Earlier this year, Erin Burt from Kiplinger’s Personal Finance published a pair of related columns describing smart money moves for various stages of life.
In “10 Financial Commandments for Your 20s”, Burt offers advice for those who are just getting started on their own. Among her mandates: plan ahead, live within your means, make saving a habit, and start investing. I think one of her best suggestions comes in commandment seven, “have a marketable skill”:
“Your own earning power — rooted in your education and job skills — is the most valuable asset you’ll ever own,” says Knight Kiplinger, editor in chief of Kiplinger.com. Your twenties is the time to invest in yourself to acquire those skills that will start your career and boost your earnings. It’s also a good idea to start building and maintaining a network while you’re young. Personal contacts can come in handy to further your career or even enhance your personal life.
Great advice. Burt has further great advice in her follow-up article, “10 Financial Commandments for Your 30s”. As you get older, she recommends: kicking the debt cycle altogether, diversifying your investments, and writing a will. But again I like her seventh commandment, which this time is “live simply”:
Deferred gratification may not be fun, but adopting a simple lifestyle is one of the surest ways to meet today’s needs and still reach your long-term goals. Take a look at your spending to identify areas you could trim the fat. Small sacrifices can, indeed, add up to big rewards. It’s easy to get jealous of friends and family who are living larger and seem to be doing much better than you. Remember, keeping up with the Joneses is a losing game. Someone else’s success may be a facade. Tune out the financial peer pressure around you and focus solely on what you know for certain: the state of your own personal finances.
I confess that I’m still working on her tenth commandment, though, which is to be charitable. The real problem, however, is that I’m 39 — but only for one more week. I need an article that contains “10 Financial Commandments for Your 40s”!
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My favorite was #6: Continue to Learn. I’m constantly coming across stories of people who didn’t hit success until MUCH later in life. We could easily learn things in our 30s and way after that have a dramatic impact on the world, but I think we get stuck in our ways.
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I’m doling out “great comments” like candy today! But chacha1 happened to nail one of the things I’ve been thinking about. My body has felt old lately, and I know it’s largely my own damn fault. (I’m on the back porch now eating potato chips, for goodness sake.) I’ve decided (and have told Kris) that I’m willing to pay to get healthy. Lauren, are you listening? This means more work for you!
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I love that. Truly what you bring to the free market that is unique and useful is your most valuable asset. That is why education and training are so key.
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I wish someone had sat me down in my 20s to explain finances to me. I’d be a lot further ahead by now!!
But I’m so glad that in our mid-thirties my wife and I started to get smart about money. We still have a long way to go, but we are much more responsible than we once were (and way ahead of the curve if you consider the “average” consumer).
Thanks for this article. And thanks for the steady stream of reminders and ideas about how to get my financial house in order.
Cheers,
Adam
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Well, I’m 42, so here’s an off-the-cuff 40s list in 3 parts.
Take stock:
1) What part of your money management habits works really well for you right now? What doesn’t? Use this to target areas YOU need to work on.
2) What part of your overall life works well – and what doesn’t? Do you want a different career or a different home? What do you need to do to make it happen? Some things are impossible, but other things are quite doable – and let’s face it, if 3 teenagers have moved out, who wouldn’t want a smaller house to clean?
3) What “stuff” do you want to unload or acquire? Do you still watch the VHS tapes? Is the bed you bought for your first apartment still giving you a good night’s sleep?
Rethinking your plans
4) Emergency fund and insurance. Is it sufficient for the life you have now? My minimum is living expenses for 6 months. When our living expenses go up, so does the EF. Is your homeowner’s or renter’s insurance still appropriate for your current belongings? Do you have people who depend on your income? If so term life insurance would be useful.
5) Earning potential. What does it look like for the next 5 or 10 years? Depending on what’s going on in YOUR life (illness, parents’ health, kids hitting puberty or college) you may have more or less time and energy to put into making money. Maybe you want to start a side business, or maybe you need to cut back to part-time, but figure out how you’re going to adjust your spending and saving as your income changes.
6) Yourself. Are you happy with yourself? Are there things you want to change? Do you want a cleaner house, to play an instrument, to pray or meditate daily, or to do a 5K? What do you need to do to make it happen?
7) Letting go. Most of us in the “first world” have a lot of choices in life. Sometimes it’s good to realize that you don’t HAVE to do it all. If you’re beating yourself up for not having 3 books in the New York Times Bestseller’s list even though sitting down to write makes you crazy, maybe it’s time to realize you don’t like writing. Just a thought.
