6 Ways to Master Money in Your 30s (and 40's!)

22:08Well, every single dollar that you earn needs to have a purpose. It needs to have a place that it goes. And so you need to identify each dollar and tell it what you want it to do. And so the way to do this is to have a cashflow management system. So when money comes in, you direct that money towards something. Now, what I really want you to do is figure out, okay, how am I going to do this? Well, first let's focus on investing. So always pay yourself first and then spend what is left over. That is the key goal that I want every single person to remember and repeat to themselves over and over and over again.

22:40Every time my paycheck comes in, I'm gonna pay myself first and then spend what is left over. The beautiful thing about something like a 401k, for example, is it does this automatically for you. It pulls and pays yourself first. It pulls your money out of your paycheck and pays you first, and then you get to spend whatever is left over. So if you can build systems that repeat the same exact thing like a 401k, you're gonna be able to grow your wealth over time. So 20 % towards your future self, at least 20 to 30 % is the goal. Really, we want you at 25%, but starting at 20 % and as a minimum, meaning that money is going towards your investments or your emergency fund is the starting point.

23:15And we want you to do 50 to 60 % towards your baseline expenses. These are your necessities, the things that you absolutely need to pay for. So housing, childcare, bills, debt payments, those are gonna go with your baseline expenses. Even healthcare is a really important thing here. And fitness is also part of those baseline expenses. I feel as though, and you can tell me if I'm wrong, but I feel fitness is a baseline expense. It's a necessity for long-term health and longevity. And then spending more on things that you love. So 20 % to 30 % on things that you love is the other component that we want you to spend more on.

23:50And so I want you to spend and enjoy your money and be able to do whatever you want in life with these dollars. But you gotta make sure that you get your financial life in order first and go from there. And so really, really important to tactically think through this. First, let's talk through the steps that you need to follow here. One is I want you to audit your debt. So list your balances, interest rates, payoff dates, and make sure you have a spreadsheet available that can help you list out that debt. Two is I want you to build and boost your emergency fund. So set up an auto transfer that will help you hit six months of expenses in building and boosting your emergency fund.

24:23Three is set up 100 % of recurring bills on auto pay. If you have recurring bills that happen every single month, they should all be on auto pay because that's going to help you automate your finances up front. Then four is automate your retirement contributions. Send money every month to your 401k, your Roth IRA, your IRA, whatever other retirement accounts that you have out there, your HSA to help you transfer this monthly. And then number five is I want you to review your spending and adjust your percentages to roughly align with that 2055-25 rule. So as you start to think about this, I really, really want you to get those basics down.

24:59Now let's get to the third thing, which is retirement allocation. All right, so when you're in your 30s and 40s, you wanna make sure that you are really laser focused on retirement and making sure that you're saving enough for retirement. And so this is the halfway point. We are working our way towards retirement. We are halfway there. And so we gotta make sure in our 30s and 40s, we are laser focused on what we need to do. So first, we need to max out those tax advantage accounts. Those things are so impactful to our dollars over time. So we've got the 401k, which is usually through your employer, which is also the 403B or the 457, depending on what kind of job that you have.

25:36So those are the pre-tax accounts, making sure that we look at those. Then we have the Roth IRA, which means money goes in tax-free and it can grow tax-free and you can pull the money out tax-free. We also have the HSA, which is a health savings account, but also has triple tax benefits and one of the most important accounts that we have out there and then catch-up contributions if you are above the age of 40. So at 50, you got to plan out, you can have catch-up contributions for all these accounts. Now you may be saying to yourself, well, Andrew, what order do I actually start to allocate dollars to these accounts?

26:08And it's going to depend on two things. One, it's going to depend on how much money you make. But two, it's also going to depend on what your financial goals are long-term. For most people, I like 401k match, then Roth IRA, HSA, then back to the 401k, then you can go to the taxable brokerage account. That's kind of the order that I think about this. but it depends on your tax situation as well. So if you're a really high earner, ask your CPA if you should be contributing first to the 401k instead of the Roth so that you can get those tax benefits right now. You may need those tax benefits right now if you make a lot of money.

