20 Something Blunders & Successes
After reflecting on all the successes and blunders, of my 20s, I developed the top finance tips every 30 something should know. Everyone’s experience in their 20s is different. For me, I graduated during the great recession and finding a job was tough. I ended up going back to school and starting my career in my mid 20s. Considering how much money and time I spent on getting educated, the pay wasn’t great. But I had a job in a field that was stable, resistant to market downturns, and had growth potential.
I chose my field very intentionally after seeing the carnage of the great recession. Chances are, if you are in your 30s, then the great recession molded your outlook on life in some way, shape, or form.
The first half of my 20s I was a tight-wad. For good reason: I had no money. I was raised believing that going into debt was not an option. I had one credit card with a very low credit limit that I set for myself. In my mind, I had no business spending more than my set limit and even that was high. I had no reward points, and the annual fee was $10. I had only this credit card until I was 27.
Once I was able to land a “career” job, I started living a little less frugally. I was able to move out of my parents house, travel abroad, eat out at restaurants, go to the bar with friends, buy organic foods, and make miscellaneous purchases without thinking too much. It was great! I really enjoyed the second half of my 20s.
Today, I am in my 30s. I do not live as frugally as I did in the first half of my 20s and I don’t live as “lavishly” as I did in in the second half. Throughout my 20s and early 30s I gained life experience and developed an intense interest in personal finance. From a combination of years of research and life experience, below are my top finance tips every 30 something should know.
Finance Tips Every 30 Something Should Know
Learn the Fundamentals of Investing
Learning the fundamentals of investing is crucial in your 30s. At this point, life is not as simple and carefree as it was in your 20s. You need to think very seriously about your future. You do not want to be in a position in your 40s where you have no assets. Knowing the fundamentals of investing will help you save for retirement and achieve your long-term financial goals.
Imagine: how great would it be if your money made money? Answer: pretty awesome!
What do I mean by the fundamentals? Every 30 something should know enough to be able to navigate the basic terminology of what things mean and how to invest intelligently in stocks and bonds.
For instance, you should know what a brokerage account is and how to open one.
Check out my quick, easy to understand guide to the fundamentals of investing here.
Save for Retirement
Financial independence, the ability live indefinitely without relying on earned income. For most of us, financial independence is reached around at 65. If you did not prioritize saving for retirement in your 20s, then it is absolutely necessary to make saving for retirement in your 30s a priority. Life gets more complex as we age, not less complex. This is why saving for retirement is one of the top financial tips every 30 something should know.
Although it is possible to start saving for retirement in your 40s or even 50s, you will need to be VERY aggressive. If you start saving in your 30s then your money has more time to work for you! Therefore, you do not need to contribute as much as someone starting in their 40s or later.
Check out my comprehensive guide to saving for retirement here.
Build an Emergency Fund
If you are in your 30s you need an emergency fund. Ideally, you will have 6 months of cash on hand for any of life’s unpredictable moments. Knowing you have a safety net for when things turn south will help you sleep at night.
It’s hard to build an emergency fund and just have a pile of cash just sitting around but its worth it.
If you do not have an emergency fund, saving for one is a top priority – even before investing. If you are in credit card debt, start by building a $1,000 emergency fund, then pay down the high interest debt. Once the debt is gone, finish building the emergency fund.
Know the Difference Between FSA and HSA
Both an FSA and HSA are tax advantaged savings accounts dedicated to health care expenses.
If you have traditional w-2 employment, then you can contribute to a Flexible Spending Account (FSA). Money put into an FSA is tax free. You will not be taxed when the money goes into the account or when you withdraw the funds. However, you can only use the money on health care expenses such as prescriptions, co-pays, and band-aids. You cannot use the money on things like facials. The money in an FSA account must be used at the end of the calendar year. An FSA is a use-it-or-lose-it type of account.
There is also a dependent care FSA. If you have children or a family member you claim as a dependent and they require care expenses such as babysitting, summer camp, preschool, etc. then you can contribute additional funds to a dependent care FSA. The same rules apply to the traditional FSA – you will not be taxed on the money but you need to use-it-or-lose-it by the end of the calendar year.
Also, with an FSA, you can spend the money BEFORE you make the contribution. For instance, if you run into a $1,000 medical bill and you currently only have $500 in the FSA, you can still pay off the entire $1,000 bill using the FSA account.
A Health Savings Account (HSA) is offered to employees with a high deductible health care plan. The maximum contribution to an HSA if you are single is $3,600 for 2021. The money is not taxed going in or coming out of the account. The funds do not need to be spent in full each year. You can save every year and invest the money the same way you invest in your 401(k). You can either use the money as needed OR you can use this as another retirement account to help pay for your health insurance and other health care expenses in retirement – completely tax free!
If you are interested in learning more about FSAs and HSAs click here.
Short Term and Long Term Disability Insurance
If you rely on your w-2 job to pay your bills then you need long-term disability insurance. If for some reason you run into a health crisis such as a car accident that renders you unable to work, then short term and long term disability will catch you.
Short-term disability will pay a portion of your income for up to six weeks. After that, if you do not have long-term disability insurance then those checks stop coming. If you can’t work and you have exhausted your short-term disability, you better have a strong emergency fund.
However, if you have long-term disability insurance, then you will continue to receive those checks up until retirement!
Long-term disability is well worth the cost which is dependent on how much you earn. In the grand scheme of things, the cost is negligible when you think about the alternative.
You can sign up for ST and LT disability insurance during your enrollment period each year.
The Importance of a Good Credit Score
A solid credit score will save you thousands of dollars. When you are in your 30s, having a great credit score and maintaining that credit score is so important to setting yourself up for success now and in the future. Needlessly paying high interest expenses because of poor financial habits is like flushing money down the toilet. Money comes in too slow and goes out too quick to be flushing any money down the toilet.
Determine How Much House You Can (and Should) Buy
Buying a home is a big deal! It takes a lot of discipline to save up for a down payment and it’s a huge accomplishment. Knowing how much house you can afford is different from how much house you should buy.
You should never put yourself in a situation where you cannot comfortably afford the monthly payments and maintenance costs. When you are trying to figure out how much you want to spend, consider your exit options. For instance, if you get laid off, what will you do? Can you easily sell? If you get a job offer in a different area of the country but due to market conditions really can’t sell, will you be able to rent it out or will you have decline the job offer?
Always have a contingency plan for when/if things turn south. You do not want to be stuck between a rock and a hard place.
Define Your Long-Term and Short-Term Goals
Every 30 something should know where they want to go in the short-term and in the long term.
In the short-term (1-year or less), do you want to buy a house, go on vacation, save up an emergency fund?
Do your long term goals include career plans, family, and/or retirement plans?
When you are in your 30s, figure out where you want to go and create a plan for how to get there. Create SMART money goals to guide you in your journey.