Personal Finance in Your 20s & 30s For Dummies
Overview
Learn to make the simple and sound financial decisions that set you up for long-term success
When you've officially begun “adulting” and it's time to make big financial decisions, Personal Finance In Your 20s & 30s For Dummies offers step-by-step advice on building a foundation for your financial futures. Bestselling author and money management guru Eric Tyson shares simple guidance on budgeting, investing, insurance, housing, and more, walking you through how to make the decisions you'll need to make to set yourself up for the rest of your life.
You'll learn how to manage debt, co-manage your finances with a partner, and distinguish sound information and advice from meaningless noise and trends. The book is a roadmap to financial health and security that's straightforward enough for anyone to follow and applies to people at almost any income level.
Inside the book:
- Conduct a complete “financial checkup” on your personal accounts
- Discover how to save for major life events, future goals, and unanticipated setbacks
- Identify trustworthy advisors and learn the difference between good advice and bad
Perfect for young adults just beginning their financial journeys, Personal Finance In Your 20s & 30s For Dummies is your simple, friendly guide to creating a prosperous financial future.
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About The Author
Eric Tyson, MBA, is a bestselling personal finance author, counselor, and writer. He is the author of numerous Dummies titles, including the national bestselling books Investing For Dummies, Personal Finance For Dummies, and Home Buying Kit For Dummies.
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personal finance in your 20s & 30s for dummies
CHEAT SHEET
Everyone needs to know how to manage their money. Having that knowledge and know-how early in your life pays bigger dividends over the decades of your adult life. And everyone makes mistakes, so Personal Finance in Your 20s and 30s For Dummies can help you minimize bad decisions and maximize good ones. © Hurst Photo / Shutterstock.
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General Personal Finance
At the risk of starting with the very basics, apps are to smartphones what software is to personal computers. As you spend more time on smartphones, more programs — known as apps — are being developed to run on your phone.Most apps are offered by large companies as another option for their customers to be in touch with and interact with what they offer.
General Personal Finance
Many things in life are far more important than the girth of your investment portfolio or the size of your latest paycheck. Following is a list of ten things more valuable than money.
Investing in Your Health
People neglect their health for different reasons. In some cases, as with money management, people simply don't know the keys to good personal health.
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When most people hear the word budgeting, they think unpleasant thoughts, like those associated with dieting, and rightfully so. Who wants to count calories or dollars and pennies? But budgeting — planning your future spending — can help you move from knowing how much you spend on various things to reducing your spending.
During your adult life, you'll almost surely change jobs — perhaps several times a decade. Hopefully most of the time you change jobs by your own choice. But in today's increasingly global and rapidly changing economy, job security isn't great. Downsizing has affected even the most talented workers.
Always be prepared for a job change.
As a young adult dealing with your personal finances, you need to reduce your chances of making common mistakes. Your 20s and 30s are decades where lack of financial knowledge is exposed and reflected in the beginning of costly money mistakes such as
Spending excessively and accumulating consumer debt: Too many young adults leave home being experts in spending without having learned much about living within their means and saving and investing.
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People typically learn their financial habits, both good and not so good, at a young age. During childhood, most people are exposed to messages and lessons about money, both at home with their parents and siblings and also in the world at large, such as at school and with their friends.The expression "You can't teach an old dog new tricks" has some validity, at least for our four-legged friends, but even then, the expression actually requires some modification to be accurate.
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Small business has generated more wealth than investing in the stock market or real estate. You can invest in small business by starting a business yourself, buying an existing business, or investing in someone else's small business. The following sections give you an overview in doing so.
Starting a small business
When you have self-discipline and a product or service you can sell, starting your own business can be both profitable and fulfilling.
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As you transition from school to the workforce, you can maximize your chances for financial and career success. This article discusses arranging your finances and making decisions to further invest in your education and training.
Putting everything in order
If you just graduated from school, or you're otherwise in the your early years in the workforce, your increased income and reduction in educational expenses are probably a welcome relief to you and your family — but they're no guarantee of future financial success.
