well hello welcome back Sadies and gentle them sorry welcome back guys it is the latest installment of my 30-some series for those who don't know I am finishing out this year my 35th year by doing a little capsule series all on the Practical life and financial aspects of living the most wonderful fulfilled intentional and financially healthy 30s you possibly can now today we're going to be getting a little bit into the nitty-gritty of some of the financial aspects of your 30s which for many of us will mean really getting serious about building our long-term Financial Security and wealth so I'm first going to start out by shouting out our partner for this series advisor. com if you guys didn't know a good financial advisor has been crucial to my own Financial Health and my long-term wealth building and unlike what used to be the case where only already rich people had access to things like a good financial advisor companies like advisor. com are making it so that way more people can access the financial advisor model while not having to worry that that adviser is working for commissions and not in their best interest because advisor.
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4% from January 2020 to January 2024 personal savings rates plunged by 47. 2% and a lot of this does have to do with Rising costs of living like home prices or groceries but a lot of Americans are also living beyond their means and in business bookkeeping a fixed cost is a cost that is constant and predictable regardless of how your business does in a given month the lease for an office or payroll expenses are two major examples but like a business we also have fixed costs in our personal budgets things like our rent or our mortgage our insurance payments our car payments our phone and internet bills utilities student loans Etc and one of the key aspects of saving money is automating so you don't have to think about it and the lower you keep your fixed costs the more you will be able to automate savings from each paycheck for example my mortgage here in New York City is $2,395 every single month I'm very excited about that it's one of my biggest points of pride in this life because I went out of my way to buy an apartment when interest rates were sub 3% and the uh average price of a home here in New York City had decreased an unbelievable amount uh because of covid so I really tried very hard to find a home that was less home than I could afford not just because mama loves a deal which she does but also because having that low fixed cost as the biggest line item in my budget means that I have a lot of other Financial flexibility for other long-term decisions and goals that could be things like increasing my savings and Investments it could be things like potentially one day buying another property traveling more saving for my niece's education or any of the other things we want to do with our life and it is when we're making the decisions for these big fixed cost in our lives that we will see the biggest difference in our ability to long-term wealth build for example there are many people driving around in cars that are much bigger and more luxurious than they need or having two cars when they could get away with one the average American home now has about 1,000 square ft of space per person and in many cases that means many rooms going unused but you still have to not only pay for them on your mortgage you have to pay for the utilities to heat and cool and light them even something like getting aggressive about debt payment if we're carrying things like Consumer Debt can make a huge difference in the long-term possibilities of wealth building but focusing on living below our means on those big fixed cost things is the game Cher regardless of the rest of our budget and that feeds into number two which is that having money makes it easier to make money so we've talked about this before on TF but one of the biggest lies when it comes to wealth is the idea of the self-made billionaire or even millionaire most rich people you have met started with a huge leg up typically with some kind of generational wealth quote Bank of America private Banks surveyed people with household investable assets of more than $3 million over the age of 21 and here's what it found when investigating how those multi-millionaires built their wealth 2018 8% are Legacy wealth they had an affluent upbringing and an inheritance on average 20% of their assets came from inheritance 46% got ahead start this includes people who had an affluent upbringing with no inheritance and people with a middle class upbringing plus some inheritance and those in the latter group got an average of 12% of their assets from inheritance and 27% are self-made they had a middle- class or poor upbringing and no inheritance one of the main observations of the study was that wealth is often but not always connected to Prior Generations noted that most of the younger respondents between 21 and 42 are Legacy wealth not self-made now this is not meant to be demoralizing although I know on some level it is it's just an important reminder to ourselves that wealth begets and perpetuates wealth and makes it easier for us to do the things that allow us to build wealth for example having just a bit more money in our emergency funds means that we will be able to allocate more of our savings to things like long-term Investments which will yield much higher returns than even a good high yield savings account so when we're thinking about keeping our big fixed costs on the lower side it's also so we can recreate that Financial flexibility that will come from having a little bit of generational wealth and you don't need to go all the way to for example being fire financial independent retiring early to reap some of the benefits of being able to prioritize your money differently and once you ascend to a certain level of wealth it is easier to stay wealthy according to a blog post from the IMF the data show that an individual in the 75th percentile of wealth distribution who invested $1 in 2004 would have yielded $150 by the end of 2015 a return of 50% a person in the top . 1% would have yielded $240 on the same invested dollar a return of 140% another significant finding High returns both bring individuals to the top of the wealth scale and prevent them from leaving it controlling for age parental background and earnings moving from the 10th percentile to the 90th percentile of wealth distribution increases the probability of making it to the top 1 % by 1.
