Sometime in my mid-twenties, I decided I wanted to stay in the Maryland area and buy a home.
I could afford a mortgage around $1,500 per month based on my expenses—mostly student loan payments—and salary. If I found the perfect home, I could stretch to afford around $1,750 per month.
As I searched for my future home, I played a financial game with myself. I’d soon be saddled with a $1,500 mortgage, so why not spend like I had one already? Why not pay a “pretend mortgage” before my real one so I had a better idea of what it would feel like?
When I was looking for a home, I was sharing a two-bedroom apartment with a friend and paying $600 a month, plus utilities. It was a steep jump to go from $600 to $1,500 a month, so playing this game was important.
I could maintain one of my key money ratios, paying less than 30% of my salary to housing. But I still needed to know how it felt. It’s one thing to see it in an app and another to feel it.
How ‘Playing House’ Worked for Me
Every month, I paid my $600 for rent and set aside $900 in savings. As you’d expect, I didn’t just transfer money from one account to the other, because who has $900 sitting around? If I did, I wouldn’t need to play house!
I had to make adjustments. I contacted my human resources representative to reduce my 401K contributions so I’d have more in my paycheck. I had to adjust my other savings goals as well because I wouldn’t be saving as aggressively.
I also started going out to dinner and bars less often. Instead of going out for drinks a few times a week, I limited myself to two nights, on the weekends.
Making those trade-offs became easier — and easier to explain to friends without having to deal with grumbling, because I was making a clear choice. I was cutting some social time because I wanted to buy a house. I wasn’t saving money for the sake of it. I had a very good reason: to buy a house.
The housing search took about 18 months and I played house for only 12 of them, so I had an extra $10,000 or so saved up in my mortgage account. I took that money and put it toward the down payment.
The house ended up having a mortgage that was a little less than $1,500, and after living with the mortgage payment for a year and a half, I had no trouble adjusting to it.
If you’re thinking about buying a home or making a similar large purchase, consider playing house first.
It seems like you’ll be punching a clock forever, right? Well, one day, you’ll likely stop spending 9 to 5 at a desk and will enjoy your golden years in retirement. But that’s assuming everything plays out nicely and you have enough money set aside to do so. Stressful, right?
Well, according to a 2016 Retirement Income Strategies and Expectations survey by Franklin Templeton Investments, 70% of millennials are stressed and anxious about saving for retirement. So if you’re one of the millennials who gets anxiety every time mom or dad brings up the importance of your retirement funds, take a deep breath.
We’ve got 50 easy-to-digest ways that can get you on the right track today so you’re ready to celebrate in style once your 65th birthday rolls around.
1. Start Now
“It’s never too late, and it’s never too early, to start saving for retirement,” Ty J. Young, CEO of Ty J. Young, Inc., a nationwide wealth management firm, said.
2. Don’t Fear Your Finances
“A healthy relationship with money is absolutely crucial,” Attila Morgan, Nuvision Credit Union’s manager of community engagement and public relations, said. If you shy away from planning for retirement, you’ll pay the consequences down the line.
3. Think About How Much You’ll Need
“It’s crucial that you know how much money you will need in retirement,” Roger Cowen, a retirement planner and owner of Cowen Tax Advisory Group in Hartford, Connecticut, said. This way, you’ll have an easier time figuring out an amount to save or invest. Don’t forget about inflation.
4. Pay Your Savings Account
There are bills that must be paid but you also need to pay yourself. This doesn’t mean buy something new — it means putting money aside for your future. As Warren Buffett said, “Don’t save what’s left after spending — spend what’s left after saving.”
5. Avoid the Couch Cushions
You won’t gain anything from hiding money under the mattress or in the couch cushion. Take that money to the bank. Sure, interest rates may not be high, but it’s still extra money you wouldn’t have had otherwise.
6. Make Sure You Have a Rainy Day Fund …
Experts generally recommend having at least three months worth of expenses socked away for emergencies. The amount you’ll need will change over time, so make sure it stays at the level you’d need.
7. … & Only Withdraw in Emergencies
You’ll want to use your emergency fund for “unexpected events, rather than dipping into your retirement savings,” Chad Smith, wealth management strategist at HD Vest, a financial services firm in Irving, Texas, said.
8. Set Up Automatic Transfers
“Having the money directly transferred will make [saving] easier,” Cowen said.
9. Avoid Duplicates
If you’re paying for multiple streaming services as well as cable, decide what you can cut. Same goes for multiple magazine subscriptions that you read online. Anywhere you’re doubling up, try to cut back.
10. Maintain Good Credit Card Habits
“Start small. Pay on time and pay of the balance in full at the end of each month,” Cowen said. This can help you maintain good credit.
11. Monitor Your Credit Scores
“Know your credit score and monitor it often,” Marc Cenedella, CEO of career website Ladders, said. Having good credit can help you get better terms and conditions “when it comes to taking out a line of credit or mortgage, which will make a big difference in your ability to retire at 65.” (Not sure where your credit stands? Find out right here on Credit.com.)
