state that you live in your unique tax circumstances your unique age or unique goals your unique account structure maybe a blended solution makes sense for you inside of that range but outside of that range is kind of a no-brainer well hearing those thresholds i think there's gonna be a lot of people that ought to be if you're in your 30s you're probably going to need to be looking at the roth ira absolutely there's a lot of opportunity there a lot of meat on that bone as we like to say so let's talk about i want i want to talk about how much should you be saving how much should you have let's talk about the money guy way and the research we found so again remember what we laid out is if you wanted to start saving and you didn't begin until you hit 30 and your goal was to replace 60 percent of your pre-retirement income right and we're going to assume that your income just increases by perc by one and a half percent every year how much would you need to save to have a pot of money that will last you from 65 all the way through 95 well if you're someone who's 30 years old you got to be saving 15 to do that to replace 60 you need to be saving 15. if you wait till 35 years old that number jumps to 19 and if you're someone who waits till 39 you're on the cusp of the top of the hill you got to save almost a fourth of your income 24 in order to replace 60 of your pre-tax income in retirement and we talk about money guy if i was talking about money guy way we always talk about 20 to 25 i want you to be that hyper saver status you can see 30 year old because compounding interest is so powerful you can actually save a little less than that but i want you to think about abundance what can you save to actually get you even more if you do save 20 and you're 30 years old you can see now you're going to have a retirement that's not 60 of your income it's going to be 81 remember in retirement you don't have to save for retirement you don't have to pay as much in income taxes so that 81 that you're going to get at age 30 is going to feel like a great retirement same thing at 35 i think this is amazing this shows how the math works 19 savings rate is what's projected there gets you 62 that's right in line with the 20 matching up perfectly same thing 39 year old you're saving 24 of your income you'll get about 49 a little less but this is this is common sense if you waited meaning because every one of these scenarios assumes you started it at zero so that's a 39 year old who has zero retirement savings it's not game over for you that's right if you start doing hyper saving status of 20 to 25 specifically 24 in this illustration you still have a retirement covers half of your income you stack social security on on top of that you're in a pretty good place that's exactly right i'm going to say it again just for the people on the back if you can save somewhere between 20 to 24 as a 39 year old you can expect to replace somewhere between 49 to 60 percent of your pre-retirement income it's pretty amazing pretty powerful by the way if you want to get depressed hang around for the 40s and 50s assuming people didn't start because this is what situation you'll be in if you don't use this as motivation because this is the sad part and we put fidelity balances in here for 30 year olds you can see the average balance is 18 500 you can see the median is 46 200. bo that doesn't strike me as those are people that will be living in abundance at retirement those are not the money guy mental financial mutants so we don't want you to shoot for oh well if the average is 18 i guess that's where i need to be if your average is 46 i guess that's where i need to be we want to give you a better number if you are a money guy and you've been doing what you're supposed to be doing through your 20s and through your 30s we think that by the time you're leaving your 30s you should have 2.6 times your annual income saved by the time you get to 40. yeah for my overachievers you're trying to get between 2.6 to 3 times your salary by the time you reach 40 years of age we we know every 20 year olds know that their money is worth 88 times over meaning every dollar they save or spend has a potential by a time they're 65 to be the equivalent of 88 dollars we also know from the previous slide and the drop in rate of returns that you expect as you get older you take risks down um it's 44 for a 25 year old who spends a dollar what happens to people in their 30s yeah so once you get to 30 your wealth multiplier is actually 23. so now that's still super super exciting what that means is every dollar you save at age 30 can turn into 23 by the time that you turn 20 65 so there's still a lot of juice but look at what happens as you move through your 30s and again if you want to go see this go out to our website moneyguy.com go to our resource page this is actually a resource available for you guys out there you can download it share it with friends we want you to have it but look at what happens as the wealth multiplier moves through time it starts at 23 when you're 30. well by the time you get to 35 it drops to 12 and by the time it gets to 39 now you're in single digits it's down to eight and so when you hear that you might be thinking oh well that's sad that stinks that's not you should be thinking more about okay have i done the hard work in my 20s because this is where it gets really exciting if you're a 30 year old who really busted in your 20s and maybe you've saved up a hundred thousand dollars by the time you get to 30 right which is incredible that hundred thousand