topic Re: Financial Goals - Approaching 30 in Personal Finance

Financial Goals - Approaching 30

anik28 — Wed, 09 Mar 2022 06:43:35 GMT

Hello all,

I'm approaching my 30th birthday at the end of this year, and I've been thinking more heavily about my overall finances vs being so fixated on my credit score and rebuilding. I've spent the past 3-4 years slowly rebuilding my credit profile after a wealth of mistakes made in my early twenties. I've learned a lot about myself and how credit works throughout the process - I also will never tank my credit again knowing how hard its been to slowly rebuild. My next focus is setting my finances on track for entering my thirties and being able to have a healthy emergency / savings fund to rely on vs my credit cards. I still am working on letting my new accounts age and taking care of the credit I currently have, instead of acquiring more. I know that financial wellness comes from savings and staying within a budget, which was not something I understood up until recently. A lot of my friends have perfect credit and have made smart decisions because they were taught to do so by their family, considering myself a late bloomer but proud that I've put in the hard work - I'm getting there. I'm looking for feedback for best ways to stick to a budget, and keep growing the small emergency fund I've built in the last 2-3 months. I've reduced my overall spending as much as possible and am looking to take a higher paying job or pay raise in the next few months. My goal continues to be reducing spending, bringing in more income and getting my debt to a low point.

Summary of my overall finances / stats

Income: 85K + Bonuses, 401K Balance: 6K

Emergency Fund Started 12/1/21: 1K (adding 100$ a month plus any additional income)

No assets such as a home, or property - renting

Credit Summary: Avg Age; 2yrs 4months; Fico Scores are around 640-650 across bureaus.

Overall Limit: $17,200, UTL: 45% (Working to lower this to 15%)

Student Loans: 15K balance

Personal Loan: 3K balance

Car Loan: 20K

My main goal is to not take on any additional debt for the next year +, and drive any outstanding debts down while adding to the emergency fund & savings. I'm tipping the scale towards paying myself and getting out of the circular motions of paying debts. Life goals include paying off my car, traveling a lot more and having enough income saved to avert any sort of large debts. I know this Forum has lots of opinions about generating savings, paying debt and setting budgets - I'd greatly appreciate any feedback / if I'm on the right track. A few years back I wouldn't imagine of putting myself first financially, which is why I got into trouble 8-9 years ago. A constant reminder to myself that I can enjoy my life & career successes much more if I pay myself first.

Re: Financial Goals - Approaching 30

Anonymalous — Wed, 09 Mar 2022 12:17:56 GMT

Sounds like you're thinking about the right things.

Looking at the numbers, you're not in terrible shape, but you've ended up in debt and have little saved. That tells me you're spending more than you have. So while increasing your income is fine, I think the bigger priority should be addressing your spend. If you haven't, it might be useful to go the accounts you use to pay for expenses (checking or credit cards, usually), download your transaction histories for the past year, import them all into a spreadsheet, and then sort them and run the numbers. By going through the list, you'll probably run across a bunch of expenses you can reduce or cut entirely, from streaming services you don't use to too many stops at Starbucks. Beyond the low hanging fruit, see how much you're spending in various categories, and check if it seems reasonable. The totals will tell you where your money is going, and you can use that to target the areas where you want to reduce spending. A lot of our spending is based on habits rather than conscious choice, so being aware of your spending habits is the first step toward changing them. If you do get a raise, dedicate at least half to increase saving/pay down debt.

The emergency fund is a decent start. It's small and you're not contributing a lot, but it gives you a bit of a buffer in case something happens like your car ending up in the shop. I'm assuming the high utilization on your credit cards is mostly a revolving balance carried from month to month rather than just high usage paid of each month. If so, that's probably the next priority, because CCs usually have the highest APRs of any debt. While getting it down to 15% is a fine interim goal, your real goal should be to PIF each month.

Longer term, you should be boosting your contributions to the 401K. You should also look at opening a Roth or traditional IRA. You're at the age where small contributions will add up to a lot, thanks to compound interest. There's no need to overcomplicate things -- for instance, pick one of the low fee investment houses like Fidelity, Schwab, or Vanguard; or one of the fintech variants like Betterment or M1 Finance, and put everything in a S&P 500 or total US stock index fund. Just ignore any market gyrations and get in the habit of contributing (even if it's a small amount), and in 35+ years it'll have grown to a respectable size.

Re: Financial Goals - Approaching 30

anik28 — Wed, 09 Mar 2022 14:32:08 GMT

@Anonymalous I actually used the Mint App to comb through the past 6 months of spending and overall can reduce a few categories that are adding up. I have not been traveling at all the last 2 years, and cut my spending down to mostly just my living costs - which is hard sometimes because I want to do the things I enjoy, but know I really can't right now. I live in a very high cost of living area in CA, my rent is a huge part of my spend that I don't know how much lower I can get. I'm looking at some places that are bare minimum spend per month so hopefully can get that down this summer by 300 or 400 a month.
For my credit cards, yes I am carrying a balance on one card due to Vet bills / car repairs from the past few months and that's the major blip in my UTL. Month to month I do most of my spending in cash or debit, especially since I've been growing my available credit and don't have huge limits besides 1 or 2 cards. The emergency fund is small but im going to add any additional money I get through bonuses, side work etc so it will grow faster. I think most of my credit woes have come from not having a big savings to rely on and in desperate situations, having to put the expense on credit cards vs taking from my fund.

besides the 401K, I'm not super educated about stocks and fin tech. Is there any reading you can recommend I take a look at? I hear about bitcoin, etc but not sure where to even start putting money in investments. As someone who can't really afford to buy a house and won't be having kids, I need alternative ways to grow my wealth over the next 5-10 years.

thanks!