26:42And so for a lot of you out there, that could be the case. If you don't make a lot of money and you're well within those Roth IRA limits, that's okay. So you can start with that Roth IRA and get that tax for growth. That is absolutely amazing. Now, if you make more than the limits and you think you can't contribute to a Roth IRA, you, my friend, are mistaken. You can do a backdoor Roth IRA, and that is going to allow you to get money into those accounts. Also, to add flexibility to this, as you heard me mention at the end, the brokerage account. If you are someone out there who is planning on retiring early, the brokerage account is going to be your best friend.

27:12This is just any old brokerage account that you can open at Fidelity or Vanguard. This is going to be something that gives you additional flexibility. And really, it is a powerful account for most people who are looking to retire early. They have tax efficiency, especially if you are favoring index funds and ETFs, where the max you're going to pay is 20 % tax on the gains only. So the amount of money that your money made, but for most people, they're going to be paying right around 15 % on those gains. And so understanding how that works is really, really important, especially if you're a long-term investor.

27:42Now, if you're a short-term investor and you day trade, you're going to be paying a lot more than just those long-term capital gains. You're going to be paying short-term capital gains tax. You got to make sure that you are investing in the right account when you decide what your strategy is. But also when it comes to retirement, you need to know what your retirement number is. And so to understand that, what you want to do is figure out, okay, how much am I going to spend in retirement? This is the quick and dirty back of napkin math. Okay. How much am I going to spend in retirement? Well, if I want to spend$80 ,000 per year in retirement, then I'm going to take 80 ,000 and I'm going to use the rule of 25.

28:14So I'm going to take 80 ,000 and multiply it by 25. And that is going to give me$2 million to have available in retirement. $2 million means that you can draw it on 4 % a year, which is$80 ,000 per year. And so that's the quick and dirty math on how to figure out what your retirement number is. Now, there's other things you need to factor in. There's other things that you need to make sure that you note, like health care inflation. You need to factor in the rate of inflation. You need to factor in a bunch of other metrics that are very, very important. But this is a great starting point that's going to help you through that process.

28:44Now, there are two other things that I want you to think through, is I want you to fine-tune your allocation. So in your 30s, you should still be aggressive looking at the majority of your portfolio. Unless you don't have the risk tolerance, you should be aggressive and having a lot of money in your stock allocation. And then as you start to get closer to retirement age, there's two to three modes of portfolio growth. There's the aggressive growth phase, which is your 20s, your 30s, even your 40s. I'll probably even be in the aggressive growth phase in my 50s. But it just depends on when you retire.

29:10It's the aggressive growth phase where you're going to have the majority of stocks. Then you're going to have the transition phase where you're adding in a little bit of bonds to start to transition to your preservation phase. Because once you get to preservation within your portfolio, now it is time to have an asset allocation that adds in some additional bonds so that you are just preserving your portfolio to outlive you. You want your portfolio to outlive you so that you can live off it for the rest of your life. And so those are the three phases that a lot of portfolios go through. In reality, that's all it really is.

29:40It's a very simple process. It's not easy, but it's simple to understand. And fine tuning that asset allocation can be really important. Also just deciding, hey, do you want international exposure? Do I need to rebalance my portfolio? Answering those questions in your 30s and 40s can be very, very important. And then retirement planning beyond just investments. Okay. So we already mentioned this, but employee stock programs like RSUs or ESPPs are really important. Are you going to get a pension? How are you going to handle that pension? Is the pension guaranteed? Those are things we need to factor in.

30:09Social security is another component of retirement we need to factor in, in retirement lifestyle. And the vision behind retirement is another one. In Master Money Academy, we give you a spreadsheet that kind of goes through all of these different factors so that you can really nail down that retirement number and the gap that you need to make sure that you have invested in a portfolio. And so that's what I love about this stuff is that you really can fine tune it and nail this number down. So some tactical tips for you based on this step is increase your retirement contributions by at least one to 2 % of income until you hit 20 to 30%, making sure that you are increasing that over time.

30:44Two is open the retirement accounts that you do not have open, like a Roth IRA or a 401k if you're not taking advantage of that through your employer. And then making sure that you look at your HSA as well. If you have a high deductible health plan, you can contribute to an HSA. That is another great thing on this step. Four is to open a brokerage account for flexibility and making sure that you have that available. And then calculating your FIRE number or your financial independence number is number five. So those are the five things that I want you to do. That's your homework based on that step.

