10 Financial Commandments for Your 30s

Saw this list this morning on MSN. Pretty good list. I think we have accomplished all of these, which is a good thing because I’m in the final months of my 30s!!!!!!

Here’s the list along with my thoughts on each point. You can read the original article here:

1. Pay off your nonmortgage debt.

I totally, 100% agree with this. You should have no debt except for a mortgage and possibly a (reasonable) car note.

2. Kick the debt cycle altogether.

I like what the article’s author said here so I’ll just repost it: What good is it to pay off your loans only to take out another one and rack up more debt? An easy way to save for big-ticket items –and avoid going back into debt — is to put money you would have used for monthly debt payments and interest charges into a savings account. For instance, after you make that final $300-a-month student-loan payment, keep making an equal payment to yourself. After one year, you’ll have $3,600 saved. (See “Your 5-minute guide to budgeting” for help allocating your money.)

This is something my wife and I have started doing. We had a 401(k) loan out once and when it paid off, I upped our contribution to close what the loan payment was. The cool thing is that I was actually able to increase our contribution by MORE than the loan payment because 401(k) contributions are payed before tax while 401(k) loan repayments are not. I only wish we would have done this when we payed off our Rendezvous nearly two years ago. We would have nearly $12,000 in a car fund by now had I saved our car note after the car was paid off.

I also use our high-yield savings account (well, it “used” to be high-yield…it’s not so much right now) and pay our property tax into that account so that we have the money available when the tax comes due.

3. Get serious about retirement.

The 30s is when we saw amazing growth in our 401(k) balance. Unfortunately, the market has taken back much of those gains but over the long-run things should be better.

4. Diversify your investments.

We are diversified amoung equities. We don’t have any bonds in our portfolio yet.

5. Continue to learn.

This is one area where I have been lax. I have considered going back to get an accounting degree and becoming a CPA. That’s the degree I probably should have gotten in the first place.

I do at least continue to read books so I’m not completely forsaking educational endeavors.

6. Protect your assets.

As our budget has allowed, I have upped our insurance coverages where I thought it was important. I also upped our deductibles—something that can be done if you have an emergency fund—in order to keep the costs down.

7. Live simply.

I’m thankful that my wife and I live simply. I was looking at our budget the other day and noticed that our mortgage payment, property taxes, and homeowner’s insurance added together are less than 17% of our net income. Yes, we live in an affordable area and make decent money, which makes a huge difference. Lots of people don’t have that advantage. That said, we still made the decision to buy a house that we could afford. It WAS NOT our dreamhouse and it took us EIGHT YEARS before we did any major renovations to the house. And, we STILL don’t have our master suite the way we would like it. Bottom line: unless you make lots of money, you can’t have everything all at once. There’s nothing wrong with waiting until you can afford something.

8. Make your will known.

This is an area my wife and I are going to work on this year. We haven’t done enough in this area.

9. Get a life . . . insurance policy.

Check with your employer to see if they offer life insurance. BE AWARE that if you leave your employer (or are fired), you will most likely lose your life insurance. That’s why it is good to also have an insurance policy that’s not connected to a job. I’d suggest a nice long-term term policy.

10. Be charitable.

My wife and I tithe but could also do better in giving. We do little things like give to the United Way and a couple of religious charities that we agree with but that’s about it. I also am too stingy with my time.

I thought this was a good list. I feel a little better at what my wife and I accomplished in our 30s.

One Reader’s Reasoning on Why Younger People Don’t Save

I want to highlight this comment I received regarding why young people aren’t saving money (edited slightly):

I’m 27 and I can tell you really simply why we are not investing.

1. Since the day we graduated we’ve seen nothing but bad news. Huge tech crash, current crash. We’re not even back to where we were almost 10 years ago.

2. We have huge student loans to pay back.

3. Finally got out of college in 2004, saved as much as possible and am currently underwater…may as well have spent that extra money.

