Our 30s are a time when you tend to be a little more settled. Perhaps you own your home, have a long-term partner or spouse and maybe some kids.
You’ve climbed the corporate career ladder and earn a good salary. You can drink decent wine and organic food.
Life is good.
Apart from one nagging thing in the back of your mind. Your finances.
Perhaps you still juggle credit cards or have your student loan hanging over you. Or you are just not really sure what is going on with your money but you kind of ignore it and just continue to spend it all.
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Your 30s are the perfect time to really understand what is going on with your money. I like to call it the ‘yay, oh shit’ time of your life.
‘Yay! I finally earn a decent wage and don’t have to eat beans on toast all the time!’
‘Oh shit! Suddenly turning 67 (or whatever the standard retirement age is) doesn’t seem so unbelievably ancient anymore.’
You might even be thinking that another 30 years in your corporate job sounds like the Greek myth of Sisyphus. (Sisyphus is eternally condemned to pushing a big rock up a hill, only for it to roll back down as soon as he reaches the top).
So, how do you get more ‘yay’ and less ‘oh shit’?
That way you know exactly what your situation is and can decide to spend on what truly makes you happy.
You can then save the rest so that you can secure your financial future and then boost the savings or income further to either retire as early as possible, leave your career to start a business or even drop down to part-time hours to spend more time with the kids.
Being in control of your finances will also give you peace of mind so that little dark cloud of doubt and confusion will stop following you everywhere.
The first step to knowing what the F is going on with your finances is to figure out your net worth. This just means what you OWN minus what you OWE.
Net worth is usually referred to in terms of ‘Assets’ and ‘Liabilities’.
Assets = what you own
Liabilities = what you owe
So you add up everything you own (house, car, checking accounts, saving accounts), and then minus off everything you owe (credit cards, mortgages, car loans, student loans).
This will get everything down in front of you so you can clearly see where you stand RIGHT NOW in terms of your financial picture.
If you want to read further about assets and liabilities then I can highly recommend Rich Dad Poor Dad by Robert T. Kiyosaki.
The number one thing that has made me good with money and able to grow my net worth, is tracking my spending.
I’ve had a budget spreadsheet since 2007 which I fill out diligently every month (apart from a year gap when was living abroad and the exchange rate made it too complicated, or I was lazy, one of the two).
There are a few reasons why tracking your spending is so important:
If you are in the UK, Money Hub is a new app that is about as close to Personal Capital as you can get I think. I will be trying it shortly so will report back!
I stumbled upon this concept after reading Get Rich Slowly – Be Your Own CFO (free PDF) and it really did rock my world (I am a money geek but it is still awesome!).
The idea is that instead of thinking about saving in terms of $ or £ (or whatever your currency is), you work out your savings as a percentage.
It is much easier to keep track and also stops you from inflating your spending whenever you get a pay raise.
It works like this. Say you earn $3,000 per month, and you save $300. You would have a savings rate of 10%.
If you got a pay raise which meant your new salary was $3500 per month, you would need to increase your savings to $350 in order to maintain the same savings rate.
This also makes it easier to set a target savings rate and track it each month.
One of the things I stuck my head in the sand the most about was my pension. I just didn’t really understand it. The paperwork from my workplace pension was incomprehensible so I just ignored it.
Once I started to look into it, I felt much clearer and was able to make a decision about how much to put into it.
Pensions were first introduced in 1908 in the UK as a way to prevent poverty in old age. Ironically, these were payable at the age of 70 when the average life expectancy was 47…….
In the US they were brought in for soldiers originally and the first corporate pensions were introduced in 1875 by American Express.
As an example, I plugged in some made up numbers into the UK pension calculator I mentioned above. I put in the scenario of £0 in my pension right now and the desired income of £35,000 in retirement at the age of 57.
I would need a pension pot of £1.28 million which means I should be paying in £1,572 per month from NOW (I am 38).
Enter your numbers into a retirement calculator. It may be a shock but DO IT. Don’t wait any longer if you haven’t started planning for your retirement.
If you have rental properties, dividend payments or interest from other investments, then these will also make up your income in retirement. Therefore you don’t need to save as much into your pension.
I personally contributed just enough to my corporate pension to get the employer match, then I opened my own private pension, bought rental properties and invested in index funds with a Vanguard account.
(I am not a financial advisor so you will need to make your own decision on how much you need to put into your pension. I saw an advisor and then made my own decisions after a lot of research and reading books on money and investing. You can read my blog post about the books, podcasts, and blogs I used here)
When I first started learning about money, I found the stock market terrifying.
It seemed like this big volatile beast which would swallow my money into the abyss, never to be seen again.
Thankfully this isn’t true, and I have a fair bit of my net worth invested in stocks and shares via Vanguard.
I used personal finance blogs and books to understand how it worked. It took me a while to understand it and decide how I wanted to invest.
