Home Economics A Financial Planner’s Best Advice About Saving Money After Age 30

A Financial Planner’s Best Advice About Saving Money After Age 30

SimiNovember 15, 2018

“To achieve what 1% of the world’s population has (financial freedom), you must be willing to do what only 1% dare to do…hard work and perseverance of highest order.”

Everyone discusses how life changes in your twenties, from the end of high school to college and beyond. However, in today’s world, people in their thirties are the ones who see the greatest change in their lives. This is due to many economic, demographic and cultural changes in our society.

People in their 30’s are handling myriad transitions: Career advancement, starting a family and buying a first home to name a few. As a financial planner, I have found those who manage their finances correctly stand to benefit most from these transitions and investments

The truth is that most of us, due the changing nature of the job market, will live lives of less comfort than the generations before us. Already, millennials are buying fewer cars and houses than Baby Boomers or Generation Xers. There are myriad pitfalls to avoid on the path to success and comfort, but there are also many opportunities.  Be prepared for the financial changes in your thirties.

I have come up with some simple tips and solutions for millennials so they are able to gain control of their finances and from it, their lives moving forward. You’d don’t want to really think about it or do anything about it, but you need to. Hopefully, this guidance and advice will help you get started.

Do not live the high life

Spending is a pervasive theme of our culture today. We are bombarded by a cacophony of adverts each day through various media devices, offers of cheap credit and quick-buck solutions. The sheer amount of information and advertising can cause one to lose sight of what is really important.

So the next time, whether showing off on social media, buying designer clothing or getting a new favorite tech gadget on credit, realize all of these purchases do nothing for you in the long term.

If you are earning $10,000 a month and spending $9,999, you are not saving. While you are lucky to not be racking up debt, you are not “getting wealthy,” especially when one factors in inflation. In essence, you need to learn to live well below your means.

Extra cash should be put into investments and securing long-term financial stability. This is the key to becoming wealthy.

It’s all about the percentages, not the amounts

This leads us to how you view your money and savings. A mistake many make is that people view their savings as a fixed amount instead of a percentage of income.

If you earn $10,000 but save $3,000, you are actually doing great. Where many slip up is that their savings rate will stay at a flat rate monthly ($3,000) but the income will grow, say from $10,000 to $15,000. Therefore, as a percentage of their total income, their savings rate drops.

This “lifestyle” creep is one of the greatest traps I find occurring with my clients. We’re all guilty of this, myself included.

It is vital that no matter what income group you are in that you view your savings as a percentage and not a fixed amount. By focusing on a percentage, you ensure you are always saving, and that the amount you save fluctuates with your salary.  Aim for anything between 5 and 15% per month.

Educate yourself

Allow me a quote: “In life’s journey, having the ability to predict the future gives us an unfair advantage. If we can understand the laws of cause and effect, anyone can predict the future. What we do today leads us to tomorrow’s destination.”

Remember when you first learned to drive?  It was not just about getting in the car and driving. First, you did your homework and read up on how to drive, what the road laws were and what different signs meant.  You also then booked and had to go for your learner’s permit. Only then did you get into the car for the first time.

Your financial planning and future is just like driving. You need to first get “educated” and understand the basic terms of financial planning.  If you don’t understand them, how are you going to plan them or implement them going forward?

Research online. You can find loads of stuff out there to help you understand the financial terms. Technology is amazing – there are many APPS you can download to work with. Things like just tracking your daily spending will give you a very good idea over a 3-month period what you are doing financially and where and what you are spending your money on.  You will also track how much you actually spend on “nonsense.” Think twice about buying coffee on-the-go. Leave the house with your own coffee – that’s already a few bucks saved with very little effort.

If you did this every weekday and added up the days in the month; ask yourself how much you would already have saved. We are trying to get to the point of being able to save and put away at least 6 percent of what you earn in a month to grow your savings.

