Forethought Planning Podcast

Ep 88: What it Means to Be Financially Smart In Your 20's and 30's

April 05, 2022 Shannon Foreman Season 1 Episode 88
Forethought Planning Podcast
Ep 88: What it Means to Be Financially Smart In Your 20's and 30's
Show Notes Transcript

In today's episode of the podcast, we are going to specifically be breaking down the topics that you should be thinking about from a financial perspective, in your 20s, and your 30s. These are critical timeframes in our financial wellness to build a solid foundation.

Now, many individuals will tell you in their 40s, and beyond that, they wish that they would have done some of these things in their 20s and their 30s.

Money touches every aspect of our lives. And there are very specific things based on where we are in our life cycle that we should be touching on.

So while we're not giving you advice in this podcast, we are asking you to understand these topics a little bit further, ask questions, and form a team, your personal board of directors in your 20s and 30s.

This is the perfect time to establish those individuals.

And we'll talk more about who those people are in this week's episode!

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Securities offered through LPL Financial, a member of FINRA/SIPC. Advisory services offered through Advisors' Pride, a SEC registered investment advisor. LPL Financial, Advisors' Pride, Forethought Planning and the guests of Thrive For[e]ward podcast are separate and unaffiliated parties. The views expressed here are those of the participants, and not those of Forethought Planning, Advisor's Pride, or LPL financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. LPL Financial and Forethought Planning do not offer legal services.   

Shannon Foreman  0:02  
Hello there friends. Welcome to the Thrive Forward podcast. On today's episode of the podcast, we are going to specifically be breaking down for you, what are some topics that you should be thinking about from a financial responsibility standpoint in your 20s, and your 30s. These are critical timeframes in our financial wellness and being able to build that solid foundation. Now, many individuals will tell you in their 40s, and beyond that they wish that they would have done some of these things in their 20s and their 30s. So if you know a 20, something or a 30, something that is bound to want to have financial wellness as well as wealth care, as we refer to it, at forethought, planning, a rounded out relationship with your wealth, because money does touch every aspect of our lives. And so there are very specific things based on where we are in our life cycle that we should be making sure that we are touching on. That means that as I always say financial advice is something that is so very personal to your own financial situation. So while we're not giving you advice in this podcast, we are asking you to understand these topics a little bit further ask questions, and pair with your personal board of directors in your 20s and 30s. This is the perfect time to establish those individuals. And we'll talk more about who those people are. In today's episode of The Thrive Forward podcast. As always, we would love for you to share on social media, and subscribe to the podcast so that you don't miss out on one of our great episodes. Let's get into the good stuff.

