Here's the single best piece of advice I can give you about money in your 30s.
The key to building wealth is spending less than you think you can afford.
Looking rich and acting rich are not the same as being rich.
If you want to be rich, you need to stop trying to look rich.
Here's the trap many 30-somethings fall into: You live in a swanky place in your town because you finally earn enough money to afford some nice digs. You look at your coworker or your neighbor and you see the fancy material things they have, or the lavish vacations they take.
And you believe they're rich because of these things. Because you also want to be rich, you start doing the things they're doing in order to get there.
But guess what? They're probably not rich!
Yes, of course there are people out there who have significant wealth who can buy whatever they want without consequence.
But the vast majority of people who look rich are just that. They look like they have wealth.
If you could look at their bank accounts and financial statements, you'd probably find that they're spending more than they can afford… and this is the person you emulate in an effort to get rich yourself.
You replicate what they're doing and end up in the exact same boat. You spend more than you can truly afford. You act rich, but never actually become rich.
We've got you covered with a detailed look at the organized process we use to help you move from, "I wonder if I'm doing everything right with my money?" to "I'm doing exactly what I need with my money to create the life I want."
The key to building wealth is spending less than you think you can afford.
Looking rich and acting rich are not the same as being rich.
If you want to be rich, you need to stop trying to look rich.
Here's the trap many 30-somethings fall into: You live in a swanky place in your town because you finally earn enough money to afford some nice digs. You look at your coworker or your neighbor and you see the fancy material things they have, or the lavish vacations they take.
And you believe they're rich because of these things. Because you also want to be rich, you start doing the things they're doing in order to get there.
But guess what? They're probably not rich!
Yes, of course there are people out there who have significant wealth who can buy whatever they want without consequence.
But the vast majority of people who look rich are just that. They look like they have wealth.
If you could look at their bank accounts and financial statements, you'd probably find that they're spending more than they can afford… and this is the person you emulate in an effort to get rich yourself.
You replicate what they're doing and end up in the exact same boat. You spend more than you can truly afford. You act rich, but never actually become rich.
What’s Your Savings
Rate? Here’s How
We Save 30 Percent
(or More) of Our Income
Financial freedom is the biggest goal I have right now — both personally and professionally.
What I mean by that is it’s my goal to help as many of my clients as possible build and grow wealth to the point where they can enjoy financial independence. It’s also my own personal goal for my financial situation.
Achieving the goal requires developing a process you can follow over time, and that process is driven by one factor above all others: your savings rate.
Let’s say you make $100,000 today and you save $20,000 of that income per year. That’s a 20 percent savings rate, which is pretty impressive.
But imagine as you continue working and earning raises, you eventually make $200,000 per year — but you still save the same $20,000. That’s only 10 percent, or half your previous savings rate.
Using a percentage and focusing on your rate of savings is more powerful than simply targeting a dollar amount, because it:
We set a goal to save at least 30 percent of our gross income — and we’re on track to surpass that and will likely end up with about 35 percent saved for this year.
In other words, we pay ourselves first each month and ensure our monthly goals are funded before looking at how much we may be able to use for discretionary spending in the next 30 days.
That automatically limits how much money is floating around in our checking account, freely available to spend. If the money just isn’t there, it eliminates the temptation to spend it on something other than what’s truly important to us.
But it also helps us keep our eyes on the prize. Because we have clear goals, we know exactly what we’re working toward. It also makes it really easy to compare the tradeoffs.
We can look at spending $500 on going out and having some really fun date nights this month in context. We can literally say, “do we want to go out that much more than we want progress toward building a level of wealth that would provide the freedom to choose how we live later on?”
Sometimes, the answer is actually yes! Every once in awhile, we get a chance to do something in the moment that, together, we decide is worth slower progress toward financial independence.
But most of the time, the answer is an easy, “no way, we don’t want to spend that money this month. We’d rather save it and feel confident about where we’re going with our wealth.”
You also need to take actions like:
These steps, combined with a commitment to our biggest goal, allow us to save and invest at least 30 percent of our income every month. It’s not easy, but the good news is that it’s very simple — and something you can do in your own life, too.
What’s your savings rate — and more importantly, is it enough to allow you to reach the goals that are most important to you?
Comprehensive financial planning services can cover a number of topics, including financial questions, concerns, challenges, and opportunities. Here is just a sampling of what we can discuss and tackle together as we put you in a position to use money as a tool to live the life you want:
What I mean by that is it’s my goal to help as many of my clients as possible build and grow wealth to the point where they can enjoy financial independence. It’s also my own personal goal for my financial situation.
Achieving the goal requires developing a process you can follow over time, and that process is driven by one factor above all others: your savings rate.
Why Your Savings Rate Is (Sometimes) Even More Important Than Your Income
Your savings rate is the percentage of the money you earn that goes to savings and investments. Using a percentage rather than a dollar amount is key.Let’s say you make $100,000 today and you save $20,000 of that income per year. That’s a 20 percent savings rate, which is pretty impressive.
But imagine as you continue working and earning raises, you eventually make $200,000 per year — but you still save the same $20,000. That’s only 10 percent, or half your previous savings rate.
Using a percentage and focusing on your rate of savings is more powerful than simply targeting a dollar amount, because it:
- Helps guard against lifestyle inflation.