12. Invest in the Stock Market
“I think millennials are making a big mistake by not investing,” James Goodnow, an attorney at Fennemore Craig in Phoenix, Arizona, said. “If you take a long-term horizon, the market is still a safe bet.”
13. Don’t Shy Away Entirely From Risks
“We as millennials are in a fortunate position,” Goodnow said. “Because of our age, we are able to weather storms in ways that investors from other generations cannot. If there is another dip or crash, we have time on our side to help us recover.”
14. Utilize Your Company Matching
“If you aren’t contributing enough to get the free match from your employer, you are throwing money away,” Cowen said.
15. Consider a Roth IRA
Roth accounts are not taxed if you make withdrawals after retiring. “Starting young is the key to retiring rich and the Roth account is the best way to accomplish this,” according to Adam Bergman, the president of IRA Financial Group.
16. A Little in Column A, a Little in Column B
“Do not put all of your eggs in one basket — diversification is key, ” Richard W. Rausser, senior vice president of client services at Pentegra Retirement Services in White Plains, New York, said.
17. Adjust When You Get a Raise
“Increase your 401K savings every time you get a pay raise, no matter what,” Rausser said.
18. Evaluate Your Portfolio Over Time
“As you accrue a larger portfolio, take your winnings off the table often,” Young said. This way, you aren’t leaving all you earn at risk.
19. Review Your Budget
Just like you check in on your portfolio, you’ll want to look at your personal finances. Young recommends you “review your finances every three months to determine where you can save.”
“Use savings and financial planning software … so you can manage how much you save, spend, invest and donate,” Cenedella said.
26. Ask for Advice
Garner experience from those who have “been there, done that.” You never know what gems of wisdom they may have.
27. Set Goals
“Work to create a goals-based plan,” Smith said. “This will show you how saving over time can lead to retirement.”
28. Negotiate Your Salary
“Even an extra $5,000 can help at each stage,” Cenedella said. “The compounding effect is enormous, and there’s always room to negotiate.”
29. Always Have a Plan B
If your company downsizes, what will you do? It’s important to have a fallback plan at any age in case your current one doesn’t work out.
30. Don’t Rely on Your Credit Cards
Racking up a lot of credit card debt means additional interest fees and serious stress. Only charge what you can truly afford.
31. Make Money From Your Hobbies
“Teach guitar lessons, buy items at a garage sale and then resell them online or pet sit for a family,” Cowen suggested. “These are just examples of personal hobbies that could turn into extra cash.”
32. Sell Things You Don’t Need
Whether you post your items on eBay or have a garage sale, it’s better to profit from what you don’t use than to have it lying around taking up space. The money you get can go toward your IRA, savings or even paying off debt. (Want more ideas? Here are 50 ways to help you stay out of debt.)
33. Keep Your Old Car
The shiny new cars on the lot may be alluring, but if your car still runs fine and doesn’t require a lot of repairs, it may be smart to hang on to it.
34. Shop Around for Better Rates
Whether it’s how much you pay for cable or your car insurance policy, make sure you’re getting the best deal.
35. Say Goodbye to Annual Fees
If you’re carrying a credit card with an annual fee that you rarely use or that doesn’t offer perks that truly benefit you, consider cutting ties and getting a credit card with no annual fee. Just make sure your credit can handle the ding of canceling a credit card before doing so.
36. Be Careful with Co-Signing
“Co-signers are on the hook for timely loan repayment, so any missed payments — even for someone else’s loan — can hurt a credit score,” according to credit bureau TransUnion.
37. Pay Off Student Loans as Early as Possible …
The sooner you get these off your back, the less you will pay in interest over the years.
38. … But Don’t Put All Your Extra Money Toward Debts
It’s good to focus on paying off your loans and other debts, but you still want to set money aside for retirement — even if it’s just $1 every day, or $10 every pay check. Something is better than nothing.
39. Go for the Health Benefits
Health Savings Accounts (HSAs) help you save to cover healthcare costs with contributions that are tax-deductible (or pretax, if made through payroll deduction) and any interest earned is tax-free.
40. Consider the Protection You Get from Insurance
“You’ll save a lot of money over the next 30 – 40 years as you ready for retirement,” Dan Green, CEO of Growella, said. “All it takes is one accident, though, to clear those savings out. That’s the point of insurance … you get protection from loss.”
“Take advantage of transportation savings or flexible spending accounts that can save you money,” Cenedella said. “Invest the amount you save.”
43. Find Ways to Lower Your Bills
Whether it’s energy-efficient light bulbs or a smart thermostat, cutting costs on bills you have to pay can really help fatten up your wallet.
44. Invest Your Tax Refund
Getting money back from Uncle Sam may be just the ticket to increasing your investments.
45. Do the Same with a Bonus
If your boss rewards you for a job well done, consider taking part of that money and putting it toward your retirement savings or investments.