Shannon Foreman  1:54  
Alright, friends, let's start with your 20s. Now, this is where we come into our adulthood. Of course, when you're 18, you're totally an adult. Well, the reality is that so much of our frontal lobe and decision making skills and rationale are not fully developed until our mid to later 20s depending on if you are male or female. That being said, that means that a lot of the decisions that we make might not be what's best for us. So on today's episode, as I mentioned, let's just dig right into our 20s. And then onto our 30s as we become more established in our relationship with our money, but if you think about your 20s it's such a life changing element, like I think about mine, I went to college, I got my first like big girl job as I refer to it. I had internships before that. I got married, I had my babies, I had promotions, I had this huge transitional period in my 20s from going to living at home with my parents are on campus at college, to buying my first home and getting married and having babies like I said and having promotions. So so many things happen. What are good things that you should be thinking about in your 20s. Let's start with your early 20s. When you go out on your own some very important things for you to think about establishing right away is your own financial independence. How are you establishing a banking relationship, look for those banks that are not going to charge you transactional fees, lower ATM fees, because likely you are pulling out cash unless you're doing Venmo Cash App and some of those other cash exchange apps that we have nowadays. But we still end up at the bar or going out wherever it is withdrawing cash. So make sure your ATM fees are low and you're not getting assessed a lot of fees in your checking account. You want to make sure that you're also establishing a savings account. A lot of times in college, you have your first job and it's a great element for you to start thinking about saving an emergency fund is not something that you shouldn't consider. In fact, starting your emergency fund sooner rather than later is a basis of the foundation of financial wellness that you will want to make sure that you establish so every paycheck that you get in college and look, I understand it's hard. You feel like you're living paycheck to paycheck, you want to go on spring break trips, you want to be able to pay for those textbooks that you might have to have which I still don't understand how we have textbooks nowadays with the amount of electronics that we add, but you want to do all of those things. Yes, I understand. But please put aside a little bit every single paycheck so when those big expenses like spring break or studying abroad come you're not hit with a big bill in the face instead, you have planned ahead for what those are. The next piece that I want you to make sure that you're considering is establishing your own credit. And credit is something I explained this on a podcast with my kids, the difference between a cheque card and a credit card, my friends, you need to remember that you have to pay that credit card off. So do not overspend on that credit card, use that for emergencies, make sure that you have that money in your checking account to be able to pay that off right away. But establishing credit is going to be important as you transition into your career, as you transition into wanting to maybe purchase a car or purchase a home, being able or even to rent an apartment, we oftentimes need to understand and establish responsible levels of credit, credit is not a bad thing. I know there are a lot of people out there that give financial advice and tell you not to have credit at all. Really, the reality is we do live in a society, especially in the US, where we do need to establish a healthy behavior with credit. So the earlier that we start with the behavior of knowing that whatever we swipe, we need to make sure that we have the funds to be able to pay off. So all those early morning Starbucks trips shouldn't be the things that go on your credit card, if you can't go right around into your checking account and pay that bill off right away. If you can't pay it off right away, then my friend, you don't need it. And I know that that's hard, because there are psychological things that we go through in our 20s of one wanting to be able to keep up with everyone else. That being said, establishing your credit is important. I mentioned being able to buy a car or house as you graduate from college, you're going to probably need somewhere to live. And whether that be your first home that you purchase, or that you're renting or that you have a car, you want to make sure that you have well established credit. And likely that means that you're going to show a level of responsibility in purchasing a car that is going to require you to make payments. Now, do not just because you get this great new job when you graduate from college does not mean that you are going to spend every penny that you make. So when it comes to transportation, or housing, you want to make sure that it's a percentage of usually we say around 30% of your total debt, or your total income should be what your debt is. And then you want to make sure that 20% is savings and 50% of that is what you're living off of. It's the 5030 20 rule that I use with a lot of my clients. So you get that new job, right, you've, you know, you have a car, you've got a place to live, you get that new job. And my friends, it's so exciting when you get that job offer. But make sure that you understand what your benefits are, what retirement options they have for you and what your pay is, especially to my ladies out there, don't think that you can't negotiate some of these things, do your research, understand what entry level positions are getting paid, what internships you had that qualify you more than maybe your peers, as you sit in that new seat. And it's very exciting for you. That being said, Too many times I see this later in life that people did not establish their retirement early on, if you are working, even if this is while you're still in school, and you have income, please make sure that you are saving into some sort of long term retirement vehicle. Of course, once you have established your emergency fund, which should be three to six months of your living expenses. And if you've been saving while you're in school, you might have a good start to that aspect. And if you want a down payment on a house, you're definitely going to need that as well. So making sure that you're chucking aside some money. Now, this is a big question that I get all the time. Yes, of course, Shannon, I want to save for retirement, but I also maybe want to buy a home. And I have student loan debt that I have to pay off. How do I prioritize all of those things? Well, my friend, it's really hard to decide. But a little bit goes a long way. If you have a lot of student loans. I'm talking to my med school students, my lawyers, my doctors,