- Allows you to more easily compare apples to apples if you want to see if you’re on track year over year.
- Applies to you no matter how much you make.
We set a goal to save at least 30 percent of our gross income — and we’re on track to surpass that and will likely end up with about 35 percent saved for this year.
If You Want to Save Big Percentages of Your Income, Start with Why
It’s not easy to put away 30 percent or more of our gross income each year, but we’re committed to our goals. That’s the first step in answering how we do it: We set clear goals and prioritize those above all other spending.In other words, we pay ourselves first each month and ensure our monthly goals are funded before looking at how much we may be able to use for discretionary spending in the next 30 days.
That automatically limits how much money is floating around in our checking account, freely available to spend. If the money just isn’t there, it eliminates the temptation to spend it on something other than what’s truly important to us.
But it also helps us keep our eyes on the prize. Because we have clear goals, we know exactly what we’re working toward. It also makes it really easy to compare the tradeoffs.
We can look at spending $500 on going out and having some really fun date nights this month in context. We can literally say, “do we want to go out that much more than we want progress toward building a level of wealth that would provide the freedom to choose how we live later on?”
Sometimes, the answer is actually yes! Every once in awhile, we get a chance to do something in the moment that, together, we decide is worth slower progress toward financial independence.
But most of the time, the answer is an easy, “no way, we don’t want to spend that money this month. We’d rather save it and feel confident about where we’re going with our wealth.”
4 Other Steps We Take to Increase Our Savings Rate
Those goals serve as a powerful guidepost, but just setting out what you want to accomplish isn’t enough to get you there by itself.You also need to take actions like:
- Keeping expenses low. Lifestyle creep kills more dreams of financial independence than dealing with a low income ever could. We aim to default to $0 when it comes to “how much are you going to spend today?” rather than focusing on how much we can consume.
- Looking for free or low-cost activities. That doesn’t mean we spend $0 every single day, of course. That would lead to a very boring, pretty unfulfilled life. When we do want to get out and do something or explore, we try to think about what we can do without spending money first. If we find an option that appeals to us, we choose that over spending.
- Aligning our spending with our values. In addition to trying to choose really inexpensive over pricier options, we work hard to make sure any spending we do, no matter what the amount, aligns with what’s actually important to us. That doesn’t look the same as what’s important to other people — and that’s okay. It’s our money and it needs to be used on things we find valuable.
- Keeping a budget system that we can check in with anytime. We use the same system I offer to my clients to track not only our transactions, but our overall budget, income, and net worth. We can do this all from one spot and it’s updated in real-time. That allows us to be constantly aware of what’s going on with our money — and it gives us the power to know exactly what our spending situation is at any time during the month.
These steps, combined with a commitment to our biggest goal, allow us to save and invest at least 30 percent of our income every month. It’s not easy, but the good news is that it’s very simple — and something you can do in your own life, too.
What’s your savings rate — and more importantly, is it enough to allow you to reach the goals that are most important to you?
Comprehensive financial planning services can cover a number of topics, including financial questions, concerns, challenges, and opportunities. Here is just a sampling of what we can discuss and tackle together as we put you in a position to use money as a tool to live the life you want:
Spending and Saving
- Does your income support your lifestyle?
- Are you spending intelligently?
- How much can you safely spend, and without guilt?
- What percentage of your income should you save?
- What should you do with your savings?
- How much do you need for emergencies?
- What do you value, or want more of in your life?
- What's worth saving for?
- What are your 12 month, 5, 10+ year goals?
- Are you on track to achieve them?
- Who holds you accountable for these goals?
- Are you optimizing your benefits at work?
- Should you use a health savings account?
- Could you save (or keep) more money by utilizing your benefits differently?
- Are you making the most of your ESPP or other compensation outside your salary?
- What does retirement mean to you?
- How much money do you need to retire?
- What will your lifestyle be like (and how much will it cost)?
- When would you like to quit working?
- Do you want to make work optional (rather than fully retiring)?
- Are you following a strategic investment plan?
- Are you paying too much for your current portfolio?
- Are your investments performing adequately?
- Is your strategy aligned with your goals?
- Are you taking on too much risk? Not enough?
Career
- Do you enjoy your job? Why or why not?
- Are there ways for you to adjust or change it?
- How can you prepare for a career change?
- Can you swing a leap to self-employment?
- How do you prioritize which debt to pay down first?
- Should you be paying more or saving and investing?
- Do you need life and/or disability insurance?
- If you do, what kind of policy is right for you?
- How do you know where to go to buy a policy?
- Does an umbrella policy make sense for you?
- Should you buy or continue to rent?
- How do you determine your down payment?
- When should you refinance your mortgage?
- Should you explore real estate investing?
- How much should you be saving for college?
- Are there other ways to fund a college education (beyond what you save yourself?)
- Is a 529 plan right for your situation?
- Do you need a trust in addition to a will?
- Are you fully protected should something happen?
- What documents do you need in place now?
- Are you taking advantage of all tax savings opportunities?
- Does tax deferral make sense for you?
We've got you covered with a detailed look at the organized process we use to help you move from, "I wonder if I'm doing everything right with my money?" to "I'm doing exactly what I need with my money to create the life I want."
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