How to handle money in your 30’s

Hello Smart Money People,

Ahhhh.. the 30’s.

Welcome to this pivotal and busy season of your life! The 30’s! It is the decade of growth. There is career growth, possibly marriage, personal growth, starting a family, investing in your first home, MAKING SURE YOU HAVE an emergency fund (see THIS post on emergency fund). Deciding RIGHT NOW what you want the next 30 years to look like.

In our 30’s, although not fully intentionally, we made some smart moves. We lived below our means, we bought the least desirable house in the neighborhood and renovated it. We moved from a high cost housing market, southern Connecticut, to a lower cost housing market, North Carolina. In hindsight, had we really focused and did what I am about to tell you to consider, we would be in a different place. Don’t get me wrong, we made out better than okay, but it could have been even better had someone told us. My wish for you is that you can no longer say, after reading this article, “I wish someone would have told me.”

Consider yourself TOLD, here is what you should think about and decide on in your 30’s:

  1. Save as much as you can.
  2. Housing. Consider buy a house that you fix up or live-in-flip. Not sure if that is what the experts call it, but it is when you buy a meh house and live in it while renovating it and then selling it for a profit after it has been renovated. If that period of living and renovating is beyond 2 years, good news, you avoid capital gains!!
  3. Don’t spend money on things that don’t appreciate. Like CARS.
  4. Consider how much you spend on experiences at this point in your life. Vacations and entertainment are the 2 biggest variable expenses Americans spend on monthly. According to THIS article in entrepreneur.com the average cost American spends between $4,000 and $4,700 on vacations.
  5. Healthcare. The number one cause of bankruptcy in America is healthcare cost. Check out this ARTICLE from The Huffington Post.
  6. Think about multiple streams of income. If you have one stream of income, all your milk comes from one cow. Should that cow become a steak, you need to find another cow.

Let’s look at 2 couples. For illustrative purposes we will call them the Jones and the Smiths. Each have the same starting statistics. The Jones live below their means in all areas. The Smiths don’t.

THE JONES (both 30 years old) THE SMITHS (both 30 years old)
Combine Spouse Income $120,000 $120,000
HOME
Home Purchase $175,000 $225,000
Duration of mortgage loan 15 years 30 years
Loan amount $140,000 $175,500
Down payment $35,000 (20% avoiding PMI) $49,500 (20% avoiding PMI)
Monthly mortgage payment $1,107 + tax +insurance $939 + tax +insurance
Total payment over the course of the loan $247,092.49 $324,923.41
CARS
Car 1 loan $7,500 for 36 months $12,500 for 60 months
Car 2 loan Paid cash $0 loan $12,500 for 60 months
Total loan debt $7,500 $25,000
Monthly payment $220 @ 3.5% $454 @ 3.5%
Total cost of loan $7,912 $26,827
VACATIONS
Vacation spend over 15 years $45,000 $120,000
ENTERTAINMENT
Entertainment over 15 years $54,000 $108,000
TOTAL DEBT OVER 15 YEARS
Home $247,092.49 $324,923.41
Car $7,912.00 $26,827.00
Vacations $45,000 $120,000
Entertainment $54,000.00 $108,000.00
Total Expenses over 15 years $354,004.49 $579,750.41
IN SUMMARY
After 3 years the Jones paid off their car, but they continued to save the $220 for the next 12 years that savings $31,680 Unfortunately, the Smiths bought new cars every 5 years and never actually got rid of either car payments.
Because the Jones lived below their means, after 15 years of reasonable vacations they saved $75,000 The Smiths worked hard and played hard. They took nice vacations annually.
The Jones ate out less, entertained at home more and banked the savings that equaled $54,000 At the end of a long work day and work week, the Smiths treated themselves to dinners and lunches out 2 – 5 times a week.
If they invested these savings month over month at 5% over the 15 years they would have $238,794 0
AND A PAID OFF HOUSE! The Smiths have 15 more years to go on their mortgage.

The moral to the story is in this case, you want to keep up with these Jones’. Over the course of 15 years, the Jones have a paid for home, paid for cars, have enjoyed vacations and entertainment at a reasonable rate.  In short, the Jones took the $238,794 as their starting investment and added the savings from vacations, entertainment AND their mortgage, because the house is paid off, and in the next 15 years, all in, they have saved and invested $1,130,243. The Jones are now millionaires. You know what else the Jones have? CHOICES.

We don’t often like to talk about money or saving because it feels like sacrifice. I will tell you first hand, it is more freeing than anything in the world to not live pay check to pay check. To have a paid off home. To have paid off cars and no student loans. It wasn’t always this way but we did it in our 30’s and wish we had started even earlier.

This is what decisions in their 30’s offered the Jones later:

  1. Do we want to invest in other ventures that will create multiple streams of income, like real estate?
  2. Do we want to invest in starting a business?
  3. Do we want to continue to invest and target retiring earlier than 75 (YIKES! That is what THIS research says according to NerdWallet, when the average millennial can retire).
  4. Do we want to travel?
  5. Do we want to “you fill in the blank?”

If the Jones can do it, you can do it!

You’ve got this!

Xoxoxo

Karen & Bill

https://www.usatoday.com/story/money/personalfinance/2015/11/11/lunch-saving-budget-dine-out/75170170/

App called lunch tracker.

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