46. Strategize When You’ll Take Social Security
Even if you retire at 65, you may opt to wait until you’re at least 70 to start collecting on Social Security to make sure you get the most out of these monthly payments.
You may want to save more for your child’s education, but remember: They can take out a student loan or work a part-time job to pay for school. You can’t take out a retirement loan.
48. See If You Qualify for an IDA
Some people qualify for an Individual Development Account (IDA), where contributed amounts are matched.
49. Consider Meeting with a Financial Adviser
If you want more guidance from a professional, it’s a good idea to find one who is certified by the Certified Financial Planner Board of Standards.
50. Get Educated
“Invest in the stock market and the Forex market, but first get educated in both types of investments and do the math,” said Robyn Mancell, partner at Girls Gone Forex, a company that teaches women how to trade in the market.
If saving more money is on your to-do list, but you just haven’t gotten around to it, it’s time to stop making excuses. We’ve all told little white lies to ourselves about why we’ve yet to open a Roth IRA, save for a down payment on a home, or stop living paycheck to paycheck. But have we actually sat down and come up with solutions? Probably not.
To help you get out of this habit — and on the right financial footing — we’ve come up with a list of common excuses money managers often make. If you find yourself using one of them, you’re doing your money no favors.
I Don’t Have the Time
Saying you don’t have time to manage your finances is like saying you’re too busy to hit the gym. There may be some truth to your reasoning, but you probably refuse to make it a priority for another reason. Perhaps you’re dreading what you’ll actually find when you check your credit scores (you can do this for free on Credit.com). Or you’re afraid not making ends meet will mean having to change your behavior. Whatever the fear, avoiding the problem won’t solve it, and you’ll have to face up to it sometime. Start being honest with yourself so you can stop the shame cycle for good.
I’m Bad at Math
Not everyone loves crunching numbers as much as your algebra teacher. But that doesn’t mean you can’t come up with a system to better manage your finances. Plenty of free smartphone apps make budgeting a cinch for right-brain types, and if you don’t like using an app, then there’s always old-fashioned pencil and paper. Excel or other spreadsheet applications can be useful for those who like keeping tabs on their progress.
I Don’t Earn Enough Money
It’s rare to find someone who’s truly content with their take-home salary. But that shouldn’t hold you back from managing what you do have coming in. While it’s reasonable and even advisable to think about a raise, you owe it to yourself to make your current paycheck work for you. That means living within your limits — excessive debt is a no-go for building good credit, as how much you have (in relation to your overall credit) impacts a chunk of your score — setting aside what you can, and rewarding yourself for a job well done when you can afford it.
I Can’t Give Up My Lifestyle
If living a life of luxury now matters more than saving for the future, it’s time to assess your priorities. This starts with understanding a need versus a want — something you need, like food and shelter, versus something you want in the moment, like the latest eyeshadow kit. The latter may be a fun splurge, but it certainly won’t pay for your house or fund your retirement. It also won’t feel so hot when you get a hefty credit card bill or a dreaded phone call from debt collector wondering why you haven’t paid what you owe. Worse still: Being rejected for credit when you really need it to buy a house, get a job or help out a relative.
Remember, staying on top of your finances is often easier said than done. But you can make it easier for yourself by doing away with the excuses and getting proactive. Reaching your goals won’t happen overnight, but you’ll be well on your way to financial success if you start being honest with yourself.
Buying a home is one of the most significant financial decisions you will make in your lifetime. For many Americans, saving for a purchase of that magnitude can feel impossible. The good news is there is no shortage of strategies you can choose from. The number one factor to consider (apart from your income) is how much time you have to save. Depending on when you plan on buying, some options may be better than others.
Here’s a guide to saving for a new home with various timelines in mind.
If you want to buy a home in the next 3 years…
Every investment option comes with a degree of risk, and with only a few short years to save, it’s likely not a wise idea to take big risks with your savings. The last thing you want is for the money to lose value without enough time to recover.
In this case, you should be looking for savings options that offer safety rather than growth, like a high-yield savings account and certificates of deposit (CDs). These are very low risk and, best of all, come with guaranteed returns on investment. If you’re looking for the highest paying savings accounts in your area, you can use our free comparison tool. We also have a list of the best CDs for the month.
If you want to buy a new home in 4 to 7 years…
The longer you have to save for a home, the more creative you can be with your investing strategy. The key is to strike the right mix between safety and growth. You want your money to grow at a comfortable enough pace to beat inflation but maintain enough conservative investments to offset any potential losses you might experience in the market.
You may be able to achieve this with a 25/75 portfolio.
The 25/75 portfolio strategy is pretty simple — no more than 25% of your money is invested in stocks, and the remaining 75% are in bonds. This blend of stocks and bonds should allow your money to grow modestly while keeping safety top of mind. You can start this process by opening a brokerage account and choosing your own mutual funds to reach the right mix. But do your research first. For example, U.S. News & World Report maintains a list of funds that are ranked for their allocation, fees, and performance.