Learning to take a risk is important

Like everything we have done in our lives, we have had to learn how to do it. Remember when you wanted to dive off the high diving board? First, you needed to know how to swim.

You had to harness all your energy to just walk up the steps and stand at the end of the board. It was terrifying and you felt like throwing up. But you eventually did it. You dived into the water and come up for air and your first words were, “I want to do that again.” That sums it up for financial planning.

You won’t be an expert on day one of your financial journey. It takes time, and you are going to have to risk your comfort zone, put yourself out there and take a risk. Sometimes the risk has great rewards, and other times you just learned how to assess the risk better and changed your plans.

Again, I go back to my point on educating yourself.  This is free, and there is so much at your disposal literally a scroll away on your phone or laptop. What financial risks have others taken, what did they learn from it and what were the rewards? Financial planning and well-being is not something that just magically happens overnight. It takes time. Remember the first time you dived off the high board. It did not happen in seconds; it took time for you to do all the risk calculations in your head before you ever stepped onto the board for your first dive.

Is it too good to be true?

Nothing comes easy, and no one became rich overnight. It takes time from the planning, to the research and finally, the execution.  We have all heard of millennials who became millionaires “instantly.” But it was never instant.

They took time to research and develop their financial well-being. They took risks, and in many cases, those risks led to nothing or very little return. Then they regrouped, learned from their mistakes and started again.

When someone suddenly says they made a thousand dollars on a $500 investment in a month, you have to think to yourself, “Is that real, or even realistic?” You live in the same world they do, and you know that nowhere is going to double your money honestly in a month. Unless it was a lucky throw of the dice in Vegas.

Let’s revisit education and risk. Do your homework. Do your research. Remember you have worked hard to earn the money, so do you really want to risk it on something that you know is just too good to be true?

Invest or save your hard-earned money in something that is tried and tested and has a track record. Ask your friends and family, or better yet, ask your financial advisor for guidance. Don’t get caught up in the hype of overnight riches. It’s just not going to happen. You will probably fall for one of these schemes in the early days and learn it was the wrong decision. Chalk it up to experience and think twice before you do it again.

Being proactive will get you far

Too many people are reactive instead of proactive. By this, I mean that they don’t take responsibility for their finances. It is easy to just live from month to month, especially if you have the cash to buy (generally) what you want. However, unforeseen costs that suddenly arise can really knock people back financially.

Think back to 2008 when the financial crisis hit. Many of us were in high school or college. Do you think all those bankers and financiers and stock traders were ready for the crash? Some were, but they were an exception to the rule.

The same applies to you. It is vitally important to have money available for when you need it (not including loans, which should be avoided unless absolutely necessary and only for ‘’big ticket’’ items that will greatly add to your worth over time. A house, for example). You need to spend some time at least monthly reviewing your finances in the present and for the predicted future (where possible).

The quiet reflection you do will focus your mind going forward, and make you more conscious of purchasing decisions. Being in control of your own finances and feeling secure in your decisions will greatly ease the stress of life. No matter what happens, if you know where you want to be in “X” years and how you are going to get there, you are in control.

Diversification: Not having all your eggs in one nest

Everyone knows about a 401(k)s and how they are vital for one’s retirement years. This employer-sponsored plan needs to be taken advantage of in conjunction with your own personal investing.  You are in charge of your future financial well-being – no one else!

One key misconception people have is thinking their 401k is the only investment savings they need to make going into the middle/late stages of life. This is dangerous. Retirement accounts are a means to save for the future, but not a means to grow wealthy in any substantial way.

Remember that 401(k)s are specifically for retirement. Investing in wealth creation is an entirely different and additional attempt at providing for your future. Another important factor to keep in mind is that retirement accounts are often untouchable until one reaches their 50’s (you can access the cash, but it often comes with penalties). To this end, splitting up your investment portfolio into many different areas lessens the risk you face, not only now but later on in life.

