4 Financial Habits To Develop Before You Turn 30
Most 20-somethings earn less than they will later in life and stumble financially as they learn the ropes. The key is to enter mature adulthood as someone who pays the bills, lives within their means, isn’t saddled with debt and is watching their savings grow as life becomes more complex and expensive.
The following four concepts are the Mt. Rushmore of personal finance, and if you can adopt these habits before you turn 30, you’ll be way ahead of the pack when the race really gets going.
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Pay Each Bill on Time, Every Time
Paying your bills is the foundational habit on which all other financial habits are based. Maintaining good credit, living within your means, saving part of your income and the rest are all contingent upon, or done in pursuit of, satisfying your outstanding obligations — and the proof is in your credit score.
Payment history is just one of five categories the FICO scoring model considers, yet it accounts for 35% of your score — more than any other factor. According to Capital One, a single late payment on one account can instantly tank your score by more than 100 points because nothing — including the amount you currently owe — makes you appear riskier to lenders.
In the end, the only question that really matters, or at least the one that matters most, is: Does this person pay their bills?
Spend Less Than You Earn
Debt is the easiest financial trap to fall into and the stickiest one out of which to climb — and it’s an inevitability for those who spend more than they earn. Some nostalgic and folksy Depression-era money lessons don’t hold up. Mattresses are not safer than banks, for example. Others, however, stand the test of time — and none more so than making do with what you have and living within your means.
A recent Federal Reserve report found that just 51% of adults in the United States spend less than they earn. The other half must borrow to pay their bills, with nothing left over to save, which leads to the next two must-do money habits.
Avoid Toxic Debt as If Your Financial Life Depends on It
Part of the reason people found ways to live within their means during the Dust Bowl is that they didn’t have credit cards.
Forbes reports the average individual U.S. credit card debt is $6,715 — every dollar of which represents money borrowed at a toxic interest rate to pay for goods and services that their income couldn’t cover.
Consider this:
A 25-year-old has an average credit card balance of $3,493
They pay the 21% annual percentage rate (APR) that the Federal Reserve cites as the current average interest rate on credit cards
They make only the required minimum monthly payment
The borrower spends more than 11 years paying back a total of $6,255.58 (principal plus interest)
Most importantly, that decade of debt robs the borrower of the time and money they could have spent earning compound interest in a savings account instead of paying it to creditors, which leads to the final habit.
Save a Portion of Every Dollar You Make
Saving money is adjacent to the other good habits outlined here because those with robust savings have the cash to cover unexpected expenses or job loss, and therefore don’t have to take on debt to pay their bills.
This habit is especially important for young people because compounding — earning interest on previously earned interest — can turn modest contributions into vast sums, if given enough time, just as it does for the credit card companies.
Thanks to compounding, years are more valuable than dollars — but consistency is the key.
Forget what you read about magic percentages. Get in the habit of treating saving as a bill that must be paid and socking away some portion of every paycheck.
Money spent buys things. Money saved buys choices. The tens of millions of Americans whom the People’s Policy Project cites as living from paycheck to paycheck with no savings have far fewer and worse choices than those who enter their 30s with a healthy cash cushion.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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