Posts From March, 2014

How to Manage Money in Your 30s 

Make the Right Financial Decisions and Establish Good Habits During this Pivotal Decade
March 20, 2014 Categories: saving tips

 

Your 30s can be a pretty significant decade. It’s a transitional point in life in the wake of post-collegiate years where your career starts to take off and you begin to settle down a bit, maybe buying a home, getting married or having kids. Or you might be planning major life adventures, like travelling or writing that novel you always meant to pen. Or, perhaps, all of the above. Whatever your path, you likely face some significant money decisions, and the choices you make can end up impacting your finances for years to come.

A report released from the Pew Research Center earlier this month shows that millennials, the oldest of whom are just entering their 30s now, face higher student debt and unemployment levels along with lower income and wealth levels compared to previous generations at the same age. A tough hill to climb. At the same time, they are optimistic about their economic futures, with most (80%) saying they have enough money now or will one day to “lead the lives they want.”

To increase the chances that such an optimistic outlook comes to fruition, here are seven money moves from U.S. New & World Report that financial experts say you should consider in your third decade:

1. Save when you can.

“If you’ve gotten your salary up to the point where student loan debt is not wreaking havoc in your life anymore, but before you have a lot of responsibilities, that’s a great opportunity to super-charge your savings,” says Jean Chatzky, financial editor of the Today Show and author of “Money Rules: The Simple Path to Lifelong Security.” When parenting responsibilities and mortgage costs take off, for example, it can be hard to save more. “You want to take advantage of the opportunities you have to sock away some money so when the leaner years come around, you don’t beat yourself up,” she adds.

2. Create solid habits.

It’s also time to establish financial habits that will serve you well for the rest of your life. Kerry Hannon, personal finance expert and author of “Great Jobs for Everyone 50+,” says in her 30s, she maxed out her retirement savings accounts and even set aside a portion of her extra freelance income for retirement. “Those funds have served me well over the years as mad money to help pay for vacations and more. I still save outside of retirement accounts religiously in my 50s, too. It's a habit I started back in my 30s,” she says.

3. Plan out your goals and priorities.

“Hopefully you’re starting to become established in your career and can begin to contribute, if you’re not already, to an employer-sponsored retirement plan, and begin to think about other savings goals, too, like a home purchase or college savings,” says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial.

Trent Hamm, founder of the personal finance Web site The Simple Dollar and a U.S. News My Money blogger, says at age 35, he’s now reflecting on his career goals for the next 30 years. “What would I like to be doing with my time and my life? I don’t want the rest of my life to be a repetition of what I’m doing now and then an abrupt retirement. I have dreams and goals, and right now is the best time to get started on them,” he says.

For many people, a financial advisor helps with that. Bart Astor, author of “AARP Roadmap for the Rest of Your Life,” says your 30s is the ideal time to sit down with a financial advisor and talk, which is what he started doing in his mid-30s. He says he and his advisor met once a year to review savings and other financial goals, especially since he and his wife were meeting their goals. “When I hit 40, the plan showed that we should have about $188,000 in assets based on our salaries, and we had over $200,000, and boy, did that make us feel good,” he says.

4. Talk about money with your partner.

If you have a spouse or partner, then getting on track together and working out any disputes can prevent conflicts later. “People often comingle finances with their partner, and open communication is key. Make sure you talk about your finances and life goals with your partner, and align on how you will get there together,” de Baca urges.

5. Get comfortable with negotiation.

Nancy L. Anderson, 52, a certified financial planner in Park City, Utah, says while she did a lot of things right in her 30s, including investing 20% of her income, buying a home, investing in rental property, and saving for her child’s college education, she also wished she had negotiated her salary more assertively. “If I’d negotiated a higher salary each time I changed companies in my career, I’d be wealthier today,” she says. Since most people change jobs about 11 times in their careers, negotiating those transitions can end up making you more than $600,000 richer over your career, she adds.

6. Be a good role model.

For those 30-somethings who are already parents, Beth Kobliner, author of “Get a Financial Life” and member of the President’s Advisory Council on Financial Capability for Young Americans, says it’s important to model smart financial choices for the little eyes watching you. “You lose all credibility lecturing your little kids about not needing every new toy or tech gadget if you, behind closed doors, have loud arguments with your spouse about not being able to keep up with your credit card bills,” she says. You don’t have to be a money genius, she adds, but it’s important to talk about money—making financial discussions as commonplace as soccer practice or Sunday dinner.