Shannon Foreman  9:32  
anyone who may have gone to graduate school, whoever it might be, if you have a lot of loans, look at something that might be an employer that's going to forgive your loans and take a time period where you can get some of that reduce. Of course while I'm recording this right now, we have a couple months left before student loans, federal student loans go back into repayment periods, but for the last two years, we have haven't had that. And so if you can get ahead of that, that's the best place for you to be. So tackling those student loans, while also saving is a big piece, right? So how do I save for this a massive downpayment for a house, a lot of times, especially when I was in my 20s, people said, you have to have 20% down, I think it's really important for you to establish a relationship with a mortgage advisor, someone who's going to give you good advice on how to finance that home. And maybe it's 20% for your financial picture. But maybe it's less than that. Maybe it's seven to 10%, maybe it's even 3%, you want to make sure, first and foremost that you can afford your monthly payment, and that you're not breaking the bank and completely, like just wiping clean your savings account by making that downpayment. I think some of the things that are the hardest for us as a society is we want things like this, we live in an immediate gratification, we want to we see our friends get these super successful jobs, we want these homes right away, or we want the fancy condo, downtown, pump the brakes, my friends, the best place for you to be is not in comparison with others, but rather grounded in what's important to you. So really establish those things that are important to you. So just a recap in your 20s before we flip to your 30s establish your own financial independence, a banking account that doesn't have high fees for ATMs, or you know, just a monthly maintenance fee, either. We want to make sure that you're establishing your own credit, getting that credit card, using it responsibly, want to make sure that when you get that first job that you are saving into some sort of vehicle, whether it be a savings account to establish your emergency savings. And then once you're there establishing your retirement, the sooner you do this, the more ahead you are, then you're friends, and there is the rule of compounding interest. And if you start saving smaller, when you are in your 20s, you won't have so much to make up for when you are more well established in your financial income and just life in general. Do it now so that you don't have to do it later and larger dollar amounts. And lastly, don't compare yourself to others. As you're getting out there looking at jobs and looking at cars and homes and condos or whatever it might be. Make sure that you're really grounded in who you are. So you're not wiping out your savings account to get that new space or that new ride, or whatever it might be, be super grounded in who you are. And, of course, along the way, understanding what your employer benefits are so that you can be ahead of that game saving for retirement, understanding your health care benefits, understanding your wages as well, what elements of compensation Do you have? And what are available to you? And when is it appropriate for you to be able to ask for a raise as well. All right, now let's dive into our 30s as we have a greater conversation about our well, alright friends, let's take a pause in the conversation about what we should be doing in our 20s and 30s. Here's the deal, I get that so many people tell you where you should be what you should be doing and how to get caught up and everything. And that is the comparison life that we lead. If you want to have a healthy relationship with your wealth, and perhaps this isn't your jam, then it is the perfect time for you to consider potentially being a client at forethought planning.