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36:12Head to PolicyGenius.com to compare life insurance quotes from top companies and see how much you can save. That's PolicyGenius.com. All right, so next we're going to be navigating the big expenses of this stage. So what are the big expenses of this stage? Well, it's going to be child care first. So child care is basically like a hidden second mortgage. If you have ever experienced child care and if you have to send your kids to daycare because you work, you know how expensive this can get. And in many states, daycare prices are rivaling college tuition. And I'm not joking about that. It is really, really expensive to send your kids to daycare.

36:46For us, specifically in Florida, where we live, we spend close to about$30 ,000 per year just on daycare when our kids are younger. So my oldest has just finally gone to elementary school. So that cost has slightly gone down, but I have two other kids that are younger. And so this is something where if you have two spouses that are working, you are going to be spending a lot of money on daycare. And if you are someone who doesn't have kids yet and you're thinking about having kids, just make sure you figure out what that cost is going to be. So that you just understand and can plan and prepare financially for those costs associated with it.

37:18Now, don't view childcare as a waste because it is an investment that allows both parents to keep growing their income and focusing on their careers and seeing the long-term trajectory of those careers. But you can do a couple of different things to do the math. Now, we had an entire episode talking about childcare and how to do the math to see if one of the spouses should stay home and all those different types of things. So we won't cover that in this episode because we go into great detail in that episode. So if you're interested in that, make sure you check that one out. But this is something where if you're looking for tax breaks, there are things like the dependent care FSA.

37:50If you're not going to do an HSA and you do something like a dependent care FSA, which means you can put up to$5 ,000 pre-tax in this account. But secondarily, another thing that you should do is come tax time, making sure that you take those daycare costs, give them to your CPA or put them in your TurboTax or whatever else you're utilizing and making sure you're getting a deduction on those child care costs. Now, one hack is as your kids start to enter school, if you are able to handle the cost of child care is redirect the freed up money that you have straight into your retirement account or your brokerage account.

38:18This is something that I tried and it worked beautifully. So if your kid goes from, say, pre-K to kindergarten, when they go to kindergarten and you have an extra, I don't know,$1 ,000 to$2 ,000 per month freed up, take those extra dollars and instead just start to funnel them towards your retirement account to increase your contributions to retirement. because all of a sudden what is going to happen here is that you're going to still be living the same lifestyle, but now that cash is going to grow in your wealth. And so that's just one quick hack for a lot of people who are going through that transition phase if your kids are younger.

38:51Now, if you have kids who are in elementary school or you're paying for private school, that is a whole different story. And if you are paying for child sports, this is a big one for a lot of you now, is child sports are thousands of dollars per year. Just talk to someone. They spend$7 ,000 per year for one child to be in club soccer. Well, if that is you, we got to make sure we're planning for this and budgeting this out because that's not a cheap expense whatsoever. And so making sure that we think through how are we going to handle sports? Are we going to put them in all the sports? Are we going to put them in club sports?

39:23If we do, how early are we going to do that? And what are the costs associated with this? Because if you are putting your children's club sports ahead of your retirement savings, you have it backwards. Now, let me say it again louder for the people in the back. If you are putting your kids' sports ahead of your retirement savings, we, my friends, are not making the right move. Your retirement savings needs to come first before your kids' college savings and everything else. It needs to come first because there are no loans for retirement. And you're going to get to the point in time where you get to retirement age and really, really regret what's going on there.

40:00So really, really important to make sure we just say that up front. Two, aging parents. So a lot of you out there in your 30s and 40s are going to have aging parents that you need to make sure that you are starting to have conversations about their finances, about insurance, about retirement income, about how they plan for emergencies, all those different types of things. You need to talk about long-term care planning. If that needs to happen, are they going to live with you? Are they going to live in a long-term care facility? How is that going to work? Who's going to pay for the long-term care facility?

