25 Things Every Guy Should Know About Money Before He’s 30
CREAM, or “Cash Rules Everything Around Me,” is dismissed as a rap music catchphrase from the 90s, but it’s true as hell. That’s because money influences literally everything you do in life, from what you do to get it, to what you spend it on, to what you don’t spend it on (because you don’t have it). Money makes people powerful. (Not enough) Money ruins relationships. Money buys you access, favor and stability.
And yet! The world of personal finance is endlessly complicated, and our education system does a lousy job educating us in its ways. That’s why, when you’re a young teen or 20-something making your way in the world, you can be forgiven when your understanding of finance stops at “how much I have in my bank account.” But beyond that? Once you hit your 30s, the clock has run out. If you don’t have a solid understanding of the following, you’ll have a tough time retiring comfortably.
Know Your Credit Score
Like it or not, fair or not, your credit score influences everything from loan rates and approval, rent and mortgage applications and even your job prospects, in some cases. Just knowing it is the foundational bedrock of pretty much the rest of your financial life.
Negotiate Your Salary
Your employer has no incentive to offer you more than what they think will get you to accept a job, and yet you have every incentive to ask for more. Your income will probably be your primary wealth-building vehicle, so small bumps at the outset can have a big effect later on. Plus, it puts you on a path to consecutively higher salaries and pay raises. You may be able to work yourself up to a market rate after starting low, but you’ll never catch the person who had the sense to ask for a little more to start with.
Pay Yourself First
This is an old adage, and a true one. When you get paid, the government takes their cut off the top. Then some will go towards non negotiables (bills), and the rest is yours. If you have any kind of financial future planned, it’s essential that you pay into that first before using the rest as you wish — not the other way around.
The thing about risk is that it’s inherently tied to reward. While you’ll never go broke investing all your money in savings bonds, you won’t earn much, either. On the other hand, more volatile investments offer the prospect of a higher return in exchange for a higher risk of loss. Relatively speaking, you should have more appetite for risk in your portfolio as a younger man, growing more cautious as you age.
Start Saving Early
You’ve probably seen the example math problems, and they’re true: thanks to the power of compound interest, a man who starts saving a little in his 30s will have a massive head start on one who starts saving a lot in his 40s. You shouldn’t force yourself to live an unsustainably spartan lifestyle in order to maximize savings, but putting away even a little earlier than later will pay dividends.
Understand How Credit Scores Work
Prompt bill payment is the most crucial aspect of your FICO score, but it’s not the only one. They also take into account things like your total debt load, how long you’ve had credit accounts, how recently you’ve opened them, closed them, etc. You could have a spotless payment history, but if you’re the type to, say, open a store credit card for a discount only to close it shortly thereafter, your score will take a hit. Similarly, if you’ve had an account for years and now have a sky-high credit limit (even if you never approach it), that could spell trouble at your next loan application.
Insurance Isn’t A Scam
Well, some of it is — there are ways to use life insurance as an investment vehicle that are dubious at best. And while car insurance can be a sticking point, the premiums for essentials like home, renters, flood and basic life insurance are all pretty affordable. If they weren’t worth it, people wouldn’t buy them.
Cash Savings Are Important
Most people focus on their retirement holdings, and that’s great and important. But are you prepared to survive when disaster hits, like losing your job or an uncovered medical emergency? Most experts recommend having anywhere from three to six months expenses worth in liquid savings. Even if that’s unrealistic of you, contributing to your non-retirement accounts should absolutely be a priority when paying yourself.
Diversify Your 401(k)
If you understand risk (see above), you know why having all your eggs in one basket is a bad idea. If your 401(k) is managed by a brokerage house, you probably have options ranging from index funds, mutual funds, bonds and even individual stocks. You should have irons in several fires, calibrated to your individual risk tolerance.
Take On Debt Without Ruining Your Credit
People fear debt, but not all of it’s bad. Debt can get you a college degree that will pay off in the long run, and it can put a roof over your head. The key is to avoid bad debt, things like credit card bills you can’t pay down and missed payments on bills you can’t afford. No matter how badly you want something, it probably isn’t worth opening new lines of credit for if you’re already struggling to pay your mortgage.
Renting Isn’t Always A Waste Of Money
The standard critique of renting (a home, at least) is that you’re throwing money away that you’ll never get back. And while that’s true, renting often means access to amenities and locations they couldn’t otherwise afford. Those things have value, though they vary from person to person. And depending on where you live, renting may be the only way to get the right amount of house for you without needing land and all the maintenance that comes with it. Similarly, a car is a depreciating asset — if you can lease a nicer one for the same it would cost to buy a crappy one, is that really wasted money?
Buying A Home Isn’t always An Investment
While purchasing a home does mean you’ll eventually own the asset, we learned the hard way recently that home values don’t always go up. In fact, while certain locations and regions vary, home prices overall tend to rise modestly — just at or below inflation, in some cases. That’s not an argument against buying a home, of course, but it’s an argument against buying a home purely as a cash vehicle. Don’t confuse it with investing in real estate as a business sector, which is a different animal.
Automate Whenever Possible
There are so many wonderful tools available now to help you manage your finances, and you should use all of them. Unless you’re super disciplined, it can be hard to look at your paycheck and force yourself to shove about a third of it into savings — especially when your favorite band is playing this weekend. But with automation, you don’t even have to worry about it. What you see is what you have, because the rest has already gone where it belongs.