Shannon Foreman  13:52  
We would love to schedule a wealth assessment with you today. Our team is growing, and we are ready to welcome you with open arms. So go to forethought. backslash wealth assessment today. Let's begin that journey towards financial and wealth wellness for you. All right, now back to the episode. Okay, friends, now you're in your 30s. And maybe this for some people happen in your 20s too, but likely your family is starting to expand. Or you've decided, You know what? No, I don't want kids. That's definitely two different paths that we can explore. But ultimately, we're going to try to touch on some things that apply to both. That means that let's touch on the element of raising a family. Look, my friends, daycare is not cheap, which is why I really wanted you to save in your 20s to secretly having that element of small children and that cost of daycare. It is crippling. It is as much if not more than mortgage payment. My kids are now seven and eight So they are 17 months apart. And when I had them in daycare, it because I had that's that's the option I had was for them to go to daycare so that I could go back to work. They were both right back into daycare, around 12 weeks old, we didn't have someone else to watch them for the first period of time. And not everybody does. We were very blessed that we could afford it. But it was not comfortable. For us, we ended up paying more than our mortgage payment. In daycare. I hate to say this, but our accountant one year had us the most expensive family at 20 $100 a month now that only lasted us a short period of time, because we had two infants for a period of time, but we still had two kids in daycare, and it was a lot of money. And you take that and multiply it times 12, I'll let you to the bath because it is a little painful for me. That being said, there are other pieces that are happening in your life. So you do want to have a better hold on what your financial picture looks like. That being said, we talked about your emergency savings in your 20s. It's just as important in your 30s. But now likely you are advancing in your career, you've maybe had a couple of promotions already, or you're gleaming for that new promotion. Coming up here soon as you advance in your career, how are you with every advancement in your career taking that raise or added compensation and adding that to your savings account, like I said 20% of your income should be going to savings. That being said, a bulk of that should be going to your long term savings. If you haven't established your short term savings yet, in your 30s. You also want to make sure that you are now directing repayment even more so look at your budget so that you can understand truly what your cash flow is what goes in, and what comes out. Because it is very important no matter where you are, I should have said that in your 20s to no matter where you are you need to be visiting your cash flow every single month. Yes. And sometimes in order to have a healthy relationship with your money, you should probably be looking at it every single week, so that you can have an understanding of what am I spending and what am I earning? What am I saving? And what am I investing? Am I giving? Do I have any room to give anything? Is that something that's important to me to be able to do? You need to be able to establish that healthy relationship? That being said, what are the areas within that cash flow that you can pay off anything extra if you have a car loan student loans, and each one of those increases in your income should be directed in a way that allows for you to pay down some of that debt? Why is that important? likely you're going to have other expenses. If you increase your family, it's now time for you to consider perhaps even more life insurance than you had considered just signing up for your employer benefits. What is it that your family actually needs, if something were to happen to you, or if you were no longer able to work? Those are two different types of insurance, not just health insurance, not just car insurance. Now you're really an adult, and it is time to think about how do you surround your family with the things that they might need if you're not able to provide for them anymore, or God forbid, you are not here. It is unfortunate that I have seen few of my friends who have lost a spouse in their late 20s Or even in their 30s. And nobody wants to see that happen. But also we want to make sure that we care about the people that we love. And sometimes that means being able to take care of them logistically when we are no longer here. So not only should you be evaluating your life insurance policies, but you should also be providing instructions. That means your estate plan have you provided a will a power of attorney health care directives. These are not things that you should be waiting on until you're in retirement and closer to the end. The reality is, we're always closer to the end and we don't know what's around the corner. And if we plan for it, then our loved ones