4. There are no solid investment vehicles that are even matching inflation right now.

5. We want to start families soon and need short-term funds, not long-term retirement funds.

6. We don’t really have much trust in our country. Frankly, I don’t think the US is really #1 anymore and our economy will only decline in the long run unless we are willing to tackle education’s inadequacies, stop giving money for oil to countries that hate us, and truly address the issue of consumerism.

We don’t see the market as a stable investment for the near future and would rather sit on cash and then get in either in the US once we balance out or elsewhere if my dollars are still worth anything.

I know firsthand how hard it is to get on your feet after you graduate from college and are just starting out in life. It is tough to think about retirement planning when you’re barely making ends meet. That said, most of those reasons are really nothing but excuses. Let’s look at each one:

1. Since the day we graduated we’ve seen nothing but bad news. Huge tech crash, current crash. We’re not even back to where we were almost 10 years ago.

Tell me one generation that didn’t experience bad news. Bad news is part of life. We go through tough times all the time. It’s nothing new. Use those tough times as buying opportunities since asset prices are typically lower during the bad times than they are during the good times.

2. We have huge student loans to pay back.

Figure out how much you owe and map out a plan to pay them back.

3. Finally got out of college in 2004, saved as much as possible and am currently underwater…may as well have spent that extra money.

Please don’t think this way. Instead, think about it this way: spending that extra money would have only put you further into the hole. It took my wife and I several years to get above water.

4. There are no solid investment vehicles that are even matching inflation right now.

Investments fall in and out of favor. Stocks are suffering right now. However, over the long run, stocks are superior inflation-beaters. Don’t base your long-term projections on short-term performance.

5. We want to start families soon and need short-term funds, not long-term retirement funds.

With proper planning you can have both. It’s extremely important to take advantage of the one thing you have on your side: TIME! Start out by putting a 3-6% of your salary into your 401(k). Once you get used to it, you won’t miss the money.

Saving for retirement when you’re trying to start a family will require some sacrifice. But, it is well worth it. The absolute BEST thing my wife and I did was to start putting money into her 401(k).

6. We don’t really have much trust in our country.

What? The greatest country in the world? Sure, we have problems but this is still a great place to live. Even if you don’t trust our country, what else are you going to do? Go live somewhere else?

Bottom line: it takes patience and sacrifice to get ahead.

I appreciate this reader’s honesty even if I don’t necessarily agree with them.

Save For One Year, Retire With $1MM

Most “retire with one million dollars” articles focus on slow and steady savings over the course of decades. That works of course, and saving regularly is a great habit to get in no matter how much money you have.

But if you’re young enough, with some concerted effort you can save for only ONE year, never save another dime, and still retire with a million dollars. This Motely Fool article explains.

It all comes down to the power of compounding. Let’s say you’re 26 years old, you start with $0, and somehow you manage to invest $20,500 that year (not so coincidentally the same amount it takes to max an IRA and a 401k in 2008). If you never save another dime after that, you can retire at 67 with over $1M if you can achieve annual returns of 10%.

As daunting as it sounds, coming up with $20,500 in one year is not impossible for many 26 year olds. Maybe you live at home after graduation and save most of your salary; maybe you receive a small inheritance; maybe you even have a high paying job and decide to just save half your salary and continue living like a student. The beauty of it is, it’s a one year committment – you don’t have to do it year in and year out forever.

And the longer you wait, the harder the one year challenge would be. If you wait until you’re 30, you’ll have to come up with $30,000 in one year.

Of course you don’t have to do it all in one year (though it’s kind of an exciting concept, isn’t it?). If you can manage to have invested $30,000 by the time you are 30 years old, you can quit saving for retirement and hit 67 a millionaire. That means if you start saving at age 20 you only need put away $2,000 a year for 10 years (earning 10% a year) – and then you’re done. You’ll have $37,000 at age 30 which will grow into $1.3MM in 37 years.

