what's up guys Humphrey here so in today's video we're going to talk about the best wealth building strategies for every decade in adulthood and let's waste no time at all and get straight into it starting in our 20s the 20s is going to be the first decade in which you start earning money and it's a time that you want to start building a good Financial foundation for your future and the first wealth strategy when it comes to that is to start cleaning up your personal finance hygiene just like brushing your teeth and flossing every day
there are a few Financial steps that we can take to ensure that our financial foundation and our hygiene is clean when it comes to personal finance So within this strategy there are three substeps and the first is to avoid Consumer Debt at all costs by having Consumer Debt in your 20s you're compounding your problems early on because when you're in your 20s you're not making that much money and so we don't really want to have Consumer Debt adding a layer of complexity into that typical Consumer Debt interest rates are 18% per year and credit card
debt by age in your 20s on average is around $22,900 to $33,000 in the United States so step one is to stay away from it at all costs or if you have to have some in your 20s try to pay it off as soon as you can the second personal finance hygiene tip I have for you guys is to maintain a budget on an average month you should know how much you are making versus how much you are spending and ideally you are running a profit if you're spending more than you make then you're not
really operating with a margin of safety and just like any business if you're spending more than you make then you are losing money and that is not good we want to be sure that we're like profitable businesses and actually operating with a profit so that we have that margin of safety and that Mar margin can be used to save and it can also be used to invest and grow our wealth an easy way to do this is to look at your past 3 months of credit card statements and bank statements add them all together in
a Google sheet or something similar to that and just try to figure out your average spend per category this might take you an afternoon to do but it's something that I recommend to all of my friends and I consider you my friend so please do this because by taking this time to do that you will understand your own budget so much more the last personal finance hygiene tip that I have for you guys is to start saving for emergencies so if you've watched this channel you should know that you should have 3 months worth of
emergency fund expenses saved up so whatever your monthly expenses are multiply that by three that's how much you should have saved and set away once you have those three fundamentals of hygiene down the next wealth building strategy in your 20s is going to be drum roll please earn money I hate to say it but in your 20s you actually have to go out and earn some money you're not going to get rich just daydreaming and lounging around your house it's imperative in your 20s that you start building some skills and try to find a job
that actually starts paying you for for either your time or your skills ideally though you want to get to a place where your job is not paying you directly tied to the hours that you're working because the universal truth is is that we all have 24 hours in a day if you're working a job that's directly tied to the number of hours that you're working it's going to be really hard to build wealth over time because you're naturally limited by the amount of hours that you can work in your 20s I definitely think it's still
okay to trade time for money in fact it's probably a great idea especially if you're getting a lot of experience but eventually you want to start to identify opportunities where you can get paid based on results or based on the equity that you might receive by working that job with the jobs that are results based if you're good at what you do then your potential to earn is going to be much much higher in terms of jobs that pay you in equity if you think about it stock options are a form of equity so all
those people that are getting Filthy Rich by working for Invidia they technically are still trading their time for money but because of the equity and stock options that they have they are much better off they still get a lot of upside that's uncorrelated to the time that they're putting in because of the stock options and their current value I'd argue that you can still get Wealthy by training time for money as long as your job still offers you some sort of Leverage as part of the Compensation Plan like in the Nvidia example wealth strategy number
three in your 20s is to start contributing to your retirement accounts and also try to Max them out if possible the order in which you should contribute to them is as follows so first you want to get the employer match for your 401k or 403b if it's offered second you want to contribute to your Roth IRA or traditional IRA and then finally at the end you can go back to the 401K or you can go straight into taxable investing the main reason this order exists is that it tries to get you the most Roi for
your money upfront so with the 401K match you get free money from your employer because they're matching your contribution and then with the Roth IRA you're also getting some free money in the future because of the tax sheltered gains that you're going to have because all the gains in a Roth IRA are taxfree by the time you retire if you start one in your 20s you're going to give yourself the most time to compound that wealth now if you're under the age of 50 you can contribute $7,000 per year into your Roth IR ra as