If you want to buy a home in 8 to 10 years…
Time is certainly on your side if you’ve got nearly a decade to save for your dream home. The key is taking on the right amount of risk. Because you have so much time to save, you can afford to take riskier investment bets, which can potentially reap much higher rewards in the long run.
Consider a 50/50 investment strategy: You’ll invest 50% of your savings in stocks and 50% in bonds. You should have just enough risk to ensure you’ll beat inflation and then some, but still be conservative enough to be able to weather any downturns in the market. To achieve the perfect 50/50 mix, you could split your money evenly between your own selection of stocks and bonds. For those who like a more hands-off approach, U.S. News & World Report has a ranking of mutual funds that are preset to give you the 50/50 allocation. There you can select the fund you feel suits you best.
Deciding where to invest
Where you invest your money matters. Save your money in the wrong place and taxes could eat up a portion of your gains each year. You could also be in a situation where taking the money out to buy a home could cause a penalty as well.
If you plan on buying a home in five years or more, strategically using a Roth IRA could be your best option. With a Roth IRA you can withdraw all of your contributions without penalty; additionally, you can withdraw $10,000 of the earnings without tax or penalty for a first-time home purchase.
Lastly, a plain brokerage account may suit you. There are no tax advantages to investing here, but if you’re using the account to buy a home in the future, there may be more benefits in other areas. You can only contribute $5,500 ($6,500 after age 50) in a Traditional IRA or Roth IRA, and withdrawals are subject to strict rules. A regular brokerage account, on the other hand, has no limits to what you can put in or take out for home purchases or any other purchases. Take a look at your situation and see which options fit you best.
What about my 401(k)?
A common question most people ask is whether they should use their 401(k) to grow the money and then use it to buy a home. This is usually a bad idea. If you withdraw the money before age 59½, you would be subject to a 10% penalty, plus income taxes on top of that amount. In addition, the amount that you withdraw could severely alter your retirement goals. This is called an opportunity cost.
A better idea, though still not one we recommend, is taking a loan from your 401(k). You are allowed to take a loan of up to $50,000 or half the value of the account balance, whichever amount is less. This is still a loan, however, meaning it could affect your ability to qualify for a mortgage. You also have to pay this loan back. Depending on your company’s 401(k) rules, if you leave the company, the entire balance of the loan might come due within 60 to 90 days after you leave. If you stay with the company, you could be required to pay the loan back within five years.
Thankfully, your 401(k) isn’t your only option. Taking money from a Traditional IRA is a bit better. You are allowed to withdraw $10,000 without penalty for a first-time home purchase. This may change your tax situation as any withdrawal would have to be counted as part of your regular income. For most people this still isn’t the best option but certainly better than dipping into your 401(k).
Making a clear goal
Do some research to see what home prices are like in your desired area. Then make a clear savings goal. An easy way to do this is to take 10 to 20% of the average home value in your area to estimate your downpayment. Use this calculator to see how long it will take you to reach your goal.
You Need a Budget (YNAB) is subscription-based budgeting software available both on desktop and mobile devices. Its trademark mantra is, “Give every dollar a job.” That means as you have money coming in, you assign it a budget category. Once you have one month’s worth of expenses fully funded, you can start budgeting funds for future months.
How Does ‘You Need a Budget’ Work?
When you first sign up for You Need a Budget, you will be asked to link your checking, savings, and credit card accounts. This allows the app to see exactly how much money you have at this very moment.
Next, you’ll add upcoming transactions like rent, utilities, and groceries. As you add these expenses, you’ll also be prioritizing them. The ones that are most important (generally rent or mortgage payments) will go on top, and the ones that are a little more frivolous like entertainment spending will go at the bottom.
After you’ve set up transactions you know are coming, you’ll be able to establish goals. You can set up goals by a date, in which case the app will tell you how much you have to save per month to meet your objective. You can also set them up by how many dollars you’d like to allocate toward them per month, in which case the app will tell you how long it will be until they are fully funded (or in the case of debt repayment goals, paid off).
You’ve linked accounts. You’ve accounted for bills and upcoming spending. You’ve set goals. Now it’s time to fund all of those things! You start with the money you have, and not a penny more. You assign each dollar to a certain line item, again, starting with the most important items at the top. Once you reach the end of your current funds, you won’t be able to budget any more until you get more cash in your hands.
If you are able to fully fund one whole month, then you can use any excess funds on hand to start funding the next month. The more you do this, the happier the founders of YNAB get. Their entire philosophy is that you should “age your dollars,” meaning the further in advance you can fund a transaction or goal, the more financial stability you will have.
How Much Does ‘You Need a Budget’ Cost?
Currently, You Need a Budget offers a 34-day free trial — no credit card required. After that, you will have to pay either $5 per month or $50 per year. Students get twelve months free, after which they’ll be eligible for a 10% discount for one year. If you have a previous version of YNAB, you’ll be able to score a 10% lifetime discount on the latest version.