I must point out that $1MM several decades from now will not buy nearly as much as it does today. Still, it’s a nice round number to shoot for. And once you’re in the habit of saving that much I doubt anyone would really be able to stop. If that 20 yr old kept investing $2,000 a year rather than stopping at age 30, she would have $2MM at 67. And if she increased her contributions with inflation (putting in $2,060 in year two, 2,121 in year three, etc) then she’d end up with almost $3MM.

[Note: invest in index funds to minimize fees and within retirement accounts to minimize taxes, and you’ll be even farther ahead!]

More from Meg at The World of Wealth

Solid Advice: ALWAYS Question Commissioned Salesmen!

I remember being told during broker training for PaineWebber (now UBS) that if a prospect asked about fees or commissions that I was to basically show them the door. PaineWebber’s stance was that clients who bickered about fees weren’t going to be good clients. Of course there will always be people who want to get something for nothing. Those people do make poor clients because they simply don’t respect the work that the advisor does.

However, I have to totally disagree with PaineWebber’s stance. I think it is very important for clients to know how much they are being charged and HOW they are being charged, especially if commissions are involved. Why? Because there can be a huge conflict-of-interest involved when a broker recommends one product over another. Kirk, a fee-only financial planner and blogger, illustrates this point as it regards to the subprime mess.

It’s unfortunate that people can’t simply trust that their advisor is going to do what’s best for them. But, that’s the way it is.

Here’s a few questions I would ask as it pertains to hiring a financial advisor (there are more, I’m sure. These are the few I could think of off the top of my head):

1. How will you get paid for your advice?

2. How MUCH will you get paid for your advice?

3. Are there cheaper viable alternatives to the products you are recommending?

4. What share class are you suggesting I invest in? – Although I think it is somewhat rare these days, some brokers will claim that B and C share mutual funds are no-load. That’s a lie.

5. What are the ongoing fees associated with this product? How much will it cost me per year?

6. How can I be sure that you won’t forget about me after you have made the sale and have collected your commissions?

7. Is there a surrender period for this product? If so, how long is it, and how much is it?

If you are talking to a mortgage broker, you might want to ask:

1. What was my credit score? – I think you should know this information BEFORE you go and talk to a banker or mortgage broker. If they give you a number that is significantly below the number you obtained, call them on it.

2. Is this the best product for my needs? What alternatives do I have?

3. Is this considered a subprime loan? – if the rate is significantly higher or lower than 30-year fixed rates, let it be a warning sign. If it is lower, it’s probably a teaser rate, which will go up in the future.

4. How much are you getting paid for this loan?

5. Does your commission depend on the type of loan you sell me?

6. Who is the lender behind this loan?

Like I said earlier in the post, these are a few questions I could think of off the top of my head. Here’s a more extensive list from the SEC.

The Real Key to Acheiving Your Goals

Dreams (also known as wishes) are often vague, even pie-in-the-sky desires; they need not be realistic, or specific. Common examples might inlcude “I want to retire rich” or “I wish I looked like Jessica Alba.”

Many dreams never become reality because they aren’t true desires. I might dream of winning the lottery on occassion, but that’s not a serious objective in my life. There’s nothing wrong with having dreams, but if your true desires never make the transition from dreams to goals then they can become frustrating regrets.

Goals are more Specific than dreams. To qualify as a SMART goal, your dream should also be measurable, attainable, realistic, and timely. Setting goals with all of these characteristics almost ensures you’ll reach them if you put your plan in action and stick to it.

Specific & Measurable: “I want to have $1,000,000 by the time I retire” and “I want to lose 20 pounds” are closer to goals than dreams because they are specific and measurable objectives.

Attainable & Timely: To really make them goals you have to outline specific steps that will enable you to attain them, and you should have a deadline. Our examples would become “I will accumulate $1,000,000 by the time I turn 65 by saving $1000 each month” and “I will lose 20 pounds in six months by jogging for 30 minutes 4 days a week.”

