Q: My daughter is in her mid-twenties and recently got out on her own for the first time. She’s finished school and has some student loans, but was fortunate to land a fairly well-paying job that she loves. She’s asked me for financial advice but I really don’t feel comfortable giving her any because my own finances are in disarray. She’s pretty careful with her money, but what else should she be doing before she turns 30? ~Sara
A: The fact that your daughter asked you about what she could be doing to set herself up well financially is a very positive sign. Many millennials are so busy falling in love with their credit cards and living beyond their means that they forget about looking after their financial futures. The other great thing is that you can learn sound money management skills along with your daughter and get your own finances back on track at the same time.
Here are 6 personal finance moves to make before age 30, or to start doing if 30 is just a memory (because it’s never too late to start and doing something is better than doing nothing):
1. Be a Mindful Spender
A swipe, tap or click and our money is gone. It’s becoming harder and harder to feel any pain when we overspend. Credit and debit cards as well as electronic payment methods, both online and in stores, are convenient, but paying with cash keeps it real. Be aware of where you’re spending your money — you work too hard to earn it!
From time to time forego convenience and pay with cash to see if you’re on track with your spending plan. As part of this process, jot down where you’re actually spending your money. Also take the time to outline your budget and identify your non-negotiable expenses; these might be the fixed, non-flexible ones, or they might be expenses you’re not willing to live without. Keeping these base numbers in mind lets you know if you’re spending in line with your income or are depending too much on credit to either make ends meet or live the lifestyle of your dreams. Here’s an intelligent, downloadable Excel budget calculator worksheet that can help if you’re not sure where to start.
2. Spend Less Than You Earn & Plan How to Splurge
For younger people just starting out it can be very tempting to do some “catch up” spending on all of the things they wish they could have bought while at university or college, or while working at an entry level job. Get into the habit of saving up for these purchases and not financing them with high interest credit cards.
After creating a budget that accounts for routine and seasonal/annual expenses, debt payments and savings, find ways to set money aside in a splurge account. Set a goal and somewhere where you can see it on a daily basis, keep a running tally of how you’re doing. By staying focused on your goal and being mindful of your spending, you’ll naturally find it easier and easier to make spending choices that help you achieve your goal — and some splurge spending — sooner.
3. Understand How Credit & Credit Cards Work — Get Rid of Expensive Bills
It’s expected that as adults, we know how credit works. However, most of us are never taught that and “sort of” figure it out as we go. Not knowing how credit and credit cards work could actually end up costing you thousands of dollars in interest and fees. Make it a point to ask questions, read the fine print, understand the terms and conditions, and do better than “sort of figuring it out.”
Like any tool, when used correctly credit can help you get what you want, e.g. a mortgage loan helps you buy a house. But, just like using any tool incorrectly, the dangers can land you in trouble, tied to expensive bills or contracts and debts you can’t afford to pay off. Cut big bills down to size if you can’t eliminate them right away, e.g. cellphone contracts, gym memberships or online subscriptions. Then plan what to do instead of automatically renewing them.
4. Automate Everything
While renewing contracts automatically is typically not a good idea, automating anything that saves you money is a good idea:
- Set bill payments up for their due dates through your online banking system to avoid late fees
- Have money transferred to savings accounts, RRSPs and TFSAs every time you receive your pay cheque
- Use an electronic reminder system, either with an app or online calendar, to alert you to anything you can’t set up automatically
The more automatic your savings, the less likely you’ll intercept it and spend it!
5. Increase Your Digital Literacy
Along with easier online access to our financial information, new electronic payment methods, and programs that import our banking information into spreadsheets and apps, comes knowing how to protect yourself in the digital age. Avoid becoming a victim of identity theft (e.g. don’t use free Wi-Fi hotspots to access financial or sensitive information) or having your finances compromised (e.g. use strong passwords for PayPal and other online accounts).
6. Buy Life and/or Health Insurance While You’re Young
Buying life and/or additional health insurance while you’re young typically means paying lower premiums. If you continue with the same policies, your premiums are often locked in at the lower rate for many years. The time to buy insurance is when you don’t need it, so think about it early and make it a part of your overall financial plan.
The Bottom Line on the Best Finance Moves to Make Before Age 30 — Make Savings a Hard Habit to Break
If I had to boil it down to one single tip of what to do financially before age 30, it would be to make saving a priority. Saved money protects you from going into debt and it can offer you opportunities you never knew you had. Saving what’s left after the bills are paid and the fridge is stocked, usually means not saving anything at all. Savings needs to come off the top; pay yourself first. Understand what that means and follow through with it. A solid savings habit is hard to come by; it takes practice, but like anything worthwhile, it’s totally worth it!