Plan for the future:
Build the health habits you want for the decades ahead. Do you want to be able to walk 5 miles? Have you been ignoring a problem like asthma? Get started now.
9) Retirement. Are you investing for retirement? Are your investments still appropriate? If you’re 100% in stocks, now may be the time to direct new money into bonds. If you’re doing a 401(k) rollover or otherwise getting a lump, you may want to consider something like Vanguard’s Balanced Fund.
10) Friends and Family. Which ones do you most enjoy spending time with? Which help you move? Be sure to nurture those relationships – because you’ll want them in the future.
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Hi JD,
By charitable, does that mean donating your time or money?
I think giving to the community or to those around you in some form of time or money is important; I’ve done both. I just wasn’t sure what you meant in this case.
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Chacha1, I love the advice to pay attention to your health–you’re right that that can be a good financial move.
#2 on the 30s list is one I’ve only recently learned–if there’s something I want, I can save for it in advance. For instance, I spent three years telling myself I couldn’t afford the couch I wanted and it never dawned on me that I could put money into a savings account for it each month. (I know, this seems completely obvious to other people… but it really wasn’t a part of how my parents did things–saving for something specific was never an option.) I’ve actually found it’s a really fun strategy, although I still have a bit of trouble actually buying the thing I’m saving for once my savings cover the cost.
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@ Steve, it means both. I would also like to do more in this area. I’ve been sporadic giving both time and money, and I’ve got my eyes open for opportunities I can commit to for the long term.
I also don’t have a will yet. I don’t have kids and all my family members are better off financially than I am, so that’s one way I could possibly contribute to charitable groups whose work I support.
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I think a lot of what she suggests for the 30s can also be applied to the 20s. I’m in my early 20s and I’m trying to kick the debt cycle. I’d be very scared if I were in the same position as I am now in 10 years time. Good advice, though.
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You are qualified to write your own list.
Then sell it to Kiplinger
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If the commandments for your 40′s article ever comes out. Retirement planning needs to be at the top of the list.
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@Mark (#11)
Ha! I could. But I don’t know what the 40s will present me, and won’t know for another seven days.
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Hey JD, speaking of fitness, I highly encourage you to check out Crossfit, and there’s a local affiliate here in PDX you could join if interested, http://www.crossfitportland.com/
Scott, Rochelle and Xi Xia are great coaches and mentors and would be happy to work with you on your fitness journey and goals. Crossfit is addictive, very adaptable for any age/skill level, and if you do the work will yield great results.
Note I have no vested interest in recommending Crossfit Portland and am not currently working out there, just high regard for the great folks there.
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As Steve mentions, TIME is often more important to charities than your money. So many people throw cash at a cause and feel they’ve done their part.
The charity work I’m involved in, animal rescue transport, has NO use for donations. They need people with cars to get animals out of kill shelters and into safe havens. Writing a check does nothing for this cause.
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Thanks for your article. While I think it’s important to invest in education and having a marketable skill, the 20s is such a tricky time to do it in many ways, especially in the States.
Education, specifically graduate education, is quite costly in the U.S. Having invested in law school and racked up a substantial number of student loans, despite living frugally for much of my 20s, I now have a marketable skill, but one that I’ve discovered isn’t me at all after practicing law for several years.
While I think it’s a great suggestion to invest in education, I also advocate taking 4-5 years off from serious career pursuits in your 20s to consider what you might want to do.
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I’m all about the marketable skill part: I totally agree with it. But I would really stress the importance of being flexible, of diversifying your skills.
Look at the people who built up marketable skills 20 years ago by knowing how to build cars or something that today is pretty much obsolete. What do those people do today? What choices to they have?
My advice: find a marketable skill and stay on your toes. Stay relevant. Don’t let yourself become obsolete.
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I think the key for 20 somethings is to live well below their means (not just “within their means”) and avoid lifestyle inflation like the plague. As income increases, keep expenses to what they were when you started out for as long as possible- by the time the 30′s roll around you might find that you can support yourself and your family on less than one income, which is a layer of extra “insurance” in the event of a layoff/serious health issue (on top of your emergency fund, of course!)
Also, I think a good tip for everyone no matter what their age (but especially good for 20-somethings who may not have rock solid stable careers/jobs)is to diversify income streams. I really don’t think it’s a good idea these days to depend 100% on employment for all of your income. This is where having a marketable skill can come in handy- being able to build up some sort of freelancing gig on the side can be invaluable when your regular income falls off a cliff.
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Heya J.D.
I’m in my early 20s now. Kinda find the advice by Kiplinger featured here spot on. Like having a marketable skill and also creating a network when we are young.