dollars without you saving one more dollar has the ability to turn to 2.3 million dollars it really is the last stop on easy compounding growth so because you'll notice once you get into your 40s you don't see double digits anymore on this so that's why pay attention we want compounding interest to work for you so it's important to get to work now we said this in pre-show and i think it's worth because this is why we say it's the last stop still even a 35 year old that's less than what you have to fund on a roth ira to be a millionaire meaning 500 a month so it's at 452. it's still possible i don't want you guys to get overwhelmed thinking we're poo pooing the opportunity to become seven figure wealthy but it is one of those things you just need to be deliberate let your money work for you because it's the last stop at 36 years old all you have to do is max out your roth ira and you're on your way to being a millionaire by the time you're 65. i think that's pretty powerful it is powerful especially because the next point is is that you are now 10 000 hours you're getting traction in your career at this point and that's why we think the strategy is there is because you do have the hours put in you you're no longer learning your trade it's no longer a job hopefully now you're working in a career make that happen make that be something that is a asset towards your financial success yeah i think a really big a really big indication that you are in this strategy phase is that it's not just a job you said it perfectly there's actually more to what you're doing on a daily basis and you're actually using that to move you forward and then i think the other thing that psychologically happens in our 30s is that now you begin to say no not out of necessity but out of discipline yeah in your 20s you have to say no to a lot of stuff because you just can't afford it you don't have the money right in your 30s maybe you do have the money you say no i i don't i'm not going to buy the luxury car because i have other goals i'm not going to increase the house because i have other goals you make those decisions out of discipline instead of out of necessity it also keeps you don't keep up with the jones just don't look at joe blow down the street because joe blow is probably broke crying at night putting himself to sleep save the sexy cars for when you're a little bit older you need those dollars working for you that army of dollar bills is so powerful don't mess it up and this is also the part you said it best when we talked about the 20s how consistent are you bo because this could be a chance for you a lot of people you said it a lot of your friends started saving like a roth ira or started funding it partially in their 20s but then you look at them when they're 33 years old and they still have the same funding levels don't do that this is your chance to actually be consistent with your savings goals but also be consistent with your consumption don't let somebody just because you can doesn't mean you should love that what part of the net worth statement should we focus on in our 30s the first thing this was kind of interesting when we came up with this in show notes because everybody when you think net worth you think okay assets minus law abilities equals my net worth we didn't start there both did not start we actually started with what footnotes notes that you should put at the bottom of your network statement what do we mean by the reason we think the footnotes are so important because of exactly what you just said maybe in your 30s you're getting married maybe in your 30s you're starting to have kids what we're saying is really now your life isn't just based on you there are other people that are now depending on you so you want to make sure that you have all of the appropriate risk mitigation measures in place you want to make sure that you do have your life insurance in place you do want to have your wills in place you don't have those things well they don't normally find themselves on the net worth statement they're not an asset they're not a liability so they tend to be a footnote at the bottom or on the second page i think it's interesting i just saw this on twitter in the last hour or two is that there were more cash value life insurance policies than there were than term really and so this is something i want to tell my 30 year olds there's a good chance that you need those assets you need the income to be allocated out efficiently because you've got kiddos you've got a spouse you're trying to buy the house plus you're trying to build the savings habit of having army of dollar bills building for the future you're just trying to prevent if you got taken out on a tuesday afternoon that you don't leave behind a big mess for your family term life insurance is actually probably one of the most effective ways to do that so i i make that statement just to understand that you might want to go look at just some simplistic benchmark rules that you see out there in the industry 10 times your income absolutely i mean if you go look at 10 times your income go look at 20-year 30-year term i think you'll find it's much more affordable because you're basically buying just the cost of the insurance you're not trying to overpay now so that when you get to be 70 years old that all those overpayments cover the increased cost of the insurance we're not worried about that just now we're just trying to cover the insurable need that you have and so obviously life insurance covers the big thing it covers the financial responsibility but if something