6 Money Behaviors to Master Before You Turn 30

1.    Know how to budget

Know how much money you have coming in and how much money you have going out. Know what you are spending your money on! Use Apps, use paper, use excel, use whatever you want, but please know where your money is going.

2.    Understand the importance of an emergency fund

An emergency fund is not that secret credit card you don’t use. An emergency fund is an account somewhere that you won’t have super easy access too. You want your emergency fund to be at least 3 months’ worth of expenses - notice that I said expenses, not income!

Ideally, you want it to be 6 months, and I won’t be terribly mad at you if you save up a year’s worth of expenses.

Your emergency fund is for the “Oh crap!” moments in life. Say your furnace goes out, you lose your job, you hit a deer. An emergency fund gives you that safety net so that you can go about life as if everything was normal.

When you don’t have an emergency fund, the “Oh crap!” moments turn into the “What are we going to do?!” moments. Planning for the unexpected will help lessen the financial impact of those “Oh crap!” moments.

3.    Quit worrying about what everyone else has.

Did you see that so-and-so down the street just got a Mercedes? Well guess what, they probably leased it. Did you see the house that so-and-so built? Guess what, they probably are and will be upside down on it for the next 10 years. Do you want a life living YOUR dreams, or are you worried too much about what your neighbors have?

It’s likely that your neighbors are not thinking about you. And if they are, they are wondering why you are so happy in your life. It might just be because you have a financial plan and are living your life!

4.    Credit is a tool

Credit can be trouble, but if used properly, credit can be a tool. Of course, you know you need good credit to buy a house, but did you also know that some insurance companies will check your credit rating? Good credit can get help you get better insurance rates. So yes, credit can be a tool working for you.

If you are smart, credit can be a powerful tool. If you have a credit card, pay it off every month. If you are very credit smart, you will pay it off every week. The credit bureaus get an update of your credit from the credit card companies once a month. If you are maxing out your card every month, but paying it all off, the credit bureaus may not be seeing that you are paying it off every month. Paying on your card balance weekly keeps the balance low so the balance reported will be low as well.

5.    You need insurance

What do you need insurance on? Ask yourself this question, “Can I live or afford to live without it?”

Life Insurance. That’s an easy one. . .you need it! The minimum amount needed is 10 times your current income. What if you are by yourself and have no one that depends on you? Donate it all to charity.

Car Insurance. Another easy one! In most states, it is illegal not to have car insurance. Even if your car is a junker and not worth the duct tape that is holding it together, you need to have car insurance. I had one of those so-called “junkers” - a 1994 Pontiac Bonneville. The automotive repair shop literally had me promise to stop bringing it in. Anyway, you need insurance to protect yourself from other uninsured drivers, and for that chance that you are the one at fault with an accident.

Health Insurance. Obamacare has mandated that you have it. You may already have health insurance through an employer. If you think you don’t need it, ask someone who has had a baby, had cancer, or has broken a bone how much it had cost them to get medical help. Most people don’t realize the total medical costs because they have insurance! If you were to pay for any one of those out of your pocket, it will likely deplete all of your savings, or in some cases bankrupt you.

Those were the three easy ones - what about the harder ones?

Disability Insurance. 1 in 3 people will become disabled at one point during their working life for 90 or more days. Is it worth the risk? Disability insurance usually covers up to 60% of your income. If you are self-employed and don’t have saved up “sick days” like many employees can get, what are you going to do for income if you can’t work for 90 days or more?

Long Term Care Insurance. This one is tricky. Long term care insurance is one of the most expensive forms of insurance that is out there. The reason it is so expensive is because most people will need it and when they do, the bills from nursing facilities add up very quickly. The younger you sign up the better as your price is cheaper. But most people worry that they will never use it. There are life insurance policies that carry long-term-care riders in the event that you need the money for long term care costs.
 

6.    Pay yourself first

This one should have been first as it is the most important, but I saved it for the end so it’s the last thing you’ll read and hopefully the first thing you do. Paying yourself first is so important. The sooner you start this practice, the sooner you will reach financial freedom.

Your goal should be to put away 15% of your income each year. You can do this through funding a 401(k), a ROTH IRA, or even a savings account. Now if 15% sounds like too much, then start by working your way up to that amount. Start with 5%, then when you get your next job raise, ignore the bump in salary and pay yourself first. If planned correctly and with a few increases in pay, you’ll soon find that setting aside 15% is very easy.