The Most Important Financial Habits to Establish by Age 30
Right up there with motherhood and selflessness, one of the most mature things you can do is act responsibly with your finances. If you’re approaching 30, there’s no better time than the present to get your finances in order and establish practices that will help you eliminate debt, increase your savings, and increase your financial security—if you haven’t already. We spoke with J. Garvin Walsh, a financial consultant with Labyrinth Strategies, LLC, about the most important habits you should establish by age 30.
Scroll below for his expert advice, and sound off in the comments with your own.
Living within your means should be your number-one consideration, Walsh advises us. “It’s simple: if you spend more than your income, you will incur debt,” Walsh says. “Debt is your enemy. It’s dangerous if you have to rely on borrowing. It should be an exceptional circumstance.” If you find yourself chronically spending more than your income each month, consider which big monthly expenses you can eliminate or reduce. Can you move into a more affordable apartment or get a roommate? Are you paying auto payments for a car you never use? Are you a member of a club you rarely visit?
Saving can be one of the most difficult tasks, especially for young people, but Walsh considers it the second-most important habit to establish. As he describes it, saving means “foregoing consumption today in favour of consumption in the future.” “Typically, people need to have three separate savings buckets,” he says. “One, an emergency reserve, perhaps six to 12 months of living expenses, in case you lose your job or get sick; two, a 'large purchase' reserve, for things like cars, houses, major appliances, etc.; and three, retirement.”
If you work for a company that offers a retirement savings plan with matching, commonly three per cent of your salary (although sometimes more, less, or none), you should set aside at least that much in order to get the match—and more. “That’s like earning 100-per cent on your money. There’s no better deal than that,” Walsh says. “Realistically, you will not be able to retire on that, but if you’re trying to pay off other debts, that’s the minimum you should do. You need to be putting 10 to 15 per cent of your gross pay away throughout your career in order to have enough money to retire on.”
You can’t reduce your spending until you know how and where you’re spending, and for that reason alone, it’s essential to track your spending. Establishing this habit will also help you should you need to submit a financial report or record for any reason (hello, taxes!). Walsh recommends using a software program like Quicken, which integrates online with your accounts and automatically downloads transaction information into your ledger. “The reporting functions are very helpful; when you are trying to cut costs, it pays to know where the big bucks are,” he says. “It takes a little getting used to it, but people who use it either already know about income statements and balance sheets or they end up learning about them because they’re using the software.”
It’s easy to see how moving into a cheaper apartment may save you a lot, but small expenditures add up to big digits, too. So where can you cut back? Walsh recommends buying generic instead of brand-name products, avoiding waste, avoiding trendy items, reusing or repairing items, carpooling, and bringing lunch to work if you can. Purchasing luxury items—and trying to justify the purchase—is a trap that many fall into, too. “A lot of people say, ‘Oh it’s always good to buy the best quality,’” Walsh points out, “but if that’s not actually accompanied by frugality in terms of the amount of things you buy, it won't result in any savings.”
In the pursuit of reduced spending, setting budgets works—but only if your budgets are realistic and thorough. “Establish budget numbers for fluid categories that are feasible so that you’re not constantly blowing through them,” Walsh advises. “If you’ve got a $100 bar bill in one night, and that’s your monthly budget, you’ve got a problem.” You should be practical about the budget numbers you set for yourself, and also sensible about how you spend: “If you have a beer budget, don’t drink Champagne.”
Typically people have either mortgage debt, credit card debt, or school debt. In all cases, Walsh advises making a payment plan and sticking to it. “Pay more than the minimum, or else you will find it very hard to make progress. Make your payments on time to avoid late fees. Have debt payments automatically paid from your bank account when you get your paycheck so your money doesn't burn a hole in your pocket. If you get a bonus, pay off some debt.”
It’s especially important to have a plan to pay school debt down, because “a borrower can’t duck it, even in distress,” Walsh says. “Federally guaranteed student loans are not dischargeable in bankruptcy.” Anyone taking on school debt should have a plan from day one to get rid of it, Walsh says. “And for the very young, that arguably should be the priority,” over saving for retirement.
If you have the financial means to do so, it’s almost always better to pay off your credit card balance completely each month than make the minimum monthly payment. (An exception might be so you have cash for emergencies.) Paying interest on a balance won’t help your credit score—or your net worth.
It may take some time to get there if you’re carrying a high balance already, but to ensure you’re living within your means (See Slide 1!), make an effort avoid purchases you can’t pay off within the month.
“Not only can your credit rating can affect your borrowing ability and your borrowing costs, but we now have a situation where it can affect your ability to get a job, to buy auto insurance, to rent an apartment, and so on,” Walsh says. “There are number of circumstances where people look at your credit report, so it’s definitely something you should manage.”
Luckily, time heals all wounds. No matter how poor your credit score currently is, if you do all the things that you should do (hint: bookmark this list), your score will be repaired over time. “If you have debt and if every month you pay off a chunk of it, two things will happen, one, the debt will gradually disappear, and two, that history of payment will provide a major enhancement to your credit report.”
Walsh also advises that carrying large balances relative to your credit line can hurt your score, but “a poor credit rating will improve steadily if you make payments on time and gradually reduce your balances.”
Essential to managing your credit score is to avoid mistakes that hurt it, especially late payments. "You don't have to pay your bills the minute they come in the door, but don't be late. Late charges are costly, and they ding your credit score," Walsh advises. Get in the habit of sitting down once a month to pay them all—even better if you can automate them.
At one point or another, you’ve probably received a credit card offer in the mail touting bonus air miles, free gas money, or cash back. As tempting as they may be, Walsh says, “A lot of the perks associated with some prestige credit cards, which they use to justify large annual fees, are a waste of money.” Be very conscious of credit card rates and fees, he advises. “Do searches online. If you have a good credit rating, there are good credit card companies out there that offer lower interest rates to higher quality customers.”
Carrying a balance? By moving to a card with a lower interest rate, you can save big. Walsh recommends shopping around for balance transfer offers. “If you have a credit balance, there are all sorts of deals. You can do a balance transfer with rates as low as 0% for the first year or two, subject to a balance transfer fee. And if you know you can get it paid off within that point, that’s really cheap money."
What advice would you add to this list? Share in the comments.
Opening photo: Le 21ème