Now let’s find someone that I could network with.
Interesting to see that kicking the debt cycle falls under the 30s group. Probably I’m a little too optimistic to want nothing to do with debt before I reach my 30th.
Daniel
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JD, love the site. Please please *please* get with us on the charitable giving…its especially important now when nonprofits are seeing more demand for help and shrinking gifts. You will feel so fantastic!
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You know what’s helped me with being more charitable is to decide upfront how much is a reasonable amount of money to give each year, then budget it like any other expense. It makes it so much easier to say yes or no when asked to donate to XYZ charity. Either you have it or you don’t. No feeling guilty about should you do it or not. And at tax time, you know how much to claim because I only use that account for qualified deductible charities.
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I struggle with charitable giving too. I do volunteer my time occasionally (but it’s mostly because I’m too cheap to pay to attend certain cultural events).
This year I decided to budget 1% of my net income to give away. On the one hand, that seems less-than-generous to me; on the other hand, it’s a set amount – and I’ve got to start somewhere!
I think this is like fitness and diet (and I speak from long experience): talking about it isn’t worth an awful lot. The key is action, my friend!
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Good tips. I don’t think there were any I heard saw on either list I haven’t seen already, but it’s good to get the basics reinforced.
While I agree with other commentators that giving time to charities as important, if not more so, than giving money, it’s important not to undercut the need my charities have for money, especially now when so many other sources of funds are drying up. I’m on my church’s consistory board (the decision making body; think of a board of directors), and with the economic downturn, we’re facing cuts to our charitable contributions just to keep our church from going under. If those charities are going to sustain their activities, they will need outside donors to pick up the slack.
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JD –
One of our goals for 2009 was to be more charitable. I’ve made a point to donate at least once a month – it’s almost like a budgeted item now. That way when we get to November and haven’t hardly given anything away we won’t feel pressure to do it all in a couple months (especially with Christmas demands occurring then too). Just start small, you really won’t even miss the money.
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Love this site! I am an Indian grad student in the US. The focus on education and building skills really hit the nail on the head. I have been saving and investing for more than 8 years now. My savings have given me the courage to take a lot more risks and to go back to college for a PhD.
Minor note – I get interest rates of 9 to 10% back home on CDs while facing an American inflation rate of 4%. This gives me an incredible real return of 5%. It also helps diversify my currency risk.
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Love what others have said about giving. Yes, giving money (if you can afford it) is important, not just time – especially now.
I too budget an ammount for the year, and in my case do most of my giving in recurring monthly gifts – like $20/month to Doctors without Borders or $10/month to the local library, park, animal shelter.
As folks have said, you won’t miss the money – and it will feel so good.
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I’m 47 years old, the only debt I have is my mortgage. 5 kids, 5 paid for cars. I think I’ve earned the right to provide some guidelines for people in their 40′s.
1. Invest in your health (covered above), exercise, etc.
2. Asset Allocation (which you should already be doing) becomes critical because by now you should have enough assets to make a difference. A good guideline is to keep your age% in bonds+cash. If I had heeded that advice last year my 401k would not have turned into a 201k.
3. Don’t pay 100% of your kids college. They need to have some skin in the game. I make my kids pay 100% of each fall semester. I then match them dollar for dollar in the spring (tuition, rent, beer money, everything). They can earn their % via work, scholarships, loans, whatever.
4. Plan for the care of your aging parents.
5. Travel while you are still healthy. It’s no fun to visit the great pyramid at age 62 and not have enough lung capacity to climb the steps.
6. Simplify – you now realize what is important to you. Get rid of everything else – declutter your life, your garage, your calendar, etc. By now you should be able to say no and not really care what anyone else thinks.
7. Consider career #2 – are you willing to do your current job for another 20 years? Can you retire at 55 and take a totally different job? Do you need to start training for job #2 today?
8. Reinvest your time, talents, and treasure in the things that matter (much easier to do once you’ve decluttered).
9. Start looking for the location where you wish to live when you are old. Begin putting down some roots there. You need to start planting relationships by the time you’re 55 BEFORE YOU RETIRE. The goal is to create a network of friends who are willing to drive you to the doctor when you can no longer drive. If you invest your time, talent, and treasure wisely you can create deep friendships with people who are 10 years younger than you. Deep friendships are created by serving others. When you’re 55 you should help people who are 10 years older than you … and their kids will in turn feel that it is fair to help you because you helped their dad… good karma dude!
10. Look at where you are and the direction you are going. If you don’t like what you see – CHANGE IT.
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