of 2024 and if you're over the age of 50 you can contribute $88,000 per year lastly after the 401K match on the Roth ra you can do some taxable investing and in terms of what to invest in I have many videos on that as well the short of it though is that you can always invest in an S&P 500 Index Fund or an index fund that tracks the market like vti and on average these typically return around 8 to 10% per year that means if you were to invest about $5,000 per year into these index
funds by the time you retire with compound returns your money could well be worth over seven figures that's one of the most common and proven strategies to build wealth and when you're in your 20s you want to take advantage of the time you have left before retirement which is a ton of time all right let's get into the strategies for your 30s now I think this is going to be really interesting for you guys if you haven't already completed the wealth building strategies in the decade of the 20s you want to make sure you do
that but the first wealth building strategy in your 30s is going to be doubling down on your skills and trying to complement those skills as well when it comes to really skyrocketing your income this is how that strategy could play out so pretend you've been working in marketing for 7 years at the best advertising agency in the country and then all of a sudden you join a startup selling let's say bottled water you may already understand some of the best strategies of marketing like trying to narrow down your audience creating copy that speaks directly to
that audience and then also cultivating your Brand's look and feel you may even have existing knowledge about how your prior advertising agency would have tackled this marketing challenge which is how do you even differentiate bottled water your marketing knowledge as well as your advertising experience is already translating to a lot more Revenue for the startup and so that's getting you paid more handsomely but if you really wanted to double down on this skill you could pursue something like extra studies in Psychology if you're taking some afterwork classes in Psychology what you're essentially doing is you're
complimenting your main competency of marketing you're adding fuel to that fire and all of a sudden if you can understand how marketing psychology works you can make even more money for this startup in your 30s that's what you want to be doing you want to identify skills that you were good at identify complimentary skills that can add to your main competency and therefore translate to way more money for you in the long run the second wealth building strategy in your 30s is going to be diversifying your income streams or diversifying your asset Holdings according to
the author of Rich habits 65% of millionaires usually have three or more income streams and 45% had four and 29% had five or more so here's a list of income sources that you can go after on the screen I'll just leave them up on the screen right now I'm not going to read all of them but the idea here is that if you're just still relying on one income stream in your 30s you want to try to add one additional one so let's say you already have earned income if you're able to add some sort
of side hustle income or even rental income that's going to FasTrack your way to even more wealth you can also diversify asset classes so let's say in your 20s you're primarily invested into stocks perhaps in your 30s you can add some real estate diversification can not only help you preserve Capital but it can also help you build wealth when you have two uncorrelated asset classes that both do well so in our example if you had real estate and stocks these markets don't often move with each other and therefore could be a really great way to
B balance out your portfolio the third wealth building strategy in your 30s is to keep your lifestyle inflation in check so in your 30s you're going to be earning way more money and the quickest way to sabotage that is with lifestyle inflation one of the lessons of the book The Millionaire Next Door is that the greatest accumulators of wealth are often the ones that play the best defense which means that they always live within their means they keep their Lifestyles cheap and modest even while their incomes increase the book goes on to illustrate that those
people that often look really wealthy are often ones that are most deeply in debt so lawyers and doctors for example they earn a way above average income but because of that they always want to live in the similar neighborhood that their colleagues do and they also want to drive Porsches and Ferraris that their colleagues do as well because of this they might even struggle to pay off some of their debts including student loans mortgages as well as their car payments the authors of the book found that by studying many millionaires the ones that actually accumulated
their wealth the fastest were the ones that kept their spending habits the same while their incomes increased so I have a friend he's not a doctor but he makes around $750,000 per year which is an astronomical amount of money I think that puts him in the top .5% in the United States but guess what he has $50,000 in his savings account saves less than $20,000 per year has a 30-year mortgage that's a little bit too expensive for what he makes and also has a bunch of cars essentially he just spends money like it grows on
