Ep.81- 10 Things About Money You Should Know Before Turning 30
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Read Time: 3 Minutes
Number 1: 50/30/20
This is a good general rule on budgeting. Simply put, with your after-tax (also known as take-home) pay, you should spend less than 50% on needs, 30% on wants, and aim to save 20%.
Number 2: the rule of 25
This is a simple rule to calculate how much you need to have in order to retire without worries. You can simply multiply how much you spend a year (not how much you earn) by 25. For example, if you spend $50,000 a year, your goal should be $1.25 million ($50k x 25). If you spend $100,000 a year, your goal should be $2.5 million ($100k x 25).
Number 3: maximize your 401k match by percentage
This is the minimum you should contribute to your 401k. If your employer offers any kind of 401k match, you need to at least contribute to the maximum percentage of your employer matches. Simply put, if your employer matches 50% on the dollar up to 8%, then contribute to 8%. If your employer matches 100% on the dollar up to 5%, then contribute to 5%.
Number 4: always pay credit card balance in full
Always pay your credit balance in pull. No exceptions.
Number 5: 5 times your income
This is a general rule to help you understand how much house you can buy. The way it works is, if your income is $100,000k/yr, then the maximum house price for you is about $500,000. If you have any kind of debt, then it will be lower.
Number 6: the best way to save
The single biggest way to save money is through housing, followed by eating out. That’s it. If you live in a luxury apartment, then move into a regular apartment. If you live in a regular apartment, then get a roommate. If you already have a roommate, then get 2 more roommates. If you already have a lot of roommates and still want to save, then move to a cheaper area.
Number 7: the cheapest way to travel for free
Southwest companion pass. It is the best deal on earth as far as travel goes. The best part about it is that it is not difficult to get. Once you get the companion pass, you can have someone travel with you anywhere Southwest flies to for an unlimited amount up to 2 years. You can see more details here.
Number 8: the $250k/$500k advantage
Buying a house (primary home) has a huge tax benefit when the house appreciates. The rule is that if you have lived in the house for at least 2 years as your primary residence, you are exempt for any capital gains tax for up to $250k if you are single, $500k if you are married. To put this into context, in order to earn an additional $250k after-tax through a job, you actually need to earn double that, half a million, because half goes to taxes.
Number 9: best place to monitor your credit for free
Credit Karma ( I am not being paid to say this) is the best way to monitor your credit score for free. Not only you can see your score, you can also see the details on what’s impacting your score. The best thing about it, it’s a good looking app and it’s free!
Number 10: how much student debt is too much
If you are thinking about pursuing a degree, you should think about how much student debt you will end up with. The rule of thumb is, if your expected student debt is more than your expected salary immediately after graduation, it is NOT worth it. For example, if you are thinking about a degree that will leave you $100k in debt, but you won’t be able to make $100k/yr after you graduate, I don’t think you should do it.
Bonus: is an MBA worth it for me financially?
It really depends on two things, how much do you make right now, and how much is the net cost ( all costs minus scholarships). For many people, the biggest cost is the opportunity cost of not working. For example, if you already make $100k/yr, the loss of $200k over two years is going to be the single biggest cost for you. To precisely calculate the ROI on your MBA, I have built a custom calculator you can use in this article.