Shannon Foreman  19:33  
can deal with how it is that we wanted those wishes to be taken care of. And they don't have to worry about the stress of the finances when they're already emotionally dealing with an unexpected loss. Now I know that's dark and dreary and not super fun to think about. But in all honesty, you want to make sure that you're planning ahead. So beyond that, you might also be needing to expand your Home, maybe that first home that you purchased is grown a little tight as your family grows, whether it's kids or four legged friends, or roommates or whatever it might be, maybe you need some more space. And now it's time to reevaluate. Maybe you have equity in your first home, and it's a great opportunity to use that equity to purchase a second home. Oftentimes, I get asked if we should turn that first home into an investment property, you just need to understand all of the things that go with that. And if that is something that truly works with your financial situation, that is more of a complex investment. So if you are not well established in your emergency savings in your retirement, paying off all of your debt, besides your existing mortgage, then you might want to evaluate what is the best scenario for you because that ideal scenario isn't always what actually happens. So don't believe everything that you hear on the internet. Now, a couple other logistical things that I want you to think about in your 30s. So many times I hear well, I've saved into retirement, I've saved into retirement or I have all those old 401k is I don't know what they're doing with, this is a perfect time for you to reevaluate your investment strategy, consolidate, make sure that you're leaning into your personal board of directors. Oftentimes, I refer to these individuals as your financial advisor or planner, your accountant or CPA, your estate planning attorney, if you're a business owner, you should also have a business attorney, your life coach or therapist, those individuals are your personal board of directors, but your strategic personal board of directors are going to be a financial planner. And depending on how complex your employee benefits are and where you are at in your career, it is important to lean into those individuals and have a good understanding of how all of the moving parts are working for you. And not waiting until you get close to retirement to decide to involve somebody in that conversation. Now is truly the time to make sure that you're seeding into all of the right buckets. So when I said so many people are saving into retirement, oftentimes, we only think the long term investment vehicles that we can save into our 401 K's or a Roth IRA or a deductible IRA, because our tax person said that we could save in taxes. The reality is you can also save beyond your emergency funds into investment vehicles that might be earning you a little bit more than the pocket link that your savings account is doing. So we often refer to that as three different buckets of savings. And we'll talk more about why those are so important as we go into our next episodes and focusing on as we grow in our age. But those three buckets just high level taxable tax free and tax deferred. Oftentimes, our tax deferred bucket is our 401k is our tax free bucket is our Roth IRAs. And our taxable is exactly what I just talked about our investment vehicles beyond our traditional elements of retirement. But how are you setting aside for maybe that short to mid term length, that ability to have access to those funds, if you needed to do a home improvement down the road, if you wanted to take a massive trip to Europe, whatever it might be, these are different things that you can save for a longer midterm, maybe think like five to 710, maybe even 15 years and timeframe that you have accessibility to those things. Because if you're putting all of your money into your retirement account, you will if you are accessing them for needs that are not waived under certain penalties, you will have a tax penalty plus you'll have to pay taxes on it. So it's not the best scenario to use your retirement accounts as an alternate savings account. You have other elements that you can do all the while from an investment strategy, making sure that you're revisiting the things that are important to you. What's your risk appetite? And how are you investing? What are the fees that you are paying, making sure that you're having those questions to the individuals that are advising you. That being said, so many individuals still want to do it themselves, which is totally fine. And in fact, I have an entire episode from January of this year, where I give you some pieces to consider if you are planning on doing this yourself without involving a personal board of directors. But if this isn't your jam, then lean in my friend. There are a lot of great financial planners out there that are willing to help you. So in recap, in your 30s, you are transitioning into these other elements in your career making sure that you're revisiting over and over every single time you have those promotions. Where is that money getting allocated to are you paying down your debts that are not your mortgage? Are you saving for expanding on that family? Making sure that you're not, again, getting caught up in everything that everybody else has that maybe you don't quite have yet. It's an element in a discipline. Trust me, I get it. I've been there. And I recorded an entire episode just about keeping up with the Joneses. And if you don't know who the Joneses are, they might have bought everything on credit. Who knows. But that's not necessarily the path I want you to be on. I would like you to have a healthy relationship with your money. So making sure that you're revisiting your savings and investment strategies, that yes, of course, you're saving to retirement with every single one of those raises that you're getting, but also what are other investment vehicles that you can participate in, and re evaluating your insurance, what are the needs for your family, and making sure that you are establishing your estate plan, getting that will establish having the conversations with individuals that are important to you, and the responsibilities that you would like them to hold if you're no longer able to do the things that you want to be able to do? So my friends, this is a short snippet of what we think you should be doing in your 20s and 30s. Of course, there are longer more established different things and you can read beyond a couple of books that I really, really love. When it comes to money and as you're learning, you are a badass at making money Jensen thero I love you. You're wonderful. If you don't like swearing, then maybe don't read that book. But

Shannon Foreman  26:36  
also if you're listening to this podcast, you don't mind swearing. The mindful millionaire by Lisa Peterson love her as well. She's awesome. You can follow her on social media. And my gal who got me into this career at a very young age Jean Chatzky. I used to watch her on the Today Show every day, women with money, just three of my favorite books that are go to any single time. Anybody asked me about what they should be reading, you can of course get them on audio books, I'm not getting paid to tell them anything. They don't even know that I'm offering this. They're just three of my really great authors, two of which have great amounts of financial experience, and one who has a buttload of just life experience and business experience. She is amazing. That being said, my friends, if you are still learning and growing, go back and binge the rest of the Thrive Forward podcast follow us on social media, share this with your friends. If we don't talk about money, the reality is we don't know where we are. And if we're always talking about what we're spending rather than what we're saving or investing or how we're growing our wealth. Then we're just talking about what's leaving and not what is stained and hopefully growing for us. So my friend, change your language and remember you are worthy of wealth. The views expressed here are those of the participants and not those of forethought planning advisors pide or LPL. Financial all investing involves risk including loss of principal no strategy assures success or protects against loss securities are offered through LPL Financial and member of FINRA and SIPC advisory services offered through advisors pride and SEC registered investment advisor LPL Financial Advisors pride forethought planning and the guests of the Thrive Forward podcast are separate and unaffiliated parties

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