2 percentage points compared to an average probability of 89 and again while it is likely that we are not going to make it to the 1% if we didn't start there it is a good reminder that with more incremental money it becomes easier and more effective to make money with what you already have which brings me to my next Point number three increasing your income is way more important than cutting expenses we touched on this in our first episode but it's worth repeating you can cut expenses as much as you want but at the end of the day unless you're making money to actually save a significant amount from cutting down expenses it is much more crucial to focus on earning more for one thing for someone who's already struggling to cover the cost of their basic necessities cutting out expenses only does so much you can't cut little luxuries like streaming services out of your budget if you're already not paying for them but for another our expenses increase in ways that are completely beyond our control in 2023 the average inflation rate was 4. 1% and that means that unless you increased your income by 4. 1% or more buying the same amount that you had the prior year would have effectively cost you more but as we discussed keeping those fixed costs in your budget below your means is going to be crucial to couple with earning more because if at every time you are earning more income you are spending up to that threshold you can end up in the exact same financial situation just working with slightly more money this is how by the way you hear stories all the time about extremely wealthy people who are living paycheck to paycheck or going into tons of debt to finance their lifestyle because earning a bunch of money means literally nothing if your lifestyle is keeping you at the very top of it or even going over what you're bringing in and if you're wondering how to optimize that income in addition to the tips that we shared there's also Point number four which is that working in certain industries is like a wealth cheat code so as we talked about wealth has kind of a Snowball Effect and the more money you have the easier it is to make more not even by earning more by just investing what you have and certain industries are going to make it a lot easier to access lump sums for example in some sectors it's typical for employees to receive an annual bonus as part of their compensation and this is money that is typically a percentage of their income and is often based on employee performance or company milestones in Tech it's typical for employees to have a bonus program between 5 and 15% of their income in finance or banking bonuses are typically even higher on average the annual bonus percentage in this sector sits around 20.
9% the finance industry also offers the highest average non-production bonuses at 12. 3% working in things like company's corporate office also usually means a higher bonus pay quote bonuses for retail staff are usually around 2. 5% of an employees salary but on the other hand corporate staff in these companies could see bonuses of 10 to 20% usually depending on company performance and individual contributions additionally some companies like Tech Giants such as Amazon and Google can offer stock compensation in addition to salary and bonuses quote stock compensation is a method companies use to reward employees instead of simply offering cash companies offer employees stock or stock options meaning they gain partial ownership of the company and share in profits smaller companies and startups often use this method as they may be unable to pay employees at a competitive rate before generating a certain level of profits and within different Industries there are also ways of optimizing your income I'm going to throw to our recent interview on the financial confessions with nurse and content creator Ryan parish for a quick note on how she optimizes her income as a nurse after my first year of nursing I ended up going what we call PRN which is per DM as needed so I lost my benefits but but what I did was I got a pay raise up to $35 an hour and I was actually required to work less so I only had to work seven shifts a month instead of 12 oh wow which yeah so I was like why would I not go PRN so I went PRN and then after a year of doing that I went um to a float pool position which just meant that I floated all over the hospital to different units so I which I like that too that gave me a lot of Versatility it changed up the days sound Dynamic yeah and that went up to $50 an hour that was premium which in Tennessee at that time that was I was making more money than my mom was at the time yeah and she'd been a nurse you know whatever I mean of course I was doing a much harder job than she was doing yeah but still like she was in shock that they even offered that as a program so how sorry how long was that between 21 and $50 now two years two years doubled your income yeah and a lot of that was also yeah exactly and it like and I was really thinking I was making a lot because it was almost 100,000 a year if I worked like full-time which was always my goal I think it was like 93 or something and I also realized that have to make the most of the hours that I worked yes so for example in nursing they give you shift if premiums so if you work a night shift you get some places it's like 10% of your pay some places it's $3 $4 extra an hour so I would you know make sure that when I was working I was working the shifts that were paying the most on the weekends and at night so I would make sure that the hours I was working I was making the most money that I could I'm also going to refer to our video on unionized jobs to talk very quickly about why optimizing for jobs that are union protected can often mean much better more competitive income as well as dying Arts like pension programs which are in and of themselves pretty valuable Wealth Builders so for those who aren't familiar quote labor unions are associations of workers formed to protect workers rights and Advance their interests unions negotiate with employers through a process known as collective bargaining the resulting Union contract specifies workers pay hours benefits and job health and safety policies thanks to the effort of labor unions workers have achieved higher wages more reasonable able hours safer working conditions health benefits and Aid when retired or injured labor unions were also instrumental in ending the practice of child labor they've exerted a broad influence on American Life reshaping the political economic and cultural fabric of the country and according to the economic policy