Tax Professionals Exist For A Reason
It’s true that it’s usually easy enough to use an online tax prep service to file your 1040ez forms, but it’s also true that the employment landscape is changing in a way that fewer and fewer people can file that simply. What’s more, you may be eligible for any number of deductions based on things like moving, getting married, having children or buying a home. All of this is to say that it’s worth it to spend a few hundred bucks on a CPA. A good one will cover all of these bases, and you can deduct their fee from your income.
Money Can Buy Happiness (Sometimes)
Not all old sayings are true. Recent research has found that spending money on both experiences and material goods generate a lot of happiness, just in different ways. Experiences tend to create an intense but fleeting happiness, while material goods are less intensely satisfying, but more sustainably so. But when looking to make an indulgent purchase on a limited budget, try to frame things in a sense of what you’ll use most often. A jet ski may be cool, but a new driver or pair of bike shoes may bring you more happiness if that’s how you spend your time. It’s important to save, but we only live once and it’s impossible to stay sane trying to postpone ALL of your happiness until retirement.
Children Are Expensive
Most people know this, conceptually, but few truly realize it until it’s too late. But recent measures put raising a child to adulthood at an eye-popping $250,000, and that’s not counting college. There are actually advantages to both waiting and having them early (more retirement savings vs. more empty nest years to power-save), but no matter when you decide to, understand that things are going to change a lot — and quickly.
Take Advantage Of Non-Cash Employee Benefits
Your paycheck is the most important thing you get in exchange for your time and labor, but it’s not the only thing. Healthcare is also big, but so are things like wellness benefits, gym reimbursements, education savings accounts, etc. Not taking advantage of them is just leaving money on the table.
Explore Alternative Retirement Funds
401(k) retirement funds with employer contributions are going the way of the full pension, but you should absolutely take advantage of it if your employer offers one. But beyond that, you can both save more and diversify your retirement savings by exploring options like IRAs.
Create A Budget
So simple, but so essential. If you don’t have a clear goal and plan for getting there, how in the world do you imagine you’ll achieve it? Just writing down your fixed monthly expenses is a big (and often eye opening) start. From there, you can usually see where you can make some cuts.
A Huge Wedding Isn’t Worth It
The average marriage age for men is creeping closer to 30, and older brides with a little more means may want more lavish affairs. But before you plunk down two months’ salary on a ring or invite your entire extended family to an opulent destination wedding, remind yourself that in a few years, you’ll hardly remember the big day at all. And not for nothing, higher wedding expenses are correlated with higher divorce rates. You don’t have to scrap your plans for a solemn trip to the courthouse, but be smart.
Investing Is Not A Reliable Method Of Wealth Creation
We see most wealthy people as having their money in the stock markets, but that’s because they already had (or earned) their money. And while you can make it big betting on stocks, you’re a lot more likely to lose your shirt. Instead, the financial markets should be seen as a method of wealth protection, not creation. If you want to build wealth, work hard and save hard. If you want to hit it big gambling, maybe buy a lottery ticket every once in a while if you have a few extra bucks.
Know Your Options When It Comes To Student Loans
The astronomical (and growing) costs of higher education are their own problem with complicated solutions, but a college degree is still one of the most reliable ways to ensure higher future earnings. But if you come out of school with what feels like crushing debt, know that you usually have options. With federal loans, you can often have your payments capped at a percentage of your income, and depending on your career field, you can even have some of your debt forgiven.
How To Find A Financial Planner
Any reliable financial planner should have CFP certification, operate on a retainer or fee-based rate and listen as much as they talk. If you find one who isn’t all or any of those things, they’re likely looking out for their own interests, not yours.
How To Cut Down On Needless Expenses
What’s likely to break your budget aren’t the big purchases, but the little ones that add up over time. Fortunately, most of those are avoidable. Is the office coffee dreadful, so you go to a coffee shop instead? Make your own and then take it with you. Taking an Uber to work every day because you live in the city but don’t own a car? Learn to use public transportation. Not going to the gym to justify spending $20 on it every month? Build a kickass home gym instead (at just about any budget) and use it whenever you please. If you’re buying lunch out every day, why not high-thee to the kitchen and learn how to cook so you can meal prep? If you were able to give up daily coffees and lunches, plus your monthly gym membership, you’re looking at saving upwards of $3,000 per year (minus the cost of food and equipment). Imagine what you could do with all that.
You Will Never Have Enough Money
Not in a “you’ll always be broke” sense, but in a “there’s no such thing as enough” sense. Everyone’s read stories of some rich jackasses making $400k+ a year complaining about just getting by, and those people can indeed pound sand. But the truth is, our financial needs tend to act like a gas, expanding to fill in the boundaries we create. As you accumulate wealth, things that were once off-limits or splurges become attainable and even “necessary.” Families grow, and along with them housing, childcare and education costs. Sometimes, nicer things really are nicer, and it’s hard to go back once you’ve tasted luxury.
The point is, you’ll probably never hit a point where you stop and say “I’ve made it, I can stop trying now.” And that’s a good thing! After all, you didn’t get to this point by thinking that way in the first place.