Realistic: Of course, if your goals aren’t realistic (because, say, you’re 63 with nothing saved and you earn $50,000 a year), then they aren’t really goals at all.

It’s easy to turn your dreams into goals on paper. But the real key to acheiving those goals–and being satisfied when you do–is setting goals that reflect your true values. That may sound cheesy, but it’s especially true when it comes to financial goals.

If you pick some arbitrary net worth target or aim to accumulate expensive homes and cars based on someone else’s expectations, not only might you find it difficult to muster the motivation and discipline to get there, but you’re very unlikely to feel fulfilled when you arrive. Linking your financial goals to your values (education, family, independence, etc.) gives you the energy, encouragement, and motivation you need to work towards your goals. And you might even end up happy when you reach them.

More from Meg at The World of Wealth

Planners and Fees

Money Magazine has a feature each month called The Mole, which is a column written by an anonymous financial planner. I’m not exactly sure why he’s anonymous unless he’s scared of colleagues harrassing him. Regardless, it’s usually an entertaining column and this month’s column is no different:

I’ve never met a financial planner who didn’t claim to put his client first.

Take this colleague I dealt with recently. On his Web site you’ll find him saying things like “My client’s interests come first” and “I recommend products based on what’s in their best interests and not based on which one would give me more earnings.”

This same planner sold his 60-year-old client seven expensive variable annuities, which made up the vast majority of her portfolio when she came to me for advice.

He even put her Roth IRA in a variable annuity, which is paying for tax deferral within a tax-free vehicle. He sold her so many “income guarantees” that he drained her portfolio of more than $20,000 annually.

Bottom line: just because a planner (or ANYONE you do business with for that matter) tells you that they put your needs ahead of their own, doesn’t mean they do! It’s still your responsibility to know whether or not you are being taken advantage of. The Mole even offers up four suggestions to help you protect yourself:

1. Always ask your planner to estimate your total costs and what benefit you are getting for it.

2. Ask if there is an alternative way to meet your goals that lets you keep more of your money.

3. Get the planner to put the above two answers in writing. If he won’t, ask yourself why.

4. Always know what you are buying. As a general rule, the more complex it is, the worse it is for you.

I believe whole-heartedly with number 4! Seriously, I can’t imagine any honest planner (whether commission-based, fee-based, or fee-only) ducking those questions. I liken to when I take my car in for repairs. I want to know how much it is going to cost BEFORE the repairs are done. If the mechanic can’t tell me that or refuses to tell me that, I’ll take my car somewhere else. It should be the same way in the financial services business.

Budget Help for a Reader – What’s Your Advice?

I received the following email from a reader. Although his situation isn’t good, it could be a lot worse. One thing he mentions in the email stood out to me like a sore thumb. Let’s see if you can spot it:

I was contemplating taking some retirement money to pay off some debt, which would reduce monthly payments so we will get out of the cycle of coming up short of money every paycheck, thus taking on more credit card debt. My debt started 9 years ago (mid-30s). Coincides with buying a house, getting married, and having children in fairly rapid order. Before that the only debt I had ever had was one car loan and a student loan. Well, when I bought my house 9 years ago I borrowed from my dad so I would have 20% down. That is long paid off. I have a wife & 3 children: 6, 4, 2.

I should add that since I wrote the first time, I cashed in about $6,550 in a 401k program from my current employer. The program was ended a few years ago when they switched to a new program, and I never rolled the old one over. I’ve set aside 35% of that distribution for taxes and the 10% penalty. I didn’t like doing that, but I’m running out of options, at least it seems that way to me.

