Crash Course in Financial Literacy for 30-Somethings

As noted in Did You Know that the UK is not on the Euro? I am a self-trained Suze Orman.  In preparation for an international hike, for which we will spend about 3-4 weeks abroad, budgeting is an important aspect of our trip. It seems that many trentagenarians would like to take a trip like this and are wondering how to do it.

Although my degrees are in the Humanities and I haven’t taken a “math” course since my senior year of high school ( I can’t even pretend to count the Math With Boobs aka Math-For-The- Non-Math-Major course I took in college), in my almost thirties I have unintentionally become the person people seek out for financial advice.

Disclaimer, dear reader, I am in no way looking for you to e-mail me your financial quandaries, rather it is an observation that most thirtysomethings have not been taught financial literacy in any meaningful way, from either their parents or their schooling. We are living in a time that glorifies the individual and with that glory comes tremendous responsibility for which many of us are sorely unprepared.

Here is a quick, crash course, in getting ready for an expensive vacation (or for purchasing any big ticket item).

1) Don’t view your salary on a month-to-month basis. Think of your salary as an annual figure. Budget backwards from the annual figure. This makes it easier to track where your money is going.

2) Pay yourself first. Before you pay your taxes, before you pay down your debt, before you buy an iPad, put some money in your 401K.  At 30, your contribution varies depending on your earnings and whether or not you get a match. This chart makes things pretty clear. I am a high stress saver, so I’m toward the top of the list, but your don’t need to be. (If you visit MoneyUnder30, the blog where this chart is located, allow yourself as a reader in the post-2008-global-financial-bust to feel superior to some of the writer’s 2006 fiscal insights. We might not ever earn the laughable 8% MoneyUnder30 suggests, but the general premise of his findings is spot on).

3) It’s not enough to just open a 401K plan and put your money away. You need to research which funds are available and annually update your choices. In the long term, studies show that the hand-picked plans always outperform the retirement target date pre-packaged plans (aka Fund 2050, the year at which you expect/hope & pray you can retire).

4) Don’t liquidate your 401K plan unless you are truly destitute or the mob is after you. The money in that plan has earning potential beyond what most of us can ever imagine. A $10,000 loan from that plan for a big ticket item might not be the most sustainable choice.

5) Identify your debt. Don’t distinguish between “good” debt and “bad” debt; if you owe someone or some corporate entity money, you carry debt.

6) Establish a plan to pay back your debt as early as possible. Compounding interest is a b*&#h. The more you pay now, the less you will pay later.

7) Know the difference between wants and needs. Only budget the needs: housing, transportation, food, insurance, etc.

7) Make your big ticket item your primary want. Open a separate high interest savings account and make a payment every month into that account for your big ticket item. Try not to fluctuate your payments; pay the same amount every month. There are many accounts available online and your local Credit Union might has some unbelievable deals.

8) Read SmartMoney and Suze Orman and Yahoo Finance, essentially anything on a 5th-8th grade reading level to get a sense of how the stock market works. I’m someone with years of graduate level education and I firmly believe in the 5th-8th grade reading level as a place to start for those who cautiously beginning their journey toward financial literacy. The more voraciously and promiscuously you read, the more you will understand and you can advance to more challenging periodicals. Play a simulator game like SMG, if possible, to understand how investments work. Whether you want to be or not, you are already invested in the Stock Market through your 401K or (lucky devils) defined contribution pension plan, you might as well learn where your money is going and how to make the best choices.

9) Ask questions, even “dumb” questions, to those who are smarter than you (colleagues, friends, your emotionally distant aunt or uncle who just seems to have it all figured out, at least financially figured out). Conversely, don’t be afraid to challenge those at the bank, the credit union, the brokerage firm, etc., if what you have read contradicts what they are telling you. I always do and quite often, I am in the right. It’s your money; take care of it.

10) Always keep in mind David Grabler’s definition of wealth: the wealthy are those who are not in any debt, all others are enslaved. Fight to be wealthy on those terms and not the Kardashian’s.

Although we decided in December to take this trip, in some ways, we’ve been planning for it much longer by establishing a set routine of saving.  As long-term grad students, we entered the job market much later than most of our peers and we work in industries that are not considered highly lucrative.  I say this  to you, dear reader, hopefully as inspiration to plan for your trentagenarian trip and to do it now.

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About 30 Ways of Walking

Gina Liotta's writing has appeared in or is forthcoming in The New York Quarterly, Slate, The Paterson Literary Review, LIPS, and The Healing Muse, among others. She lives, writes and teaches in New York.
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2 Responses to Crash Course in Financial Literacy for 30-Somethings

  1. Warriors and Goddesses says:

    some great, worthy advice. The living in the now attitude has been a way of justifying debt in youth. That said if you do it right, you can still keep out of debt and no go without some fun and luxuries. 30 sneaks up on you pretty fast and you need to look at the big picture and secure your financial future.

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