Re: Financial Goals - Approaching 30

DakotaM — Wed, 09 Mar 2022 15:22:35 GMT

The Bogleheads wiki and forum is a good place to start acquiring some investing knowledge. Fidelity or Vanguard in some kind of total stock market fund is usually a good starting point for a portfolio. Probably should check what you are actually invested in with the 401k after reading up some on Bogleheads to see if there's a better choice in there.

There are some high-yield savings accounts with various credit unions that pay 2% or more on lowish amounts (usually $500-$2,000 depending on the place) that could be an option to get something extra juice out of your emergency fund.

Cryptocurrency is a whole different risk beastie and general thinking is don't invest money in it you can't afford to lose, which sounds like your situation in the short-term at least. A given crytpocurrency could well go up 10x in a short time or crash to 0. But those extreme scenarios are less likely with some of the more well-known ones, hopefully😅

Re: Financial Goals - Approaching 30

Anonymalous — Wed, 09 Mar 2022 19:54:22 GMT

@anik28 wrote:
besides the 401K, I'm not super educated about stocks and fin tech. Is there any reading you can recommend I take a look at? I hear about bitcoin, etc but not sure where to even start putting money in investments. As someone who can't really afford to buy a house and won't be having kids, I need alternative ways to grow my wealth over the next 5-10 years.

I was recommending investing more for retirement, which for someone in their late 20s is roughly 40 years out. Over that period of time, the stock market will always win, so you might as well put 100% of your investment in equity. Just don't panic and pull anything out if the market drops sharply, because that's how people lose money. It'll rebound, so let it ride. Compound interest is how small investments now turn into significant piles of money over long periods of time, but it works against you for costs. Even a 1% drag on your portfolio can end up costing you 1/3rd of your money over 40 years. To minimize that, stay away from money managers who charge a percent of assets under management, and pick no fee, no load, passively managed index funds with low expense ratios. The core of any such portfolio is an S&P 500 or total (US) market index fund, which over time and after expenses will do better than any actively managed fund.

The most important thing you can do is start investing as early as possible (i.e. now), and the #1 reason why people don't start investing now is because they're not sure how they should be investing. That's why I recommend keeping it as simple as possible and putting everything in one of those two types of funds. You can worry about things like asset allocation later, and the Boglehead website that @DakotaM mentioned is a good place to pick all that up. Both Fidelity and and Charles Schwab are currently running offers where they'll give you $100 or $101 dollars if you invest $50, so you might as well open a Roth or traditional IRA, deposit $50, and play around. A 200% return in a few months is a really good start.

If you're looking to increase your wealth over 5-10 years, that's completely different. You're looking at a much shorter time horizon, and over that time frame there are guarantees. We might end up with a 10 year bad streak in the stock market, and you could lose money. Also, you won't be able to use tax advantaged accounts like traditional or Roth IRAs. If you want to invest in the stock market, go with ETF versions of the index funds because they're more tax efficient, and have low turnover rates. If you want something that's more sure, go with a bond index. Unfortunately, bonds have had a terrible return for a long time, and tend to be less tax efficient (your income probably isn't high enough to justify muni bonds).

One option that might be attractive today are I Bonds, which won't make you any money after inflation, but will adjust to keep up with inflation, so you won't lose any real value. I Bonds are only available directly from the government (the Treasury Direct website), and can't be redeemed for the 1st year, but after that year are a decent place to stash something like an emergency fund. (Though I'd still keep the first couple thousand in a high yield bank account.)

Ultimately your best bet over such a short time frame may be to work on ways to improve your skills and increase your income, particularly since you're in a very high cost area.

Re: Financial Goals - Approaching 30

Citylights18 — Fri, 18 Mar 2022 22:59:24 GMT

Stocks can be tricky and dangerous if you try to go all in. You really need to be able to identify the top of the market and take profits at the top. Square for example was trading around $270 last November and now is currently trading at $140, bouncing off a low of $82 at the beginning of the month. I should have sold at the top and now I'm down 39% in my position. But I only put $4,000 into SQ so I'm only up against a $1500 dollar loss.

If you are interested in getting into stocks you might want to start out with a paper account where they give you a hypothetical 100,000 to play around with. You want to also learn about stock charting. I use Trading View which is regarded among the best products. The key to making money is being able to time the market effectively and charts will help to tell you where the market is at.