40:27If that happens, you need to start having these conversations now. Also, encouraging your aging parents to have wills and legal documents and trust. It is a nightmare to go through probate if they don't have these documents in place. Help them get those documents in place. It's going to save you way more time if you actually help them through that process than having to go through the probate process because it is a nightmare. And it's going to have a financial impact on you. So how do you handle it? Sometimes culturally, you're supposed to make sure that you take care of your parents as they start to age.

40:55And so if that's the case, you got to make sure that you have a plan in place for that you are financially saving for it. I think it's a beautiful thing, but you just got to make sure that you are financially saving for it. And then college planning. Let's talk about college planning because 529s are the way that I start and to save for my kids' college. It is a way that I contribute money over that timeframe. We have entire episodes on the 529 plan if you haven't heard them, but it is a tax advantage way to save for college. Even small contributions over the course of 15 to 18 years can grow to very large amounts of money.

41:23If your kids get a scholarship, you can roll$35 ,000 of the 529 plan into a custodial Roth IRA for them. There's a lot of great things that you could do with a 529 plan, but you must prioritize your retirement first. When an airplane is going down, what do you do? First, you put on your oxygen mask, then you help others put their oxygen mask on. The same goes for your money. When you are saving, you need to save for your retirement first, then you can help other people. Because if you do not do this, again, there are no loans for your retirement. And right now is the time you need to understand this in your 30s and 40s.

41:57Because if you don't, you're going to save way too much money for your kid's college, and you're not going to save enough for yourself. And you're going to get yourself in a situation where you're stressed about money again. And I don't want that to happen for you. So this is the order of operations. Your retirement first, then your kids can get the college savings and or their long-term wealth building savings. But you need to take care of yourself first. It sounds selfish as a parent. It sounds counterintuitive to our instincts as parents. I get it. But we also got to make sure that our retirement is covered.

42:29Otherwise, our kids are going to have to handle us in retirement. And that is a way bigger burden than any college loan would be. And so making sure that you take care of yourself first is actually also taking care of your kids. So do not get it twisted when it comes to that situation. Now, one hack is you can front load 529 contributions if possible. So you get that early growth. It's going to grow a lot faster. That is one thing I would definitely consider. And then lastly is the home design and lifestyle costs. So your 30s and 40s, a lot of times you wanna start balling out, upgrading that house, getting that blacked out SUV to haul the kids around.

43:02You got the black truck with the black rims and the black on black, no chrome anywhere on that vehicle. If that's you, just make sure you can afford it. So mortgages need to keep housing costs 25 to 30 % or below every single month of what your income is. 25 to 30%. Really, 30 % is the max that you should be doing when it comes to how much you're spending on housing. Stretching for a dream home and your 30s and 40s can absolutely choke your savings if you do not do this right. If you buy too much house and it is not enough to also cover your retirement, you could be choking your retirement savings.

43:39Upgrades and remodels. So make sure you budget immediately. Don't go into debt for an upgrade or a remodel. Instead, budget out your money and make sure you have that in place. Do not let renovations eat into your retirement. It's not worth it. It's going to go out of style anyway at some point in time. So making sure we do that. And then the I deserve it trap when it comes to cars. Cars can absolutely destroy your wealth. And if you get too big of a car payment, it's really important to make sure that you do not do that. So keeping all car costs, including insurance, including maintenance, including repairs, all below 12 % of your monthly income is what you really want to make sure that you're doing.

44:14So all of that in place to ensure that you are still staying on track financially. And so tactical steps for this one is run the numbers, calculate your true childcare costs, make sure you're budgeting it out for that. Have a talk with your parents and make sure you go through all the things we just chatted about. Number three is open a 529 plan for your kids college if you have the extra funds available. Number four is audit your lifestyle creep. If your lifestyle is creeping up, make sure that you know what you are doing and then write out a priority hierarchy. So it's going to be retirement number one, emergency fund number two, college, three, parents, four, something like that.

44:47Just figure out what your priority hierarchy is. Write that out so you can stay focused when choices get tough. Okay. So that is the checklist for that one. Now let's get into how to protect what you're currently building. All right. Number five is to protect what you're currently building. So by your 30s or 40s, you've accumulated some assets. You've got a home, got retirement accounts, maybe a business. And so you have people depending on your income. So there's some things that you definitely want to look at. And first, we want to make sure we do an insurance checkup. So life insurance, term life insurance is the way we want to go.