Here is my financial info:


  • Fixed mortgage 5.875%, $76.5k balance, pay ~$620/month. I bought the house in 1998 for $79.5k, refinanced 3(?) yrs ago for the lower interest and reduced payment (not really a significant decrease). Reportedly the house is worth $150K or more now, but I don’t trust that number.
  • $50k LOC variable 7.99% $43.5k balance, minimum 1% of total for payment per month. I got the loan a year ago, rate hasn’t moved (yet).
  • CC 17.5k balance, most is 4.99% fixed, some is 3.99% fixed (until I’m late on a payment of course). Payment currently ~$350/month.
  • Car loan – ~$1,200 balance, 5.something interest (6-yr loan, term up this December), ~$293/month. This is one that I want to pay off early. Even though it’s not the highest interest, the monthly payment doesn’t change and the balance is getting low, so the drop in monthly payments is significant).
  • $1,000 on a credit line, no interest if paid by January 2008.
  • $6,000 for my 4-yr-old’s pre-school, $3,000 due at the end of this month, $3,000 in December. This is our big extravagance. Education is a top priority, but our youngest (2-yr-old) isn’t going to pre-school because we can’t afford it.

Other monthly payments:

  • Phone (land & cell) – $40
  • Auto Insurance – $130
  • City fees – $45
  • Electric – $50 winter, $175 summer
  • Natural Gas (home) – $30 summer, $125 winter
  • We go through about 7-8 tanks of gas per month


  • One income, net $1,800 every 2 wks (while paying $333 health insurance, $13.75 optional life each check), plus quarterly bonuses that net about $1,100 each.


  • SEP IRA $14,000 balance (from self-employed days)
  • Trad. IRA $1,300 balance (from self-employed days)
  • 401k matching $10k balance – my current job. I haven’t taken advantage of the program in three years, since we learned we had a third baby coming. I anticipated financial trouble coming as soon as I found out. I keep hearing what a sin it is not to take the free money, but it seems worse to incur high-interest debt just to contribute to an IRA.
  • no savings.

I would appreciate your highly esteemed advice! If this is a bad idea, what to do? My wife hopefully will be back to work in a year or so, but probably needs some training to do what she wants, so it may take longer and require more payments for training first.

Where to start?

This reader didn’t give me ALL of his information but here’s what I gathered from the information above:

Monthly Cash Flow

The first rule in personal finance is you have to live within your means, which means you have to SPEND LESS than you EARN. Although this might be hard to stomach, the FIRST thing I would do is give up the $6,000 per year preschool. I understand that education is important but things like preschool are luxuries and should be used ONLY if there are means to provide them. This family cannot afford it. That $6,000 per year would go a long way towards getting this family back on the right track. Besides, I seriously doubt that forgoing preschool will have a negative impact on the child. Take them to the library and museums instead.

Based on what I can tell, this family’s immediate needs are:

1. An emergency fund. They have nothing right now, which means any emergency that comes up will have to be funded with credit cards or debt of some sort. I know from experience just how tough it is to be struggling to pay off credit card debt only to charge an emergency back unto the very card you are trying to pay off. Emergencies will come whether we are prepared for them or not.

2. Controlling their spending. According to their cash flow information from above, they have a positive cash flow of around $600 per month. However, he told me in the email that they are actually spending more each month than they earn. They could have even more if they dumped the preschool. He told me in an another email that his wife has trouble controlling spending. If this is the case, I would sit down with her, show her the budget and emphasize the importance of staying within the budget. If that doesn’t work, I would then give her the cash she needs to meet those needs.

3. Once the emergency fund has a balance of at least $2,000, I would then concentrate on paying off the credit card balance. Additionally, they will have another $300 per month once their car is paid off.

4. I would get back into the 401(k) as soon as possible. Although forgoing a long term goal sounds legitimate when times are tough, you have to realize just how much you are giving up. That $6,500 he cashed in could have easily been worth $65,000 – $113,000 in 30 years.

Finally, I would like to tell this guy to not lose heart. Although his situation isn’t good, it could be a lot worse. He could owe a lot more on his car loan and he could also have a lot bigger mortgage. So, it’s not all bad unless they don’t get things under control now.

Now, I would like to open this up for input from everyone else. Do you have any suggestions for a fellow reader?