This is an excerpt from Dollar Scholar, the Money newsletter where news editor Julia Glum teaches you the modern money lessons you NEED to know. Don't miss the next issue! Sign up at money.com/subscribe and join our community of 160,000+ Scholars.
In 1992, Sir Mix-a-Lot’s “Baby Got Back” topped the charts. The Silence of the Lambs swept the Oscars. And, in a hospital roughly 20 minutes outside of Orlando, a baby girl was born.
She was adorable and yet neurotic. From an early age, she showed signs of being a Scholar: She got straight As; she idolized Hermione Granger; she learned the state capitals for fun. (Weirdly, she did not get invited to a lot of parties.) She grew into a know-it-all, a perfectionist who delighted in reading facts from Wikipedia pages out loud on road trips with friends and developed opinions about the Oxford comma.
Anyway, that baby recently turned 30.
Obviously I’m still adorable, but I’m also still neurotic. It’s that type-A, someone-please-tell-me-I’m-doing-OK mindset that brings me to this week’s existential crisis question.
What should I have accomplished financially by the time I turn 30?
I called Brent Weiss, cofounder of Facet Wealth, to get a checklist of tasks to tick off. He promptly told me there is no checklist — it’s called personal finance, after all, because it’s centered around each individual person.
Rather than get caught up in rules of thumb like “you must have the equivalent of one year’s salary saved for retirement by your 30s or else,” Weiss says it’s better to consider whether I have a strong financial foundation. One crucial building block for that foundation, and one I should ideally have under my belt by now, is a budget.
“By the time you’re 30, you should be able to do a budget. You should understand where your money is going,” says Weiss, who is also a certified financial planner (CFP). “It doesn’t even have to be right yet. Just understand where it’s going.”
The standard advice for budgeting applies here. I should print out a few months’ worth of bank statements, grab a couple of highlighters and categorize my expenses. Then I should look for patterns. It might be annoying, but Weiss says identifying my habits, both good and bad, can pay serious dividends going forward.
For example: If, after looking at my highlighting, I realize I’m not putting as much away as I could be, now could be a perfect time to automate my savings. If I realize I’m blowing hundreds of dollars a month on subscriptions I don't use, this could be my wake-up call to cancel.
If I’m looking for guardrails, an easy way to get started budgeting is to adopt the 50/30/20 method, says Mark Reyes, a senior manager and CFP at the financial service Albert. In a 50/30/20 budget, half of my income goes towards essentials like rent and groceries, 30% goes towards discretionary spending like concert tickets and clothes, and 20% goes towards saving and investing.
“The 50/30/20 budget does a really good job of not putting constraints on certain categories,” Reyes says. "You should spend your money how you want to… as long as it’s within a certain limit."
Examining my budget can also help get my debt under control.
Reyes points out that not all debt is bad. So-called “good” debt includes affordable mortgages, car loans and student loans — debt that is a meaningful investment in my future, adds value to my life and is tied to an asset. Toxic debt like credit card debt is the kind I want to target.
Being totally debt-free by 30 may sound nice, but it’s not totally necessary. What I really need is a plan to pay it off, addressing high-interest-rate debt first. (In a really dire situation, an organization like the National Foundation for Credit Counseling may be able to help.)
“The biggest impediment for people in their 20s and 30s is not understanding how debt affects the rest of the financial landscape,” Weiss says.
The third financial building block Reyes recommends is an emergency fund.
Starting to establish an emergency fund by age 30 can help set me up for the next decade. It’s a safety net that allows me to take risks like changing careers and moving to a new city.
Ideally, my emergency fund should be three to six months’ of necessary expenses — stuff I couldn’t cut out if a crisis hit like losing my job or suffering a serious illness. If I’m a gig worker or have a less-stable job, I might want to increase that to six to 12 months’. A high-yield savings account is a good place to keep my emergency fund; that way it’s safe, separate from my spending money and earning interest.
The bottom line
I don't need to have it all figured out... yet. But by age 30, experts suggest I (1) know where my money is going, (2) have a plan for my debt and (3) set up an emergency fund.
“This is a critical time to create a foundation — [it’s] arguably the most important thing you can do,” Weiss adds. “You have to look at your money, your mindset and your life.”