YNAB is extremely transparent and seemingly ethical in their practices. They do not sell information to third parties, but may give others access to it in the course of business as they work to facilitate the software through companies such as Amazon Web Services and Finicity, which are two trusted names in the Fintech industry as far as security is concerned. Your data is always encrypted, and will be completely and irreversibly deleted upon request should you ever choose to close your account.
Pros and Cons
You Need a Budget is commonly recognized as one of the best budgeting apps around. That doesn’t mean that it’s perfect for everyone, though. Think through the pros and cons before downloading.
Committed to security and positive user experience.
Helps you change your financial habits through a simple, yet revolutionary, process.
Prioritizes your expenses each month.
Forces you to address overspending.
Allows you to set goals.
Can be used by those who get paid regularly and receive W-2s or by freelancers.
There are user guides and lessons accessible to members to deepen your understanding of common personal finance principles and concepts.
There is a community where you can get support.
There is a price for your subscription.
This won’t be good software for you if you’re a percentage budgeter as the interface makes no allowance for that method.
At this point in time, there are no reports or analyses to help you disseminate your habits. They are promised on the horizon, though.
How Does ‘You Need a Budget’ Stack Up against the Competition?
YNAB is an extremely useful and user-friendly app. However, it does come with a fee and is far from the only budgeting software on the market. Here are some other options you may want to check out if the YNAB $50 annual subscription is getting you down:
While it may not use the “give every dollar a job” philosophy, Mint.com solves very similar budgeting problems in a very free way. It allows you to link accounts, plan for upcoming expenses, and set goals. It also provides charts and graphs to analyze your past behavior and provides your FICO score at no charge — two things YNAB doesn’t do. The biggest con to this no-cost application is that it is laden with ads.
If you don’t like the idea of your financial accounts being linked to a third-party app, another free option is Wally. When you use this app, you’ll have to be a lot more diligent at inputting your income and expense as none of it will be automated, but that’s the price you pay for keeping your bank account info completely separate.
Level Money is a free app that allows you to link accounts, gives you insights into how much you have left to spend in any given category on any given day, and comes 100% ad-free. This app isn’t the best for the self-employed or those with variable income, and also isn’t as useful for those who make a lot of cash purchases.
Who Should Use You Need a Budget?
You Need a Budget is great for anyone who wants to get a hold on their money today, but doesn’t necessarily want to analyze their past spending. It’s developed for people who prefer budgeting by dollars rather than percentages, and comes with extra savings for students who are trying to establish good money habits at a younger age. It is time-tested, and is created by a company that has continually shown it cares for its customers.
Moving to a new home can be very stressful and also exciting. This may be your first time on your own without financial support. You want to ensure you are financially prepared and ready for the big step, so here are a few money tips to help you get started.
1. Build Your Credit
Before signing on the dotted line, you should consider building solid credit. If you have a good credit score, then you may get a low, fixed-interest rate when applying for a mortgage. If you ignore your credit score, then you may get a high interest rate or even possibly denied on your loan. If you are moving in with a partner, then consider sitting down with him or her and looking over your credit together. (You can view a free snapshot of your credit report, updated every 14 days, on Credit.com.) Whether you have a joint account or not, you are now both responsible for your mortgage and other expenses that come with your home. (Note: Landlords, too, often check credit, so it’s in your best interest to make sure yours is in good shape before filling out rental applications.)
2. Plan Your Budget Now
While you are still living at home, you might want to plan out your budget before moving into your new home. First, write down all of your current expenses, then include your “new home” expenses and how you will be paying for them. Your “new home” expenses may be furniture and appliances to start out, but you also want to include your mortgage or rent, utilities and any loans you plan on taking out. It might be difficult to guess how much all of your bills will be, but it’s beneficial to provide an estimate of how much you think it might cost. This way, you will be prepared and have enough money aside to pay for it.
3. Pay Down Your Debts
Moving to a new home comes with a lot of additional expenses. You might want to pay down a little (or all) of your debt now before taking on more. It might be impossible to eliminate a debt as large as student loans, but you should try to at least get your number down. So, if you already have steady monthly payments, consider putting a little extra toward it each month. Any little bit helps.
4. Save Money
Take out a pen and paper and write down all of your financial goals for your new home. Let’s say you’ve always wanted a large dining room table or a leather love seat. Try and find the cheapest option and start saving! You can choose to save one at a time or tackle each goal separately.
Whatever your strategy is, saving before you move will help you stay organized and avoid going into debt.
You might want to consider putting 10% of your net pay (take-home pay) toward your savings for your new home to help you get ready. You can even have a little fun with this and give your savings a name such as “A New Beginning.”
5. Practice Makes Perfect
You might want to practice paying your bills before you move out so you can get used to not having the money. This might be a little difficult at first, but it will only help you become more financially prepared for your move. If you find yourself struggling to meet your payments, then you may have to cut back on some expenses from your budget. If you are comfortable taking the money out of your account, consider putting it into your savings so you are ready to pay for it when you officially move in.