were to happen to both you and your spouse you want to make sure that you have stuff in place that'll say what happens to the kids what happens to the assets what are my ultimate wishes that's why estate documents are so important and unfortunately it's a weird conversation to have okay if something happens to us who's going to watch the kids if you think it's difficult for you to have that conversation while you're here and can speak for yourself imagine how difficult it's going to be for the rest of your family to try to figure it out that's why we hate seeing people in the 30s neglect this because it is so so important hopefully you do them you get them filled out you never need to use them but they're in place just in case let's transition to beyond the footnotes let's talk about liabilities you know we started this even though it's not the top of your net worth statement liabilities are still one of a big concern i think you have in your 30s because this is the time you're buying a house sure so you want to make sure because that your biggest expenses are like automobiles houses but these are also huge financial traps where if you have all of your monthly budget going to those two big purchases what's left for you to actually save and build your army of dollars that's why we give you the guidance your mortgage plus your housing expenses should really not exceed 25 of your gross income that's exactly right now a lot of people on the coastal communities you're like 25 that's laughable we probably need to spend 35 i get it i'm going to give you a little bit of grace on this but understand if you take 10 percent here of that grace you better be cutting somewhere else so that we can continue to build the savings habit now notice what we said there we didn't say oh if you have a mortgage in your liability column your goal should be to pay that mortgage off as quickly as possible in your 30s in our opinion that should not be your goal your goal should be to make sure that your mortgage is an appropriate amount and it falls in less than 25 of your gross income other big purchase cars yep we talked about this for 20s but i'll quickly repeat it again 23 8 20 down payment don't finance for more than three years or 36 months on the amortization cannot be more than eight percent of your gross income and here's the other two caveats you do not you do not want your monthly investments to be less than your monthly car payment if you got those two backwards meaning you have like a thousand dollar a month car payment only 200 a month going into your roth ira you're doing it all wrong make sure that the investments are bigger than the car payment also if you get those luxury brands you better be treating it same as cash essentially have it paid off within 12 months so then we want to move on to the asset side to the exciting side now in your 20s we talked about you want to be looking for an emergency fund you want to be moving towards that in your 30s it's a non-negotiable you have to make sure that you have your liquid cash covered three to six months of living expenses in cash usually it hangs out right there at the top of your net worth statement you've got to make sure you check that box before you begin building the rest of the asset column when we get to investments it's interesting in the 20s i gave a lot of latitude and i said look i want you to be able to you know work towards saving 20 maybe 25 but it's also aspirational in your 20s in your 30s guys this is the time it's got to happen you got to make sure you're getting 20 to 25 of your gross income working for you through your army of dollar bills that can come from your employer retirement plan and come from your roth ira just make sure you have investments that are building your army of dollar bills the other thing that i think is so beautiful it's a magical thing that i think happens for a lot of folks in their 30s is your net worth statement if you're doing it right should look a lot different at 31 than it does at 39. it's almost a tail of two net worth statement so one of the things that you'll recognize as you're doing your annual net worth statement you'll start to see the critical mass of your assets grow year over year over year well one of the things your net worth statement might inform you of is okay am i at the level now where it makes sense for me to graduate past an automated investing automated financial planning solution yeah because we love look 20s 30s i love people what's the this is why it's a great time to be alive and a great time to be a builder of wealth we have what's called index target retirement funds all you have to come up with is how much can i save when do i need the money when do i think i'm retiring what's my financial independence period if you can come up with those two periods just go buy an index target retirement fund from somebody like vanguard fidelity investments these are incredible opportunities those are the leading providers of it however you're going to reach a level probably around 400 000 maybe 500 000 somewhere in there where you're going to say you know what i need a little more attention to the asset allocation sure focus i also need to focus on tax diversification or what's called tax location meaning i want my fixed income in those tax deferred accounts because i go get taxed at ordinary income i want my roth ira to have the best growth assets whatsoever and then i want my taxable account not only to have liquidity but i also want to make sure they have the dividends they have the long-term capital gains all the