Institute the 17 states with the highest Union densities quote have state minimum wages that are on average 19% higher than the national average and 40% higher than those in low Union density States and especially in Industries where you are receiving things like bonuses or commissions it can also be helpful when structuring your budget for wealth building and investing because you can create your day-to-day budget based on your base income and then direct things like variable income bonuses commissions Etc to those bigger savings goals and this is not to say that it is impossible to build wealth in other Industries or without those lump sums of income but when you are auditing your income as we discussed in the first video in this series which I'll reference below it's important to look at companies who may be more competitive in their compensation packages within your own field or potentially even moving over to a field that has more competitive compensation it's also important to think about what industries are growth industries and whether or not your job within that industry is a growth job but all of that is just about the money you're bringing in when it comes to wealth building you also have to think about the money that you are investing whether that be in stocks in real estate in businesses or even in your own education and skill building which brings us to point number five you have to be patient and emotionally detached especially for those of us who haven't come from generational wealth Building Wealth is not something that happens quickly aside from consistently contributing to your Investments the most important thing your money needs is time thanks to compound interest for instance if an investment of $1,000 acrs 7% interest compounded monthly it will be worth 8,116 in 30 years that same ,000 earning just1 % interest which is closer to the average savings account rate compounded monthly will be worth $1,349 in 30 years that's an insane difference but also requires being strategic and we also need to acknowledge that taking advantage of compound interest means leaving your money in those Investments even when it feels scary to do so so that means above all not flipping out and taking money out of the market at the first sign of a downturn this is because you need to make sure that your money is invested during the most lucrative days which are pretty much totally unpredictable quote 78% of the stock market's best days occur during a bare Market or during the first two months of a bull market if you missed the Market's 10 best days over the past 30 years your returns would have been cut in half and missing the best 30 days would have reduced your returns by an astonishing 83% we also have to remember that the stock market historically bounces back from those turbulent periods quote to illustrate the volatile nature of financial markets we took a look at intra-year stock market declines over the 20-year period from 2002 to 2021 as you can see in the chart below a decline of at least 10% occurred in 10 out of 20 years or 50% of the time with an average pullback of 15% and in two additional years the decline was just short of 10% despite these pullbacks however stocks Rose in most years with positive returns in all but three years and an average gain of approximately 7% so as we discussed in our first video the most boring strategy financially is usually the best one when it comes to investing that means investing in broadly Diversified funds instead of individual stocks that means prioritizing tax advantaged retirement accounts and that means setting your money and forgetting it but on the slightly more controversial tip I'm going to end with number six which is that buying a home is not always a good financial decision so despite the age-old Boomer advice that renting is just throwing your money away or the people who treat owning a home as crucial to long-term wealth building not only is that not always true in some cases it can work against you in fact sometimes renting can be the better decision financially and that is to say nothing of the fact that renting still allows you a place to live Which is far from throwing your money away like you need to eat babe we don't describe buying food as throwing your money away you're throwing it in your belly and in the case of renting you're throwing it above your head to give you a roof in fact the New York Times recently put out a rent versus buy calculator which allows you to compare the cost of renting or buying over time based on what you pay in rent what you would pay for a mortgage the length of time you would stay in the home your potential interest rate Etc and you'll notice that the calculator is not absolute in some circumstances home buying is more costeffective and in others that's actually the case for renting and one big reason that home buying isn't always the most cost-effective option is due to our current super high interest rates quote mortgage interest rates have risen over 5 percentage points since bottoming out in January 2021 at 2.
65% peing at 7. 79% in October 2023 since then rates have eased to around 6. 2% in September 2024 and these rates are significantly decreasing housing affordability with a mortgage payment on a $400,000 loan rising over $1,200 from trough to Peak as we talked about in the beginning I have an extremely low mortgage payment in large part because my mortgage interest rate is 2.
875% if I had bought the exact same house at the exact same price with the mortgage rates we were seeing in late 2023 my monthly payment would be nearly double what I'm currently paying for the exact same home when it comes to Building Wealth and just generally getting more serious about your finances in your 30s it's so important to remember that what is trendy or shiny or being sold to you for more emotional SL aesthetic reasons is often the opposite of what is good for us long term the best decisions are often the most boring ones and it's often about staying the course and keeping our costs low so that we can prioritize the things that are important to us as I mentioned before my financial life has been greatly improved by working with a good financial adviser and if you have been considering getting a financial adviser I highly recommend our part partners for this video advisor. com again they have a flat fixed fee model which means that their advisors work for you and not for commissions and they are offering an exclusive discount for our community here at tfd which you can get by clicking the link in our description but even if you don't work with advisor.