For all you 20-somethings out there, know this: We 30-somethings, we get it. We get what it’s like to be a 20-something struggling to find your way and make ends meet financially. We get that your baby-boomer parents don’t always seem to understand the social and financial pressures 20-somethings face nowadays. We get that times have changed, and that financial advice from folks 30 years your senior – folks who themselves grew up in a dramatically different era – doesn’t always seem relevant. We get what it’s like to be you because we so recently were you. In many ways, we still are you.
That said, while the gap in years between your 20s and your 30s isn’t all that large, the life changes that often occur in that time period tend to be dramatic. And whether it’s marriage, children, or the fact that some of us are now closer to 50 than we are to 20, most 30-somethings, myself included, suddenly find themselves looking back at a long list of financial moves we’re either glad we made or wish we made when we were in our 20s.
So, without further ado, here are 10 pieces of financial advice I wish I had known in my 20s.
1. Live at home for as long as you can.
If the offer to live at home is on the table, then consider yourself lucky and take it. Even if only for a year or two, the savings are significant. I know living with your parents might not seem hip, but take it from a 30-something, there’s nothing hip about paying thousands of dollars in rent unnecessarily. If you do live at home, be mature about it. Help out around the house when and where you can, and don’t be surprised or offended if you’re asked to chip in financially.
2. Pursue a postgraduate degree only if you’re sure you’ll need it and use it.
The world is littered with 30-somethings who piled on additional student loan debt to pursue an expensive postgraduate degree they’ve never put to use. Not knowing what you want to do is fine. Paying for graduate school on account of it is not.
3. Don’t make money-driven career decisions … yet.
Now, I’m not saying money shouldn’t be a consideration when weighing job offers and career paths. But I am saying that for a 20-something, it shouldn’t be the only consideration. There will come a day when, out of necessity, financial considerations guide your career decisions. Your 20s shouldn’t be that time. Instead, use your 20s to explore, learn, and find a career you find fulfilling and, hopefully, enjoyable.
4. Keep credit card debt out of your life.
By the time your 30s roll around, you will regret every penny you spent paying interest on a credit card. Use your credit cards to build your credit history and earn rewards, but be sure to pay them off in full every month.
5. A 401(k) match is your best friend.
Regardless of what decade of life you’re in, free money is free money, and it’s never to be passed up. If you’re lucky enough to work for a company that offers a 401(k) match, then be sure to sign up and start contributing from day one.
6. A Roth IRA is your second best friend.
One of the best ways for 20-somethings to put themselves in a great financial position come their 30s is to start investing in a Roth IRA as soon as possible. If you’re not familiar with a Roth IRA, there are many great resources available to help you learn. But it really is pretty simple. You contribute after-tax money, and your investments grow tax free and cannot be taxed as ordinary income if withdrawn during retirement.
7. Automate everything.
One of the major advantages you have as a 20-something is your comfort and familiarity with modern online tools and technology, a growing segment of which is being built specifically to help you get a head start financially. Perhaps the best thing modern technology does is help you automate everything. Automation is the easy button for managing your finances as a 20-something. So, whether you’re talking about credit card payments, bill paying, 401(k) contributions, investments in your Roth IRA, or anything in between, automate it and know it’s done.
8. Skip the wedding of the century.
Yes, I know, easy for us to say. We 30-somethings all spent a fortune having grand weddings. But that’s exactly the point. We spent a fortune. And trust us, your wedding day will fly by, and you won’t remember every last detail about place settings and flower arrangements. What you will remember is how much you spent on it. There’s no limit to the good use to which 30-somethings could put all that money spent (or should I say, blown) in one day.
9. Spend on experiences, not things.
As we 30-somethings can attest, you’ll never look back and regret the things you didn’t buy (they go out of style fast anyway), but you will regret the experiences you never had. Which is why it’s no surprise so many millennials prefer to spend money on memorable experiences, like traveling the world, over things, like the hottest smartwatch.
10. Understand that time is on your side now, but it won’t be forever.
The biggest financial advantage you have as a 20-something is also the most fleeting – time. Hard as it may be to believe now, your 30s aren’t that far off. Whether it’s planning, saving, or investing, the sooner you start, the better off you’ll be.
If there’s one thing you take away from this long list of advice, make it that last point. There are few absolute truths in the world of finance, but in all aspects of money management, if you get started as a 20-something, you’ll be glad you did once you’re a 30-something. Trust us on that one.
If you’re earning more but still feel like you’re living paycheck to paycheck, there’s a likely culprit: lifestyle inflation. Lifestyle inflation is the ultimate budget-killer — a widespread phenomenon that occurs when people spend more as their income increases. Before they know it, that raise or bonus they earned slowly but surely disappears … right into that cell phone upgrade, a bigger apartment, or those few extra takeout orders each week.