things that have some tax favorability focus on that and then don't forget tax loss harvesting as well as capital gain planning meaning that you could even get into charitable planning charitable giving there's all kind of cool things that you could help navigate those large financial decisions with yeah and if you are making large financial decisions it's perfectly fine if you're using resources like the money guy or other resources out there but if you do find that the gravity of the decisions you're making is maybe more than you want to bear on your own it's not a bad time to start thinking about reaching out to a financial advisor start thinking about working with someone who can help you on that journey and now this is probably a great point you're trying to figure out where do i fit in what's my spot check where should i be i know according to fidelity they think 30 year olds should have like one times your gross salary so whatever you make in a year they should have one times annual gross salary if you're 30. we said let's take it even a step further let's talk about someone sort of in their mid-30s around age 35 and this is what we found the average medium income for someone in their 30s is a touch under 48 000 a year the average median net worth is right at 45 000 so it aligns pretty closely well if you want to be an average accumulator of wealth you want to take your age times your income divided by 10 plus however many years you have until 40. so if you're 35 year old you would divide by 15 you can see that an average accumulator of wealth should have a net worth this includes all of your investments all your home equity all your assets of a little over a hundred and eleven thousand dollars a year but that's not financial mutants that's not average accumulators of wealth when we get into the financial mutants column you quickly see that income jumps up to 76 000 a year the net worth for the top 25 percent mid 30s about 170 273 000 i think what's so remarkable there is if you just look at the averages about one times annual salary you can see the folks who tend to have be higher income at least if you want to fall in the top 25 category they're doing a great job of turning that higher income into wealth they're not just a one-time salary they're at greater than two times salary which is pretty remote yeah and think about it because this is also 35 year olds that's why you know we celebrate those median americans but they're really kind of behind because this is a 35 year old is what we base these numbers off of the prodigious accumulator remember we've talked about that modified millionaire next door formula where you take your age times your income divided by 10 plus how many years are you from your from 40. well in your 30s it's a lot less it's less than 10 so you can see still a prodigious accumulator as somebody who has that millionaire next door formula times two that number comes in for the financial mutants right around three hundred and fifty six thousand dollars um let's move on to the next one because this is a this is one that i love the slide that was put in on this is kids education yeah you know we all once we have kids they become our top priority as they should well a lot of times we incorrectly appropr incorrectly assume that because our kids are now our top priority they should also become our financial top priority so immediately as soon as junior or juniet is born we got to start funding that why'd y'all laugh at that that's a good name we got to start funding those college accounts we got to start getting them and start building them up even when that's not exactly where they're supposed to fall inside the financial or operations we've and you and i have done enough flights seeing you we've made the analogy on for past shows is that you know they always tell you when you're on an airplane please put the oxygen mask on your face first before you help the kiddos out and it's kind of the same way with your retirement your kids can go get scholarships your kids can go get student loans retirement loans little iffy if that's gonna happen here's what the actual new retirement what is funny i've been making this joke for years and i am so happy that this has come full circle that what i have threatened talked about and envisioned has actually come true is i tell people all the time look you can get this right or you can get this wrong but if you get it wrong you just need to let junior know you're moving in the basement at some point in the future and once you know the new york times has an article it just came out one of my one of our clients money got family members sent this to me i loved it look at look at the article headline my retirement plan is you if your kids go mom dad why don't we have more money for for for college i want you to show them this and be like it's because i'm not going to live in your basement because look at look at this headline and look at the picture i mean this sweet woman her sweet son i'm glad that they like being with each other because he's got her that's the retirement plan for her right there now look don't miss here there's nothing wrong if you want to have an in-law suite or you want to have the the grandparents sweet and they want to come live with you but when that happens you want it to be because you chose to not because you were the backstop and the single best gift you always say this the single best gift that we as parents can give our kids is to not live in their basement in the future unless you choose to not because you're the retired my