Everyone is different is their attitude to risk and I am not going to tell you what you should do.
I personally prefer index funds as they track the stock market and I can just buy the Vanguard fund I want, set up an automatic payment and forget about it.
The book I personally loved that helped me understand index funds was A Simple Path to Wealth by JL Collins. I have met him in real life and he is an awesome guy.
An investment in knowledge pays the best interest. –Benjamin Franklin
Ooooh they’re a sneaky lot those marketers and advertisers. Everythingfrom pricing, to shop layout, to celebrity endorsement is done to make us spend more.
Get wise to the tricks so you are making intentional decisions to spend rather than influenced decisions.
Advertising a product at a higher price (for a set period of time) before marking it down to make it look like a sale item. This called ‘Anchoring’.
Pricing two items in such a way that makes economic sense to buy the higher priced item. This is why you often see 3 purchase options, the middle one is almost always the one you choose and it is designed that way to make it look like the most logical purchase.
Where you do something or buy something because you see others doing it. This is why social media influencers are paid so highly by brands as they much more likely to get customers by someone else seemingly ‘unrelated’ is shown wearing or using their products.
Showing customer testimonials is more likely to elicit an emotional response from us as we relate to their story. We are then more likely to buy.
For some reason when restaurants leave off the £ or $ sign, we are more likely to spend more.
Putting more expensive goods at eye-level makes us more likely to buy them. That’s why the cheaper own brand alternative is always on the bottom shelf in the supermarket.
Either the product is part of a limited time offer, or advertised as ‘limited stock’ Neither of these are true, it just to force the customer to make a quick decision.
Pricing a few products really low to get you into the store or online as it is very likely you will purchase more items (at a higher price and better profit margin).
People are more likely to buy an item when it ends in an odd number. Hence .99, .97 and .95 as price points.
There are literally thousands of tricks that marketers and advertisers use to trick you into spending more.
Once you are aware of it, you become immune and only spend on what you need.
Once you track your spending and understand the tricks that brands use to get you to spend more, you can decide what truly makes you happy and what you can cut out.
It isn’t just about cutting things out to reduce spending, it also reduces brain power and time.
Say you have your nails done once a fortnight and decide that you would rather have the cash to invest.
You are saving money by not paying for a manicure. Brain power is saved by not having to remember to book appointments. Time is saved by not having to book or attend the said appointment. Triple win.
This is a very personal thing, only you know what truly makes you happy and what you can live without.
Personally, I stopped getting nails done or buying clothes, but I kept holidays in as to me they are experiences and memories that I don’t want to cut out.
I love money. I love everything about it. I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline powered turtleneck sweater. And, of course, I bought some dumb stuff, too. –Steve Martin
If you want to achieve money goals quicker, increasing your income is a great way to fast-track.
A side-hustle is a good way to earn extra cash but make sure you have the time and brain capacity to do so. I tried to start a side-hustle while working a 12 hour job and nearly broke myself.
Also be wary of ‘make money quick’ claims like ‘start a blog’. These annoy me as a blog is an incredible amount of time invested and hard work. It is not a quick or easy thing.
If you are in a senior position at work, you might find consulting is a much quicker way to earn money. Or selling clutter on eBay, or even just asking for a pay raise if you think you are underpaid.
Renting a room on Airbnb or the whole house when you are on holiday in another good way to earn some extra dosh.
Once you have started tracking your spending and have calculated your savings rate, you can start to divert some of your savings into an emergency fund.
This is for, well, emergencies!
I can’t recommend doing this enough.
If you spend everything you earn and you were made redundant tomorrow you would be royally screwed if you couldn’t find another job straight away.
Also, other expenses come up sometimes that you haven’t planned for, like the car breaking down.
Having an emergency fund will help you breathe easier as you know, whatever happens, you have it covered.
Your emergency find is normally held in a cash account and can be between 3-12 months of living expenses. It’s up to you how much you hold. I personally have around 6-7 months in mine.
If you have student loan debt or keep maxing out your credit cards. Now is the time to sort it the F out.
If you can’t trust yourself with a credit card. Don’t use them.
I didn’t have one for 10 years and had no problem with my credit rating or getting approved for a mortgage.
Once you have worked out how much you can spend each month, and what you can save, get going on paying the debt off as fast as you possibly can.
Not only to reduce the interest payments but also because it’s going to make you feel a hell of a lot better once it’s paid off.
Put together all of what you have learned to finally get control of your money. Just to recap this is what we went through:
Control your money and you will feel so much more confident about the future and how you use your finances to give you peace of mind and options.
Money is a tool. Understand what you have. Grow wealth slowly by consistently investing. Automate it. Spend only on what truly matters.
Money is a terrible master but an excellent servant. –P.T. Barnum
Other blog posts you might want to read!