Any financial planner can offer sound, reasonable methods for avoiding this problem: Stick to a budget. Automate your savings. Bump up your 401(k) contribution. The solutions seem easy enough, but no matter how much more you earn, you still feel like you’re living paycheck to paycheck.
We’ve come up with three simple reasons why you might still feel broke — even though you’re earning more — along with strategies on how to overcome them.
You don’t know what you want from life.
One reason many people struggle to keep their spending in check as their income increases is that they aren’t intentional about how they spend their money, says Meg Bartelt, founder and president of Flow Financial Planning. Bartelt encounters this problem every day with her clients, who are mostly women working in the tech industry who earn healthy paychecks but live in expensive cities.
When people are clear about their reasons for earning money and the goals they hope to achieve with those earnings, it becomes easier to avoid the kinds of incremental spending increases that can quickly consume their budget.
“Ask yourself why you worked hard for a raise,” says Bartelt. “Was it so that you could eat out more or buy fancier clothing or have a better streaming subscription … or was it so that you could make a meaningful change in your life?”
Goals — whether it’s being able to retire at 45 instead of 65, sending your child to college, or buying a home — give workers a reason to keep an eye on their spending from paycheck to paycheck.
To help figure out your financial goals, Bartelt suggests asking yourself a specific set of questions:
What do you want out of life?
What do you want to do, have, or accomplish?
How much money is it going to take to get you there?
And how are you going to get that money?
Taking this approach may also make the concept of budgeting more palatable. Saying “no” to a few upgrades in your life will feel less like deprivation, and more like a positive step toward the future you imagine for yourself.
You compare yourself to others.
Nothing can threaten a healthy budget like a serious case of “FOMO” — fear of missing out.
It can be hard to keep long-term, big-picture goals in mind amid the constant stream of filtered photos of international trips and nights out posted on social media. “It’s a huge contributor [to lifestyle inflation], especially for younger generations,” says Stephen Alred Jr., founder of Atlanta, Ga.-based financial planning firm Ignite Financial. Constant, real-time coverage of internet acquaintances’ adventures can make people feel worse about the state of their own lives and distract them from what they really want or need. Then, when a raise or a bonus comes into play, they are more likely to spend it on something that fits into that picture of what they think they should be doing, rather than what works best for their future goals.
It’s important to remember that you won’t get the full picture of someone’s life by looking at their social media profile — for example, you won’t know that the friend who took the tour of Italy last summer is still paying off the resulting credit card bill a year later, and you won’t see that a person only ordered appetizers at that fancy restaurant she went to last week, says Alred. Focusing on your own needs and goals, separate from those of the people in your life and in your social network, is critical to being happy with the state of your finances and your life, now and in the future.
You haven’t addressed negative spending patterns.
Once your financial goals begin to take shape, the hard part isn’t quite over. If you have a pattern of spending money as soon as it’s in hand, it’s going to take a while to change that behavior. Alred calls this a “behavioral barrier” — something people do every day with money that prevents them from reaching their financial goals.
It’s calling Uber every time you’re at the office later than 5 o’clock. It’s using your credit card to pay for even the smallest purchases. It’s grabbing a $15 salad for lunch every day.
These behaviors can crush financial goals, whether a person earns $30,000 or $300,000. Getting the right habits in place now will not only help combat lifestyle inflation this year — it will help down the road as income (hopefully) continues to grow.
Come up with strategies to help break those negative spending habits. For example, we’ve written about a simple $20 rule that can help break your credit card addiction.
But don’t be too tough on yourself. You shouldn’t deprive yourself of simple pleasures or pinch pennies to the point that you’re putting your mental or physical health at risk. Budget for the things that you know will bring you happiness, like the weekly dinner with friends you can’t miss or your daily $5 latte.
“Be clear about what’s important to you,” says Mary Beth Storjohann, financial planner and founder of Workable Wealth. “You can do it all, you just can’t do it all at once.” Once debts and savings goals are taken care of, “20% should go toward something fun,” says Storjohann. Building in some flexibility will help you avoid stress and self-loathing down the road — and will allow the occasional indulgence without throwing savings goals off track.
The bottom line:
Rigid financial rules may work for some, but will be hard to implement without a solid reason for following them.
“It’s like a diet. If you restrict your calories significantly, maybe you can last for a week or a month,” says Bartelt. “But most likely, you’ll revert to your old habits in the long run.”
Perhaps you’ve heard of 401Ks or already contribute to one, and you’re intrigued about how you can use them to fund your retirement. These employer-sponsored plans are there to help you do just that, so it’s in your best interest to take advantage of one, especially if your company offers saving incentives, like a company match. We asked Robert Dowling, a financial planner with Modera Wealth Management in Westwood, New Jersey, who’s worked with high net worth individuals for 18 years, for tips on getting the most from your 401K. Here’s what he said.