retirement plan is you that that is a nightmare right there um also this is because you have so many commitments yeah like i said you likely have a significant other you might be you know procreating and growing you know having more children and having children you know so work life balance becomes more important and then you know this is also where i think you have to pay attention to lifestyle creatures they're trying to keep up with the joneses that is definitely these are legitimate issues that are definitely a concern yeah and i think even when we think about lifestyle creep that's sort of a perfect segue into thinking about in your 30s how should you think about cash flow well realistically this is probably the first time in your life that you begin to have some discretionary cash flow for the first time it's not just about survival anymore you're recognizing oh i have a little bit extra well one of the things you have to keep in mind is that your 30 year old self is very different than your 20 year old self so just because that 20 year old that you were got so excited about maxing out the roth ira at 20 now that you're in your 30s you actually have to improve upon that you can't just rest on your laurels of what you did in your 20s you actually have to get better don't let the discretionary cash flow just allow your lifestyle to creep in your lifestyle to expand well you've talked about it is that you know we've we've shown the stat that if you want to be a multi-millionaire in your 20s well if you're 20 year old all you have to save is a little less than 200 a month that's right but the problem is you fast forward to when you're in your 30s you probably need to be saving more than a little under 200 a month because you're making more money because remember the goal is 20 to 25 is going towards the long term so so watch out for that you don't want to also let lifestyle creep because this is the part we talked about we know that the average house purchase occurs when you're 33 years of age that's right when you're in your 20s i told you i don't pick on the latte factor um because i typically want people to focus on the big decisions like the car purchases the houses and those type of things that are whittling away well this is you're not the little stuff's not eating you up anymore now it really is keeping up with the joneses instead of little oopsies man i got a coffee today that's certain things now you're like oh my goodness how did i get strapped with this 800 a month car payment did i go buy a house that's way too much for where i'm living that i can't save for the future this is the stuff that will get you in trouble yeah i remember in my 20s uh ouches were like hundreds of dollars in my 30s it seems like ouches are thousands of dollars another thing that you'll probably recognize in your 30s from a cash flow perspective is you're probably beginning to understand am i just working a job am i just showing up and clocking in and clocking out waiting for my thing or am i actually in the career am i settled into what i'm going to be doing for the long term i think that's an important thing i mean you want to be planning ahead we always want to have kind of a vision for what the next five years looks like what the next 10 years looks like so don't just take it for granted if you are just putting in the time you wake up and you just feel like you're on groundhog day over and over great movie by bill murray by the way but it is if you're on that that that treadmill of life and you're not happy because it's not a career you don't see a career path pay attention this might be the time to figure that all out this is because look there's great performing investments out there but nothing is going to do better for you than how the size of your shovel if you can make your shovel bigger meaning the amount of income you can create for yourself pay attention that because that's going to help out with a lot of the other financial things that we discussed and i think we even said one of the one of the seven traits of millionaires is they chose the right occupation well if you're in your 30s you should start recognizing did i choose the right occupation or did i not and if you want to be a millionaire which is what we're coaching you through make sure you make that decision well let's talk about risk management sure when you're talking about 30 year olds this is i've talked about you're starting to get the trappings of life meaning kiddos spouses there's a likelihood that these people are starting to count on you for your income that's right so you'd if you left early you always talk about a bus hitting you i like to think that death is going to come much softer and quieter nicer to me but it is one of those things i think you need to plan ahead and that's where term life insurance disability insurance those things definitely should be on your radar um and then bo we talked about emergency funds yeah you know an emergency fund i'm gonna i'm in your 20s perhaps you can get by with just having your deductibles covered or maybe maybe operating lien because maybe you can go ask mom or dad for money or maybe whatever there is once you start having other human beings depending on you once you start having uh significant others and children and that's something an emergency fund is a non-negotiable it's something that you have to have in place because it is going to be that thing that protects you from that uh oh hvac went out uh oh my kid broke their arm uh-oh the car has to go into the shop your emergency fund is the thing that