trees he lives lavishly and he's actually gotten used to this lifestyle when I ask him if he wants to cut back on his spending he doesn't really say that he wants to because he's gotten used to his life now so I ask you does making 700k or 800k a year even matter if you're only saving 20K of it I would argue that you can do the same thing on a 60k salary what really matters is that you have a high effective savings rate and that is what's going to really build your wealth and compound it
very quickly all right let's talk about some of the best wealth strategies in your 40s the decade of the 40s now your life is way more established you probably have some kids and you probably have a home mortgage the first wealth strategy at this age is going to be reduced taxes as much as you legally can I think more often than not we're all focused on making way more money but in your 40s if you start to feel like you're getting capped out on your salary or you're getting close to the ceiling of your salary
then it really could make sense to start focusing on the other side of the equation which is reducing your taxes there are many ways to reduce your taxes but I'm going to talk about the three biggest ones in my opinion and the first one is going to be at the very minimum to max out your retirement accounts for most people if they have a 401k and an IRA combined together that's around $ 30 to $31,000 in contributions every single year that can be tax deductible now if you have a Roth version you don't necessarily take
the tax deductible in that year currently however in the future that's Sheltering yourself from future taxes which I would argue is just as good as well the second step is to get a health savings account so an HSA actually reduces the taxable income that you have for that year as well and these are savings accounts that are dedicated to health related expenses so you put money in it and whatever you spend money on let's say something doctor related or injury related then that money is pre-tax the last thing is that you can also invest money
in your HSA so I think that's another great Advantage I don't really talk about the HSA enough on this channel but it offers a triple tax advantage the contributions are tax deductible the earnings are taxfree and any withdrawals for health rated expenses are taxfree as well the third strategy for reducing your taxes is to try to take advantage of as many write-offs as you possibly can so here's a full list of them on the irs's website but for example if you have a business for your car or your home you could possibly deduct that or
if you have student loan interest or even mortgage interest you could start to itemize that and do an itemize deduction instead while this video isn't a tax video entirely I think it's worth talking to a tax professional or really making sure you take the time to research this because if you're able to reduce your taxes that's going to be a really powerful wealth building tool all right wealth strategy number two in your 40s is going to be to know your retirement number according to the 4% rule true wealth is being able to retire and not
have to worry about how much money you need to spend on everyday expenses and in order to do that we actually need to know what our exact retirement number is our magic number and the way that we can get there is by working backwards for the fire community that number is generally 25 times your annual expenses expected in retirement so if you expect to spend let's say $50,000 a year then you need 50,000 time 25 or $1.25 million of a nest egg to retire comfortably that's based on the 4% Rule and if you are unfamiliar
with the 4% rule that's essentially a rule that states that you can withdraw 4% of your nest egg in perpetuity in retirement the assumption is is that as long as your portfolio is evenly split between 50% stocks and 50% bonds even in the worst stretches of the stock market history you will not run out of money in retirement if you are interested in learning how to figure out your retirement number or the 4% rule I have many dedicated videos on this channel for those topics specifically so I will link those down below in the description
and so you can check that out after this video well strategy number three in your 40s is to manage your risk appropriately in your 40s I think it's a really good time to have that check-in with yourself or even a financial professional to see how far off you are from that retirement number check how your nest egg is doing and actually figuring out if your risk even aligns with your goals also for example if you're feeling behind in your 40s this can be a really good time for a wakeup call because even in your 40s
if you save 25% of your income you can still hit retirement Freedom or Financial Freedom by the time you're 65 or 66 it does require aggressive saving but it is still possible even in your 40s so that is something that I want to share with you guys if you are feeling a little bit behind in your 40s if you are ahead in your 40s this is still a really good time to make sure you're having a check-in with yourself making sure Investments are actually aligning with your risk tolerance this could also be a good time