Re: Financial Goals - Approaching 30

Anonymous — Sun, 20 Mar 2022 22:34:13 GMT

@Citylights18 wrote:
Stocks can be tricky and dangerous if you try to go all in. You really need to be able to identify the top of the market and take profits at the top. Square for example was trading around $270 last November and now is currently trading at $140, bouncing off a low of $82 at the beginning of the month. I should have sold at the top and now I'm down 39% in my position. But I only put $4,000 into SQ so I'm only up against a $1500 dollar loss.

If you are interested in getting into stocks you might want to start out with a paper account where they give you a hypothetical 100,000 to play around with. You want to also learn about stock charting. I use Trading View which is regarded among the best products. The key to making money is being able to time the market effectively and charts will help to tell you where the market is at.

Right, certainly individual stocks are risky and/or need a lot of research, but index funds are much less so. Not without short-term risk of course (I cleverly did a small Roth conversion last month, paying the tax, only to see the value drop by 12%, oh for the era of recharacterization!) but for the OP time should grow the investment with fairly little risk, just have to get things right at retirement.

But the advice to check investments in the 401(K) is good. Even though it's currently a small balance, new contributions will keep it growing. Just make sure it is invested in something sensible and cheap. A lot of firms default to some type of target date fund, which can be OK or not so OK. If there is a low cost stock index fund (there might not be), moving new contributions there would be better.

Obviously someone like OP who has been rebuilding, and now wants to focus on some "grow my assets" strategy, so as to have a decent emergency fund and buy a house, retirement may well seem very secondary. Sadly, one day it won't, and the key is to balance today's needs against what will be needed in the fairly distant future. The answer is to have a great deal of money and take care of both, but that isn't available to most of us!

Re: Financial Goals - Approaching 30

JFox418 — Mon, 21 Mar 2022 13:40:50 GMT

Does the company you work for do any 401k matching? I'd make sure you're investing AT LEAST as much as they require to match if so. That's free money on the table.

Re: Financial Goals - Approaching 30

iced — Mon, 21 Mar 2022 14:16:34 GMT

@anik28 wrote:

besides the 401K, I'm not super educated about stocks and fin tech. Is there any reading you can recommend I take a look at? I hear about bitcoin, etc but not sure where to even start putting money in investments. As someone who can't really afford to buy a house and won't be having kids, I need alternative ways to grow my wealth over the next 5-10 years.

thanks!

Your options are pretty limited to grow wealth outside of stocks/speculating on investments.

Real estate is biggest area people go into to try and build wealth outside of stocks, and you'll hear that it's safer from some, but the reality is it isn't any better or worse. For the vast majority of landlords, the path to wealth is riddled with being leveraged up to your eyeballs for decades, and if free cash flow ever dries up (a la rent moratorium), the entire house of cards can collapse in a hurry.

Crypto is just another flavor of stocks/fin tech, albeit one with even more risk and luck required.

One other option that comes to mind is crowdfunded investments, such as Mainvest or Fundrise. The gist behind this area is to loan money to small businesses or go in with thousands of other investors on buying up investment properties. It's still effectively the same thing as stocks, but instead of owning part of a company, you're owning part of a building or acting as a bank to other businesses.

In the end, ALL paths to building wealth will require you to be willing to put money into something and leave it there for a while (years) and be willing to risk losing some/all of that investment.

Re: Financial Goals - Approaching 30

Citylights18 — Tue, 29 Mar 2022 07:29:46 GMT

@Anonymous wrote:
@Citylights18 wrote:
Stocks can be tricky and dangerous if you try to go all in. You really need to be able to identify the top of the market and take profits at the top. Square for example was trading around $270 last November and now is currently trading at $140, bouncing off a low of $82 at the beginning of the month. I should have sold at the top and now I'm down 39% in my position. But I only put $4,000 into SQ so I'm only up against a $1500 dollar loss.

If you are interested in getting into stocks you might want to start out with a paper account where they give you a hypothetical 100,000 to play around with. You want to also learn about stock charting. I use Trading View which is regarded among the best products. The key to making money is being able to time the market effectively and charts will help to tell you where the market is at.
Right, certainly individual stocks are risky and/or need a lot of research, but index funds are much less so. Not without short-term risk of course (I cleverly did a small Roth conversion last month, paying the tax, only to see the value drop by 12%, oh for the era of recharacterization!) but for the OP time should grow the investment with fairly little risk, just have to get things right at retirement.

But the advice to check investments in the 401(K) is good. Even though it's currently a small balance, new contributions will keep it growing. Just make sure it is invested in something sensible and cheap. A lot of firms default to some type of target date fund, which can be OK or not so OK. If there is a low cost stock index fund (there might not be), moving new contributions there would be better.

Obviously someone like OP who has been rebuilding, and now wants to focus on some "grow my assets" strategy, so as to have a decent emergency fund and buy a house, retirement may well seem very secondary. Sadly, one day it won't, and the key is to balance today's needs against what will be needed in the fairly distant future. The answer is to have a great deal of money and take care of both, but that isn't available to most of us!

Index funds can be risky too depending on what they represent.

My advice having lost huge sums in the market at various times would be start with a paper account just to get a feel for trading and also get into reading the business news. Understand the relationship between treasuries, bonds and stocks. Timing the market correctly is key though persistence does help.