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The main question you have to ask yourself is whether you even want to use a financial advisor. The following discussion helps you answer that question, locate quality professionals, and figure out what to ask before you hire.
Preparing to hire a financial advisor
You're your own best financial advisor. However, some people don't want to make financial decisions without getting assistance.
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You want to get your hands on your credit report so you know what lenders are reviewing. You're entitled to receive a free copy of your credit report (which does not contain your credit score) every 12 months from each of the three credit bureaus — Equifax, Experian, and TransUnion. If you visit this website, you can view and print copies of your credit report from each of the three credit agencies.
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Many folks are disappointed to find that their credit reports lack their credit score. The reason for this is quite simple: The 2003 law mandating that the three credit agencies provide a free credit report annually to each U.S. citizen who requests a copy did not mandate that they provide the credit score. Thus, if you want to obtain your credit score, it's generally going to cost you.
General Personal Finance
Finding quality, affordable professional service providers can be a challenge. As can finding the myriad other service providers you may seek, such as an auto repair shop or a plumber. All of us have the battle scars from the school of hard knocks and making bad hiring decisions.Getting referrals from folks you know often doesn't pan out — and for good reason.
General Personal Finance
Everyone needs to know how to manage their money. Having that knowledge and know-how early in your life pays bigger dividends over the decades of your adult life. And everyone makes mistakes, so Personal Finance in Your 20s and 30s For Dummies can help you minimize bad decisions and maximize good ones. © Hurst Photo / Shutterstock.
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Whether you're buying your first car, or perhaps buying your first car without help from a parent, this list highlights some tips and strategies for making the most of your car-driving experiences and doing so in a financially prudent fashion.
Don't buy a car in the first place
Car ownership is costly. If you don't need a car, don't buy one — particularly if you live in a city with reliable public transportation, or you rarely need a car.
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No matter whether you choose a brick-and-mortar bank or an online bank, technology has allowed people to do more and more of their banking on the Internet. With this benefit come some important points to remember to protect yourself and your dinero.
Evaluating a bank: What to look for
When looking for a bank that fits your needs, put on your detective hat and get ready to search for the best deals.
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The most obvious choice for banking is using a local bank you pass by on a regular basis. Although these types of banks are conveniently located, these banks may not be the most cost efficient. You can find two main types of brick-and-mortar banks:
Small-town bank: These banks only have a handful of branches.
General Personal Finance
Having a sense of what you own (your assets) and what you owe (your liabilities) is important because it provides some measure of your financial security and your ability to accomplish financial goals such as buying a home, starting a business, or retiring someday.
Define net worth
Your net worth is quite simply your financial assets (for example, bank and investment accounts) minus your financial liabilities (debts such as student loans and credit-card debt).
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There are some common traits among folks who accomplish their goals. No matter how much money they made, the most successful were the ones who identified reasonable goals and worked toward them.Among the common goals for young adults are the following:
Making major purchases: You need to plan for major purchases.
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Unless you enjoy paying higher taxes, you may wonder why you'd choose to save money outside of retirement accounts, which shelter your money from taxation. The reason is that some financial goals aren't readily achieved by saving in retirement accounts. Also, retirement accounts have caps on the amount you can contribute annually and restrictions for accessing the account.
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Just about everyone dislikes spending money on insurance. Who enjoys thinking about risks and possible catastrophes and then shopping for insurance that you hope will pay some of the bills should said catastrophes strike? Therein lies some major reasons why most people don't have all the coverage they really need and don't get the best value when they do buy insurance.
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Most people borrow money at various times in their life, whether it's to buy a home (or other real estate), to finance a small business, pay for educational expenses, or for other purposes. When you want to borrow money, lenders examine your credit report and your credit score(s) to determine how responsible you've been with credit and to help them decide whether they should lend you money (and if so, how much to charge you).
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If you don't want to be bothered with the time-consuming task of tabulating your spending over the past year, here's an alternative method for arriving at your savings rate that may be quicker for you. Follow these few easy steps, and fill in the blanks in the table.