1. Contribute More Than 3%
Most people who sign up for a 401K start out by contributing 3% of their salary, Dowling said. But if your budget can handle it, it wouldn’t hurt to raise that percentage, even just a bit. “Try to participate as much as you can without putting yourself in dire straits,” he said, noting the danger of overspending. Over time, your savings will thank you. (Concerned that your spending is out of control? You can get a sense of where your debts stand by viewing two of your free credit scores on Credit.com.) “We suggest every year to work it into your expectations to increase your contributions by 1%,” Dowling said. Some plans even allow you to fill out paperwork so your contributions rise automatically.
2. Enroll in Your Company’s Match
“Take advantage of your company match to maximize company contributions,” said Dowling. “It can be quite powerful.” And besides, it’s free money!
3. Know Your Company’s Vesting Schedule
While taking advantage of your company match can help you boost contributions, you won’t get far if you leave the company before they’ve vested — i.e., the company’s given you ownership. “What a company will say is, We will reward you with matching contributions, however, we want you to work for us for a certain period of time,” Dowling explained. So it’s important to know what that schedule is, especially if you’ve got one foot out the door. With the schedule in mind, you’ll be able to ask yourself if it makes sense to forfeit the company’s share of your savings rather than stick it out.
4. Play Catch-Up With Your Contributions
Those under 50 can contribute a maximum amount of $18,000 to their 401K every year, said Dowling. However, if you’re 50 or older, that maximum jumps to $24,000, meaning you can contribute an extra $6,000. “Sometimes folks aren’t aware of that,” he said, so “we remind clients to start their catch-up contributions,” as the provision is called, “early.”
5. Sock Away Your Bonus
When someone says “bonus,” we can’t help but think of steak and fancy nights on the town. But the fact is, the more you can contribute to your 401K early on, the better prepared you’ll be for whatever life throws your way later, Dowling said. Also, if you’re having a hard time making those weekly, bi-weekly or monthly contributions, what better way to get a leg up than by throwing your bonus right into retirement savings? Bonus points if you tell HR that’s your plan, Dowling said, since companies tend to view this as a longterm benefit. You can even ask to have the bonus direct deposited into your account.
6. Take Out a Loan
Though we’d never recommend borrowing money you can’t afford to pay back, it is helpful to know you have the option to borrow against your 401K. According to Dowling, some programs allow this, and you can take out up to $50,000. Rather than pay interest to a creditor, with a 401K you pay it back to yourself by putting the money in the plan, Dowling said. There can be penalties for defaulting on these loans, so make sure to do your research before choosing this option.
We’d all love to have our own personal financial expert at our beck and call, but not everyone can afford to keep a Certified Financial Planner on the payroll. Books, on the other hand, can be an excellent — and affordable — alternative if you’re looking for ways to improve your wealth, find success, and learn how to invest. Lucky for you, we’ve reached out to the experts themselves to find out which personal finance books they always keep handy.
“Understanding investments and having a quality portfolio are of little benefit to investors if it’s not accompanied by wise investment practices and disciplined financial habits. Both of these recommended books emphasize the latter, and avoid the technical descriptions and potentially confusing explanations that most financial books entail.”
The Richest Man in Babylon covers the perks of thriftiness, financial planning and personal wealth, offering timeless principles that can benefit readers for years to come. “I’d recommend it to anyone,” says Smith,” but particularly those of a younger age who have time on their side and can more easily benefit from compounding [interest].”
The Millionaire Next Door, on the other hand, emphasizes the ease with which anyone can become wealthy, and discusses how the typical millionaire is often much different than perceived.
“Those who have become millionaires are generally not those who own the biggest homes or drive the fanciest cars, but rather they’re common, everyday citizens who saved regularly, invested wisely, lived within their means and developed sound spending and investment habits at an early age,” he says. “It gives hope to anyone who might otherwise believe that the rich are only those with the highest paying jobs or beneficiaries of good fortune.”
Why he recommends it: Let’s face it. One of they key components of building wealth is doing well in your career. That’s why The Presentation Secrets of Steve Jobs is at the top of Adkins’ list. The book focuses on teaching people and public speaking skills anyone can use to achieve personal success. “The message of this book is that Jobs’ extraordinary impact is based on his authenticity and his passion for his company’s people and products,” says Adkins. “Everyone with a product or service that improves people’s lives has a story to tell and can learn from Jobs.”
Why she recommends them: For budding investors, Stanifer says there are no better books to help explain the ins and outs of the stock market. Both books caution against pure stock picking in favor of investing in a broad array of assets. Bogle’s The Little Book of Common Sense Investing is practically mandatory reading for anyone wanting to learn more about the power of a diversified portfolio.
Why he recommends them: For books that focus on personal growth, Jones says it doesn’t get much better than these two Covey classics. “These books have stood the test of time and offer great re-readability factors,” he said.
Why he recommends them: “Spier’s lessons — many of them learned the hard way — teach the reader about gratitude, surrounding yourself with the right environment and modeling the right people, his own hero being Warren Buffett,” says Bohnsack. “The book challenges the reader to become a better investor, but so much importantly to be a better version of yourself.”