Investments in property and taxable brokerage accounts are viable options, as is looking for extra sources of revenue.

What you spend your money on

It sounds very simple, but I feel that unpacking this one is vital. What exactly are you spending your money on? When I say this, I’m excluding costs that can’t be skimped on such as food, transport, housing, etc. Although, be smart about your food choices and shop around.

People mistakenly believe that the more money they make, the happier they will be. This is a false correlation. Everyone has their own values and goals, and the key here is spending money on your goals, not someone else’s. Many people spend money on what society says they should (a snazzy car, an opulent house, suits they can’t afford) and not on what they want. Not only does this leave a sizeable hole in your finances, it often leads to unhappiness and more stress.

Money is to be enjoyed and to secure one’s own future, but at the same time, realize that you don’t take your wealth with you when you die. Make it count now but in a way that is sensible, fulfilling and most importantly sustainable for you. I suggest some serious reflection on what you wish to be doing with the spare money you have, as well as what you would like to do with your investments and retirement savings.

Those who think about their goals and values can be more intentional with their cash. The more aligned your purchases and your values are, the greater your feeling of fulfillment will be. A summary of this point: Do not buy things you cannot afford to impress those who don’t care about you. You are only harming your wallet.

Is it time to get a financial planner onboard?

Some of you will read this article and understand all the concepts I am going through now, but not act on them. It can be hard to stick to goals and planning. The rigidity of the savings regime on top the exhausting fast-paced life many of us lead can make the idea of savings or investments seem like a distant, abstract concept.

However, old age and retirement are coming for each of us whether we are financially disciplined or not. Similarly, while some of us may have the willpower to save and invest, we may not have the financial literacy level required to make sound decisions. In such circumstances, a financial planner can be crucial for achieving your goals. Finding a planner you are comfortable with is the first step. The person should answer your questions and be in sync with your goals and values as explained in the previous point.

Furthermore, they will devise a plan to take you to your desired point in a way that is attainable, sustainable and customized for you, in today’s world there is no one size fits all.

Certainly, there is the cost for the planner to be taken into account. They are not needed by everyone, and it’s a cost/profit analysis only you can do with yourself. Is it worth the extra cost when I measure what I would earn with/without the financial planner?

A simple test here: If you are sick and want to get better, you can try to do it alone or go to a doctor who can help you work toward and achieve your ideal health. The decision is yours.

It can be easy to be a financial success if you enable it

Remember the story of the Tortoise and the Hare? Just as the tortoise won the race over time, the same principle remains for you to be financially secure and wealthy. Successful financial planning does not happen overnight. It takes a lifetime of dedication, hard work and sacrifices to achieve sustainable goals. But the rewards are so great, so persevere.

Some quick, simple tips: If it sounds too good to be true, it is! ‘’Get rich quick’’ are often Ponzi schemes or pyramid scams designed to sucker those who are looking to make a quick buck. What’s worse, they fail without exception (their very model of ‘’making money’’ is flawed, and the entire system eventually collapses).

Understand that the market will fluctuate. Over your lifetime, there will be recessions as well as times of economic expansion. Playing the long game is the only way to achieve successful returns over a lifetime.

Always stick to a single plan

It might be just a simple overview of things you should be looking at in terms of understanding and planning for your financial future. But sticking to a single, long-term plan will help internalize what you have just read. Take some time to digest and give it some thought. Remember: You are the only person who can secure your financial future.

The more long-term your plan, the likelier its success will be, provided you are willing to work hard and sacrifice for long-term goals. It is also important to realize that today’s plan will be different than the one you end up with. This is the nature of life and our reality in the 21st century.

However, as long as your goals and values are what you want them to be, you will be happy and successful. This may seem difficult. In a world where we live double the historical lifespan, planning for the years when we cannot work but will still have the financial burdens of living is crucial. Planning and goal setting are the only viable means to achieving success…unless you are wonderfully lucky and win the lottery.

And what are chances of that?