to pay off your mortgage early especially depending on the interest rate of your mortgage or if you just really want that peace of mind in any case this wealth building strategy number three of your 40s is all about having this check-in with yourself making sure your goals and your risk tolerance are still aligned and if you really need to talk to a financial professional you do so so far in this video we've gone over nine wealth building strategies if you are enjoying the video so far make sure to drop a subscribe on this channel so
that you can get more content like this from me in the future let's get into the last section of the video now and I've actually combined the last two decades which is the 50s and the 60s of your life I've combined these two decades Because by the time you hit the age of 50 what you should be really focusing on is the meticulous planning of your retirement and Beyond there are still going to be some ways to maximize our wealth in these decades but still let's go over wealth strategy number one in your 50s and
that is to protect capital above all else now note this does not mean selling everything prematurely or selling everything emotionally as well but let me explain the best way to understand this is through the millionaire next door again one of my favorite books so 95% of Americans according to the book that had a net worth of $1 million or more in 1990 were regular people who built wealth through a consistent foundational lifestyle they protect their Capital first and foremost by not taking dumb risks especially as they get closer to retirement so when they're in their
50s and their 60s they're not going all in on Dogecoin second they start to shift some of their assets towards more fixed income and bonds as they near retirement age because the returns are much more predictable and third they figure out strategic ways to spend less money that means actionable items like planning the year ahead setting a budget and cutting back on certain categories where they think they're spending too much they also don't panic sell because all the gains when it comes to compound interest are at the end and it's likely by the time that
you're about to retire your portfolio balance is quite high wealth accumulation is disproportionately a lot slower in the beginning when you're starting to build your wealth but towards the end of the compound interest graft is where all the gains are so you don't want to kill your gains or shoot yourself in the foot by selling too early or selling emotionally whenever the market is having turmoil or turbulence now while you don't want to panic sell the second wealth strategy in your 50s and 60s is to actually look for opportune times to sell big assets so
nobody can time the market perfectly but let's say you're within the next 5 to 10 years you want to retire and you have a house that you want to sell you might actually want to wait till there's a sellers Market within real estate to sell your home because the way that real estate works is there's always going to be buyers markets and then sellers markets and this cycle continues on and on the idea is that we just want to be selling our assets closer to the tops of Cycles rather than the bottom of Cycles when
things aren't really looking that good when it comes to stocks it's really tough to time the market when it comes to your portfolio and retirement but the idea is that if you're happy with the gains that you have in your portfolio and your nearing retirement age that might be a good time to take those gains or at the end of the day if your retirement portfolio hits that number that you need to hit in order to retire comfortably for the rest of your life maybe you just take it and run because by that point the
balance has served its purpose you can take your gains for the purpose of retirement and not have to worry anymore now of course some people may just want to stay invested and withdraw small chunks from their portfolio as they continue to invest in the stock market that's fine as well it just depends on your own risk tolerance well strategy number three during these Decades of your 50s and 60s is going to be estate planning forming trusts and figuring out your inheritance essentially these are all strategies that will help you preserve wealth not only for you
but your future Generations proper estate planning for example can minimize gift taxes inheritance taxes as well as estate taxes so that your heirs can keep more of that money the major components of an estate plan are documents like the living trust and the healthcare Power of Attorney form both of these documents will state your preferences in case something were to happen to you and in terms of trusts living trusts are good because you can put assets within the living trust and they can help you reduce your taxes when it comes to estate taxes or gift
taxes a lot of these aren't as hard to set up as you might think you can find basic templates online fill in your information and then you just need to take it to a notary to get it officially notorized of course if you have a complicated situation you might want to consult a legal professional but either way having something basic and at least there is better than nothing all right guys I hope that you enjoyed this video make sure to check out my next video on the channel which is the best financial strategies by income
I'm going to leave it up right here and I will see you guys in that video or a future one on this video all right peace [Music]