45:17Coverage for 10 to 12 times your income is the big thing. Two is disability insurance. This is often overlooked, but it's something you should definitely consider if you cannot replace your income with any cash that you have on hand. So look into disability insurance, kind of do your research on that. Health insurance. Everybody should have health insurance. If you don't, I don't know what you're doing. You need to have health insurance. Umbrella insurance. If you're a really high earner and you have a high net worth over a million dollars, umbrella insurance may be great for you. And then home and auto, obviously, everyone should have home and auto insurance.

45:44If you live in a house that's paid off and you don't have home insurance, you're making a mistake. You need to make sure that you have that in place as well. Now, B, estate planning basics. All right. So wills, those are going to make sure that you decide guardianship for your kids. And they're also going to say who gets assets and who handles affairs. Trusts are for people if you have younger kids or complex assets. So if you have businesses, if you have LLCs, if you have rental properties, if you got all these things going on, then a trust may be a great place to start. And so between those two things, you can go to a place like Trust and Will, for example, for a really easy, simple will setup.

46:18You can also do a trust there as well. But if you have a more complicated situation and going to an attorney to help you set this up is going to be really, really important. The attorney should not cost you an arm and a leg, really on the average. And it should be about$5 ,000 to set up a trust if you want to do like a full-on trust. If it's way, way more than that, if they're charging you 15 or 20, you got to make sure you get the right attorney that's not just trying to rip you off. So that is the way to think about that. Protecting your income and assets. So three things I would say here is making sure you diversify your investments is number one.

46:48Okay. Number two is business owners consider having an entity structure where you have an LLC or an S corp and you have that in place where you're protecting yourself. Really important. Three, having a cybersecurity plan or a plan in place to ensure that you do not get ripped off and lose money. We just had somebody talk about this. They lost$100 ,000 to a cybersecurity scam. And this is why we talk about this stuff so much. So doing things like freezing your credit or removing your personal information from the internet is going to be one of the most important things. If you've never heard of removing your personal information, the way that this works is that you go to a service like DeleteMe.

47:22So DeleteMe is a place where you can give them all of your information and they'll remove your information from data brokers. So if you Google your name, your address, or any of that information, you're going to see a bunch of your information pop up. Well, delete me. We'll go to those data brokers and get your information removed. Because the problem is a lot of people who get a piece of your information, maybe they steal a piece of your social security number or they steal your home address and they're looking for the rest of your information. If they can just Google you and find that information, they'll be able to piece it all together and open a bank account in your name or a credit card or a student loan.

47:52this happened to me, which is why this stuff is so important to me because it is so stressful and so frustrating to have to go through. So if you go to join delete me.com slash PFP 20, there you can get 20 % off of delete me. It is the best service that I have ever used. It has saved me hours and hours and hours because they just go in there. They remove your personal information from all those pesky data brokers, which is really hard to do by the way. And then you get a report back every time they do it. And so they tell you, Hey, here's where we removed with your personal information. And it is a really, really powerful tool.

48:24We've been using it for years. So again, go to joindeliteme.com slash PFP20. Really, really great place to go. And then again, freezing your credit. If you've never done that, you go to the three major credit bureaus and you say, hey, TransUnion, Equifax, hey, I'm not going to open a credit card right now or I'm not opening any mortgages right now. So just freeze my credit so nobody else can either. And then when you're ready to open up something like a credit card, you just go and unfreeze your credit. It's a very simple process and they made it a lot easier in the last year or so. And so it is something everybody should be doing is going out and freezing their credit.

48:57Also, during this stage, your health is your wealth. And so most of you need to understand that because your health is your wealth, you need to prioritize your health. So for me specifically, I got a bunch of blood work done. I have high cholesterol. I have done everything in my power to lower that cholesterol. And it is just genetic. I can't lower it. So there's a lot of different things that I am making changes to to help me lower that cholesterol. But for a lot of people out there, understanding your health and making sure you prioritize that is what is going to allow you to live a longer, more fulfilling life.