makes sure make sure your financial life does not come to a screeching halt and just because all your friends are swimming naked out there in their lifestyle and and really not keeping cash reserves and building up assets doesn't mean you should because there will be believe me every decade there's going to be some type of crisis there's going to be something that pulls on your wallet unexpectedly you need to have margin to make sure you navigate that well and that leads to because let's talk about this i had a client now this has been a while back their child who by the way was in kindergarten at the time who now is this is how long i've been doing this graduated from college married so i've been managing money for a long time really really so this is a kindergarten when this thing threw rocks at a bus oh because that's a great idea went through the the window of the bus or the down window hit a girl she had to get stitches it turned into some litigation guess what covered it all umbrella insurance so guys good time to have insurance that sits on top of your auto policy your homeowner policy it's pretty cheap look into umbrella insurance you can get a million dollars worth of coverage for just a few hundred bucks yeah if if you have assets that you've begun building or if you have current healthy income or future healthy income umbrella policies are just too cheap not to have you want to have roughly the equivalent of your net worth rounded probably to the nearest million so for someone in the 30 starting out a million dollars of umbrella coverage is a great great solution let's talk about investing okay can those army of dollar bills work for you this i'm kind of counting on you look in your 20s you're broke i get it i give you some grace by the time you get in your 30s i really really want you saving 20 to 25 of your gross income that's a non-negotiable at this point and remember uh in your 20s your army of dollar bills was so stinking powerful like 88 times over 66 times over in your 30s you start to lose a little bit of that juice now it's still powerful and it's still going to work for you but you better be saving that 20 to 25 because 95 a month in your 30s isn't going to get the job done well think about this when you're 20 years of age one dollar turns into 88 dollars by the time you're 65 has the potential to do that just 10 years later 30. it's now only has the opportunity to turn into 23. that's a huge difference still incredible i mean look as a 40 soon to be 47 year old i'm looking at 23 as a great multiplier but you just need to be paying attention that here's another thing kiddos you're going to start having kids focus on your retirement savings that 20 25 is for you and your spouse and their retirement you only get to look at saving for the kids college and other things after you take care of your stuff so you do need to be saving 20 25 for yourself and then you can think about the kiddos and their college savings 529s yep and other things after that i also think here's something to pay attention to just be on the lookout for it a lot of you some of you might not graduate to this but if you are a hyper accumulator as soon as you cross over about a half a million dollars 500 000 of investments you probably are reaching the stage of have i graduated from index target retirement funds if you're under 500 000 i still think they're great for you it's a simple thing bo talked about it earlier just have two decisions how much can i save hopefully it's greater than 20 25 and what year do i need the assets that's all you have to do with an index target retirement fund once you get over 500 000 you might want to get a little more sophisticated because you'll care about tax location your care about loss harvesting you'll care about gifting appreciated assets for charity there's a lot of powerful things you can do there's just some different uh weight to the decisions you make once you get that asset level can have and just anecdotally we've kind of seen this brian with our clients it usually is in sort of that mid 30s to late 30s when that starts to happen but even though the gravity of your decisions is getting bigger and the size of your portfolio is getting bigger your savings rate i would argue in your 30s is still exponentially more important than your rate of return so rather than focusing on trying to finagle your investments to squeeze every bit of return out of there you ought to look at your cash flow and figure out how can i save just a little bit extra 30 because again the work that you do in your 30s your 40 and 50 year old self will thank you for no doubt and that leads to tax planning here's something do you do roth contributions into your you know employer retirement plan do you do traditional pre-tax meaning you get a deduction on it now these are all decisions that you're trying to make when you're in this stage here's what we think about it once you combine your federal marginal rate your state income tax rate and it's you know somewhere in that 30 to 35 percent range you know that's area that's kind of gray zone that it might make sense to more take the deduction now than it is to do the roth where you get the tax-free growth so that's why i'm saying if you're under 30 and you're young especially sure consider the wrath but as soon as you get into 30-35 you know you've even said bo 25 to 30 might be in the gray zone you may want to split it it depends on your specific age and account structure and that sort of thing but certainly if you're in lower bracket we love tax free higher bracket