7. Shore up your cash reserves.

While many experts emphasize long-term investing and retirement savings, Tim Maurer, director of personal finance for the BAM Alliance of independent advisors, says he wishes he had kept more money in pure cash savings to give himself a better buffer for unexpected needs and expenses. “Much, maybe too much, financial planning is focused exclusively on the long, long-term," he says, "and while it’s true that real estate can be a great way to build wealth and one should start saving as early as possible for retirement, it’s the unexpected changes in life that often derail 30-something households. Our financial plans should address the short-term, too.”

Maurer points out that your 30s are often a time of “volcanic change” in your personal and professional life, and having a nicely padded bank account can help smooth over some of those transitions.

How Millenials Can Improve their Credit Scores 

Today's young adults carry lower credit balances and are less likely to pay their bills late. So why are their credit scores so low?
March 17, 2014 Categories: credit

Financial editor of NBC’s Today Show and financial expert Jean Chatzky writes about credit cards all the time. Just last week she wrote about varying credit cards, how to know one from the other, and how to move them all in the right direction.

But, she points out in her latest article, choosing credit cards and managing them all is much easier if you “get off on the right credit foot initially”. And unfortunately, that's something many millennials aren't doing right now.

And it’s not because they’re irresponsible young adults still depending on Mommy and Daddy and racking up debt on frivolous things and then forgetting to pay the bill at the end of each month. On the contrary. According to Experian's 2013 State of Credit report, released late last year, baby boomers are actually the ones that tip the high end of the scale. They carry an average balance of $5,347 on their (again average) 2.66 credit cards. Millennials carry $2,682 on their 1.57 cards. Gen Xers and members of the Greatest Generation fall somewhere in between. Millennials aren't even highest when it comes to late payments—that dubious honor goes to the Xers.

And yet, Millennials’ credit scores aren’t reflecting the same fiscal resposibilty. A just 628, millenials’ scores have the lowest average on the list. They're more than 100 points lower, on average, than the Greatest Generation at 735. (Boomers average 700 and Xers 653, for those of you looking to see where you measure up.)

So what's the problem? Utilization. This factor—defined as the percentage of credit you have available to you that you're actually using—is responsible for about one-third of your credit score. Ideally, you want to keep that percentage under 30%. Millennials are at 37%.

Looking at these stats, it's clear that if millennials had more cards in their wallets—but continued to use them sparingly—they'd have substantially better scores. And those better scores would help them get better rates on auto loans, mortgages, insurance, and other credit cards going forward. In other words, they'd save them real money, creating a cycle of funds that will help them a lot in the long-run.

Chatzky has a few suggestions for parents on millenials who want to help them start out on the right foot and/or for millenials themselves to follow as they consider their credit scores:

  • Get a credit card. Or help your child get one. "All the parents who are weaning their kids away from credit and forcing them to use debit cards are [making a mistake]," says Maxine Sweet, vice president of consumer education at Experian. "Just like you need academic credentials you need credit." Under the Card Act, if you're under 21 you're not supposed to be able to get a credit card unless you have the income to prove you can manage it or can get someone over 21, a parent being a likely choice, to co-sign, Chatzky points out. She also points out that she’s not a fan of co-signing, but there is another way: Add a child to one of your own credit cards as an authorized user. Just make sure that the issuer will report on behalf of the child to the credit bureaus.
  • Understand how much you can/can't use the cards you have. As Chatzky points out, 30% is the line when it comes to utilization. If you can see you're going to cross it, either request an increase in your credit limit or—if you've proven to yourself that you can handle having credit—get a second card. (You'll want to use that one, too, but sparingly. Just enough so that the issuer doesn't quit you. Then be sure to pay it off entirely every month.)
  • If the thought of getting another card rubs you the wrong way and you know your utilization is creeping up there over the course of your monthly billing cycle, try this: Pay your bill in-between. Sweet explains that'll reset the clock and help boost that portion of your score. If you're carrying a balance, it'll save you some scratch on interest as well.
 
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