Calculate your net worth.
Calculate your net worth from one year ago.
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You know that putting aside some money on a regular basis is important, but you may wonder how realistic it is, especially when you're burdened with a never-ending list of bills or are starting out on your own. And, those six-figure-per-year jobs haven't yet come your way! So what do you do? The first and most important thing is to work at paying down high-cost debt.
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Higher education can cost big bucks. And as you read this, it's possible that you may not even be done with this too-often-costly process. Whether it's finishing a degree or returning to school for some continuing education, you may have education expenditures, perhaps significant ones, in your future.And, whether all those education costs are behind you now or not, paying off student loans is probably in your future if you're like most young adults.
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Taxes are likely one of your biggest expenses. No one enjoys paying so much in taxes, complying with seemingly endless tax rules and regulations, and completing federal- and state-mandated tax returns. So it should come as no surprise that an army of tax preparers and advisors is standing ready to help you.Do you need to use a tax professional?
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Nowadays, there are multiple avenues to choose from when it comes to picking a bank. Are you more of a local, national, or digital type of customer? Find the benefits to each option below.
Online banks
Although traditional banks with walk-in branch locations are shrinking in number because of closures, consolidations, and some failures, online banking is growing — and for good reason.
General Personal Finance
Where possible, focus on saving and investing in accounts that offer you tax advantages. Retirement accounts — such as a 401(k), 403(b), SEP-IRA, and so on — offer tax breaks to people of all economic means. In fact, lower-income and moderate-income earners have some additional tax breaks not available to higher-income earners.
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Without a doubt, the amazing financial success stories get the headlines. You hear about company founders who make millions — sometimes billions — of dollars. Early investors in stocks such as Apple, Google, and Facebook have made gargantuan returns. Who wouldn't want to make a return of 100 times, 200 times, or more on his investment?
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No matter what type of bank you choose, make sure you have a firm grasp of the different account options. Doing so requires thinking about your banking needs and what's important to you and what's not. The following sections identify how you can protect your moolah with different accounts and access your money when you need it.
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Other financial companies have cost advantages similar to — and in some cases even better than — those of banks, which translates into better deals for you. This article addresses two alternatives to bank accounts you may want to consider.
Brokerage accounts with check writing
Brokerage firms enable you to buy and sell stocks, bonds, and other securities.
You and your family probably don't have an unlimited supply of money to spend on furthering your education and training. So, just as with buying anything else — computers, clothing, and so on — you should look for value when spending your education dollars. Value means getting the most (quality) for your money
Keep the following pointers in mind to ensure you get value for your educational dollars:
Realize that you don't always get what you pay for.
For a number of years now, it has been argued that young adults are under pressures that lead them to dig deeper into debt than prior generations. The reasons cited for this generational debt have typically included
High costs of college: Annual increases in the costs of a college education have far outstripped the increases in general prices of other products and services.
General Macs
Making the best personal financial decisions requires knowledge, research, and good judgment. Don't expect perfection — you can do just about everything right, but things may not work the way you hoped for reasons beyond your control. That doesn't mean, however, that you shouldn't bother working to maximize your chances of making the best decisions given a reasonable input of time and energy on your part.
Your job search may play out like a daytime drama, which is no surprise if you're having a difficult time finding a job. But being unemployed means you need to be especially concerned with your personal finances. The following sections point out why unemployment strikes younger people harder and what you can do during this rough time.
General Macs
When you buy or sell a property such as a condominium, town home, or single family home, if you're like most people, you'll likely work with a real-estate agent who's paid on commission. Although the best real-estate agents can help you find a home that meets your needs, the commission arrangement can create conflicts of interest.
If you're like most folks in their 20s or 30s, you may not have saved as much as you would have liked during your early working years. Regardless of how much (or how little) you have invested in banks, mutual funds, or other types of accounts, you want to invest your money in the wisest way possible and have it grow over time without exposing it to extraordinary risks.
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