Tales from the Wallet: Wealth Building in Your 20s and 30s

Protect your moneyThis post is written by your regular friendly blogger Kat, but sponsored by Regions Bank, which features a Women and Wealth initiative to educate, equip and empower women by providing the information and tools that will help to ensure financial success for women, and by providing the insights and programs to find financial confidence in areas such as investing, saving for retirement, life insurance protection, budgeting, and managing debt, making it easy for women to manage their finances, maximize savings, and reach their goals.

Ladies, what are your best tips for building wealth in your 20s and 30s? For those of you (most of you) in that age range, what did you do in your 20s you were proud of — and what are your goals for your 30s? At the outset, let’s just acknowledge the awesome power of compound interest (these charts from Business Insider are pretty cool) — it’s why this stuff is so important to get a handle on as early as possible, which I didn’t necessarily do. (Pictured.) Some of my best tips are:

1. Get a clear picture of what you have — and what you owe.

If you have student loan debts (or worse, credit card debts), those debts will obviously play a large role in your financial plan for the next few years.  Always pay the minimum, and I strongly advise you to “round up” on the minimum for your debt with the highest interest rate — if your payment on that one is $326 a month, round up to $500 (or $350 — whatever you can do without thinking about it!) and put the extra towards principal. (If you can automate this, it’s even better.) When you extinquish that debt, you can snowball your debt payments by moving the $500 you’d been paying to Loan 1 to be an extra payment on top of your minimum for the new “highest interest rate” debt, Loan 2.

In addition to your debt, of course you should track your other accounts if you have several, particularly so you can get an idea of where your money is going. Many banks offer personal financial management tools online, such as Regions MyGreenInsights.

2. Educate yourself on what financial perks your company offers — and how to take advantage of them.

I didn’t look into a 401K until I was 28 or so, even though I’ve been out of college and working since I was 21. An colleague of mine from my early 20s later told me with pride that she had taken advantage of the company match at our first company (where, for example, if you put in $2,000, the company puts in $2,000 too) — and her retirement fund was growing quickly.  Talk about a face-palm moment! Even though things were super tight in those early days, I feel like I could have squeezed together an extra $100 a month to put towards the 401K to get the match. Not every company offers a 401K match — and some don’t even offer a 401K! — so this is one of those things that varies from company to company.  In addition to retirement vehicles, look into flexible spending plans, HSAs, and other perks (like getting subway cards pre-tax) — even if you don’t have money to spare, educate yourself so you know what you’re rejecting. (Here’s our last discussion on company perks, as well as our last discussion on the different kinds of retirement vehicles and whether you can use retirement funds for things like paying for a wedding, buying a house, or going back to school.)

3.  Build your emergency fund, and develop a savings mindset.

The emergency fund is hugely important — it lets you do everything from fix a car you didn’t expect to die, to quit your job if you really need to.   The common wisdom is that you should have 4-6 months of living expenses easily accessible in a bank.

One easy trick that I’ve used in the past to build an emergency fund is to set up a regular, repeating “automatic transfer” from my checking account into my savings account, after asking myself: can I spare $25 a month? How about $25 a week? The more you can commit to automatically moving from your checking to your savings account, the faster the money grows.  In my early 20s, working in magazines, I may not have been able to swing an extra $25 a month — I was already stretched pretty thin, and would occasionally bring a raw potato and a slice of processed cheese with me to work to make a “baked potato” in the office microwave. (I also will freely admit that half of the book lunches and other press events that I went to primarily so I didn’t have to think about dinner!) Do what you can.

Another good trick for building your emergency fund is to figure out what 10% of your income is, and break it down on a monthly basis. (So if you make $25,000, $2,500 / 12 = $209 a month.) Treat the $209 as a separate debt payment — pay the minimum every month. Once you fully stock your emergency fund with six months worth of living expenses, you can keep saving 10% of your income, which is a worthy goal in and of itself. (Even now it’s on my list of financial goals for the year!)

5. Bonus steps: get aggressive with debt payments, max out your retirement vehicles, and invest in stocks and index funds outside of your retirement accounts.

Once you’ve stocked your emergency fund, gotten any 401K match that may exist, and can pay your credit card in full every month, you may be wondering, “what next?” There are a few options, that will vary based on what you want to do. My $.02:

  • If you have any loans with interest rates higher than 7%: pay them off aggressively with any extra money.
  • If you want to go back to school soon: consider setting up a 529 account for yourself — rules vary by states, but the upshot is you can deduct a set amount every year and use it for school expenses like tuition, books, and more.  If you end up not getting that degree, you can change the beneficiary (e.g., to your child or your partner).
  • If you don’t know what you want:
    • Consider maxing out your 401K or other retirement vehicle, like a Roth IRA.
    • Another option: consider opening your own investment account, such as in an online broker.  Unlike retirement accounts, most investment accounts require at least $3,000 to open the account — you can use the automatic saving technique described above to save the minimum in your regular savings account, then move it over when you’re ready to invest.
    • Find a financial adviser.  For example, a Regions Wealth Advisor can help you determine an appropriate asset allocation strategy based on your personal goals and risk tolerance.

Ladies, what are your top tips for building wealth in your 20s and 30s? What moves did you make that you’re proud of — and what do you wish you’d done differently? 

Thank you again to Regions Bank for sponsoring this post; I’m proud to be a part of the Women+Wealth insights campaign. As noted above, note that Regions Wealth Advisors can help you evaluate your situation and build estate plans tailored to your needs and long-term goals with a team of subject-matter experts, as well as the Regions Wealth Assessment.

Tales from the Wallet: Tax-Savvy Investments

Marc by Marc Jacobs - Turnlock Shine Long Tri-fold (Electric Teal) - Bags and Luggage Something I’ve been thinking a lot about since I read it is this Mint article on “The Value of Tax-Deferred Savings.” According to the article, “[u]nless you make enough money to max out all of your tax-advantaged accounts (401(k), IRA, 529, HSA, and the like), it rarely makes sense to do any investing outside them.”  (Please note, I am not a financial adviser — this is all just my personal knowledge, so take it with a grain of salt.) (Pictured: Marc by Marc Jacobs – Turnlock Shine Long Tri-fold (Electric Teal) – Bags and Luggage, on sale at Zappos from $198 down to $150 today. Lots of great sales on Marc by Marc Jacobs stuff on Zappos today, actually.)

To be honest, the value of tax-deferred investing isn’t something I understood until really, really recently. So I thought we’d review some of the main vehicles for tax-savvy savings here, answering — for each, the main questions on everyone’s mind:

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