49:28And so prioritizing that in these years is really important. And then tactical steps. So, again, if you don't have life insurance, term life insurance only is what we talk about here. It's the cheapest by far and just gets done what you need to get done. So get term life insurance quotes from a place like Policy Genius, one of our sponsors on this show. That's where I got mine. Two is check your employer's disability coverage and see what needs to be done there. Three is if you have a high net worth, look into umbrella coverage and add that to your policy. And then four is if you don't have a will or trust, create a will, trust, power of attorney, those types of things.

50:01Get that in place. And then five is audit your online security. Go to joindeliteme.com slash PFP20. Freeze your credit. Make sure you have that stuff in place. It is so important. Most people overlook this, but protecting your wealth isn't sexy, but it is something that is absolutely necessary for any of you wealth builders out there. Now let's get to six, which is lifestyle design and guardrails. All right. So the last one is lifestyle design and guardrails, just setting up some guardrails to make sure that we are fighting against some of the things that happen to most people within the 30s and 40s.

50:32So first is to fight against lifestyle creep. So every time you get a raise, following the 50-50 rule is the number one thing I want you to do. Take 50%, put it towards whatever you want to spend that money on. Ball out, blow it. If you get a raise or a tax return, whatever else, and take the other 50 % and put it towards wealth building activities, either your emergency fund or growing your investment. Now, if you're in credit card debt, all of it needs to go towards that. But if you are not, then using the 50-50 rule is really important. Now, avoid as many debt-fueled upgrades as you can. Drive your cars longer if you can.

51:02Make sure that you're staying in your house long enough to really get the value out of it. Just avoid any debt upgrades. Like if you can't pay in cash, avoid it. Don't renovate your home on debt. things like this that we all should make sure that we are paying cash for. And then define what your enough number is. The hardest part for me when it comes to money is defining what my enough number is. And once you know what that enough number is, it will change your why on why you're building wealth. So figure out, do I need$2 million? Do I need$5 million? Do I need$30 million? How much do you want to save in your retirement?

51:33How much is enough? And that is going to change your life once you figure that out. The other thing I want you to do though, is I want you to define freedom. For you, what does freedom look like? Will you retire early? Are you going to travel? Are you going to work part-time? Are you going to build a business? What does actual freedom look like for you? Write it down. Two is I want you to plan out more experiences. This is the golden years of your life when it comes to spending time with family. And if you have kids, anybody listening who has kids, which a lot of you do, do not skimp out just because of money on experiences for your kids.

52:06Vacations and making those memories can be really, really powerful. If you've got the cash on hand, I do not go into debt for a vacation, but if you have cash on hand, make sure you're saving a little extra cash for vacations so that you guys can have those experiences. They did a study and looked at kids and what they remember from their childhood. And most kids, their greatest memories were on vacations. It's because it's the time where you were removed from your routine and those core memories actually stick into your brain and they remember those vacations. And really, that's one of the best investments you could ever make.

52:38So don't try to hoard up a bunch of cash. Instead, make sure you're spending it on things that you actually value and enjoy. And then try to future-proof things. So if you can start to save some extra cash on hand now, I know I just told you to spend more on vacation, but if you can start to save a little extra cash on hand now for things in the future that you know are coming, wedding fund, aging parents fund, or college savings, all of these things are extra gravies on top. But if you can do them, they're just gonna reduce your stress and anxiety around money long-term, that could be really, really helpful.

53:07So I want you to just kind of audit your spending. I want you to audit your housing, your transportation, your savings rate. I want you to figure out if you have any lifestyle design that is getting too expensive outside of the parameters that we always talk about on this show. And then from there, I want you to make sure that you're spending more on the stuff that you love. Because these are the years. These are the core pivotal years that could change your life. Some amazing memories could happen, especially for you, your family, and everything in between. So listen, thank you so much for being here on this episode.

53:38I hope this episode was helpful to you. I hope it was tactical and you got some big, big takeaways in this episode that you can take home for your 30s and 40s. Again, Master Money Academy is launching. So make sure you check that out if you have not already. You are going to transform your finances in Master Money Academy. This is the transformative place that I want you to join when it is time and when you are ready. So thank you so much for being here. Thank you for investing in yourself. I truly appreciate each and every single one of you, and we will see you on the next episode.

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