we love getting the tax benefit and that's kind of how we think that thirty percent is that kind of and the reason this is also playing out is that look your income while you're working is going up so your tax rates will be going up your goal or hope is is that if you do this correct and we'll talk about the bucket strategy later sure is that by the time you reach retirement you actually have the ability to manipulate what your tax rate is in retirement because you'll have options and that means that potentially your tax rate will crater down into the lower rates so that's when you can do some roth conversions and other things at that point the other thing that happens in your 30s is that again messy middle you're pulled in a thousand different directions with family commitments and work commitments and community commitments you may just find that when it comes to like doing taxes and that sort of thing you just don't have the time i think a lot of folks recognize in their 30s man instead of me doing my own taxes trying to figure it out trying to piece that together this might be the time from a tax standpoint where it makes sense to reach out and get professional help there's nothing wrong with doing that again you have to figure out where you want to focus your time and effort and i'm of the opinion a tax professional might make a lot of sense if you've got a thousand things going on what's interesting i did taxes professionally for over 16 years sold my tax practice i mean it's been a it's been i guess we're getting close to a decade almost a decade um i still am paying that because that part of the deal when they bought my tax firm was i'd continue to use their professional services so we'd have a smooth transition for my tax clients i'm still using a paid preparers still don't even because i'm not on commitment anymore because it's kind of fun i mean i know fun's probably a weird word for people to hear but from a financial mutant standpoint i like being the quarterback of the situation i write up all my notes all the things i'm considering i fill out the tax organizer completely but man is it cool to see that thing come back already done and now i just have to review it and then actually going through and scrambling around to figure out which box to put where i would argue that reviewing a tax return is way more fun than preparing a tax return no doubt no doubt so it's also a better use of my time i mean me reviewing my tax return after a professional has done it much better than me poking around for hours on end to get the tax return done so let's move on to estate planning i told you you're likely at this stage you get the trappings of life you have a spouse significant other that leads to kiddos you're going to need wills if you have kids because you want to make sure that the state is not determining who takes over the kids if you think a conversation's hard while you're living with your spouse about the family because we all have family sure and i know those are some weird conversations think about how hard that conversation is going to be when you're not even here that's right and then the state's trying to figure out where your kids go make sure you have wills that's a no-brainer and then also as your life circumstances do change you get married and you have kids make sure you're keeping the beneficiary designations on your accounts updated when you get married it probably makes sense to switch it from your brother or sister to your spouse when you have kids it probably makes sense to add contingent beneficiaries or start thinking through that you just want to make sure that as your life changes in your 30s your financial plan adjusts to reflect those changes and let me give you a head start so you lower your legal bill when you get these wills done go ahead and talk to your spouse this is going to be the harder part of the conversation who do you want to be the guardians of your kids if you both died at the same time who do you want to be the executors in case you're not here because it's easy to say you want your spouse but what happens beyond your spouse trustees if you're creating any trust in there you're going to need name those as well these are the hard conversations you ought to have as well as what type of health care you would like and just in case it was a bad accident or something this seems obvious but i'm going to say it because it makes sense don't let this be a surprise to the people that you've selected to fill these roles meaning if you really want your brother and sister-in-law to be the one to take care of your kids if something were to happen to you guys make sure you have that conversation with them if you really want your uncle to be the executor of your state and to carry out you make sure you have that conversation so they know to be expecting that if something were to happen it's a great hollywood plot not a good life plan when you just let the kids you know you die tragically and your kiddos go to somebody because there's been so many movies where the ditzy single relative you know inherits the kids and then you know has this transformation over life great movie horrible life so don't do that that's not what you want to do

Channel: The Money Guy Show

Views: 81,155

Keywords: money guy show, debt, budget, cash, real estate, insurance, how to make money, save, credit card, compound interest, buying house, buy stock, success, personal finance, Everything You Need to Know About Finances in Your 30s

Id: kodFO8FznIE

Length: 46min 12sec (2772 seconds)

Published: Fri Dec 24 2021