Episode 29: 5 ways to maximize your 30's to give you more freedom in your 40's

This episode discusses the importance of making financial decisions in your thirties to set you up for success in your 40s, 50s, and 60s. It emphasizes:

1.  understanding long-term goals, 
2. automating savings
3. increasing income
4. managing debt
5. opening a brokerage account for financial flexibility and freedom.

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Transcript

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Your 30s give you a massive opportunity to set yourself up for financial flexibility and freedom in your 40s, 50s, and 60s. In today's episode, we're going to talk about just how to do that.

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And welcome to the 29th episode of Retire Early, Retire Now. I'm your host, Hunter Kelly, owner of Palm Valley Wealth Management, and we help attorneys and physicians Get the most out of their money. And I've been doing this podcast for a little bit over six months now, and I can't believe it, but we're about to eclipse 5, 000 downloads. I didn't really have any expectations, for this podcast, just wanted to get out some information and education to people that were willing to listen and. The fact that we're getting a little bit over 300 downloads per week, the last month or so, and we're close to eclipsing 5, 000 downloads is just amazing to me. So just want to say thank you for those who continue to listen and thank you for those that are new to And with that being said, if you continue to find value out of these episodes, there's two ways to help this podcast grow. And that is by leave a five star review on the podcast platform that you listen, to this show on and then also share it with a friend. If, if one of these episodes has helped you answer a question, maybe you were trying to answer or get more information on likely other people have those same questions. So sharing it with a friend, can help them out as well. So go ahead and do that. And if there's any specific questions that you're unsure about. Maybe you listen to a podcast episode and you have more questions than answers. I would love to schedule a call with you. Go to my website, palmvalleywm. com, and go ahead and schedule a initial call. I'm look to spend some time with you to see what, what I can do to help and see if we're a good fit to potentially work together, but without further ado, let's hop into this topic of. how to become more financially stable in your thirties. I've been working with clients for about a decade now. And so through my, my research, if you will, or anecdotal evidence, I have found that the thirties is probably the hardest decade to live financially, but also. One of the most critical or important decades. And while I am in my thirties, and I acknowledge that this may be through a bias lens, even working with those successful pre retirees and their fifties and sixties and people that have already retired, those most successful people have really killed it in their thirties. They've made really good decisions. Whether that's, increasing their income or keeping debt at a minimum. Whatever that case may be, they've done really well in their 30s, which set them up for success later on in their 40s, 50s, and 60s. So, if you're in your thirties right now, the decisions that you make are going to have profound impact on the rest of your life. And I kind of feel like I'm my dad when I was in high school right now telling you, Hey, the grades that you get now, are going to have great impact on the rest of your life. Um, but it's true, right? And so some of the decisions that people in their 30s need to make are, do I purchase a house? Do I rent for awhile? if I'm married and we're working on having kids, do we keep the dual income if both of us are working or do we go down to a single income? Do we do public school versus private versus homeschool, which Is it becoming more common now? where do I work if I'm in residency or if I'm in a big law firm that I'm in a city that I don't necessarily prefer? do I want to move back home or to a different area of the country where, I like the climate better or the people or whatever the case may be? Where do I work? How do I

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I manage

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the debt that I have? Student loans, auto payments, mortgages, credit cards, et cetera, et cetera. How do I manage that debt? and then once you start getting to your later thirties, you start to think about, okay, well, I'm starting to establish my career, my, or my career is very established and now I'm thinking about, ah, I don't necessarily want to do this at this capacity for the rest of my life. So I need to start thinking about retirement. And, or having a little bit more freedom or flexibility, in my day to day world. And so what do I do to kind of make decisions now to help me later on down the road? And then also balance that with taking vacations, enjoying my life. Doing the things that I enjoy. Hobbies and things of that nature. while still achieving some of these other goals that I have. this is why I think the 30s is the hardest or the more, most important. is because all of these decisions are big decisions. Just think about purchasing a home. For a lot of people that is going to be their largest purchase. Of their lifetime, or at least for a very long time. And if you screw that up, that will have a lasting effects on the rest of your financial life, moving forward. And so, making sure that you do your due diligence, meeting with, certain professionals and research, and making sure that, purchasing or renting makes sense for you, given your specific situation. so I'm going to now transition into five things that I think you can do to maximize your 30s that will set you up for your 60s. And so that first thing on this list is to understand what your long term and your short term vision or goals are, and yes, will these change over time? Of course, people evolve, things change, wants, desires, situational things that you can't control change, which change your vision. But if you can sit down. on a periodic basis, whether that's monthly, biannually, whatever the case may be, and think about the things that you want to accomplish and look back at that previous time period and say, okay, what did we do to kind of get there and what do we need to do moving forward, to keep moving us toward those visions and those goals, can be a, great way to track. Am I living a successful financial life or a successful life in general versus kind of chasing those shiny objects? And so it's easy to kind of try to keep up with the Joneses and, and, maybe you, you have certain goals to pay down debt or whatever it may be. And your friends are going on vacation, your friends are doing that, or they just bought this new home in this great area of town that you want to live in. And if that is not within your goals or your vision, then sometimes we need to learn to say no and say, Hey, these are the things that I want to accomplish. And if that doesn't coincide with some of the people that you hang out with or your friends, circle friends, they either understand and y'all continue to be friends or, or maybe you just have to go grow apart and do different things, right? Um, and so not to get all inspirational or, or motivational here, but, but having that vision kind of guide you on what I, what next decisions I need to make. Toward creating that financial freedom and flexibility. And so once we've had that discussion, number two would be, um, reverse budget or pay yourself first. Okay. And so we, I've done a whole podcast on this episode 14 about how to pay yourself first. Um, so just reviewing that podcast. Um, the traditional way to budget is to itemize everything and categorize it into each. Um, different category and do that either weekly or monthly, and it's very time consuming. But if I can set up, uh, a way to pay myself first, so set up buckets, whether that be my fixed thing, fixed expenses, uh, my variable expenses, things that I'm working on goals wise, large purchases, retirement, things of that nature. And I automate those savings to those specific buckets Now, I don't have to necessarily think about how much I spend at Starbucks or the grocery store or eating out, things of that nature. This is the amount that I have in my bucket each month, and this is how much I'm able to spend. And so, automating that makes it a heck of a lot easier, and then as you adjust your goals over, over a 5, 10, 15 year period, you would adjust those buckets to meet those particular goals. And so the biggest thing here is to automate those buckets, those savings. So if you have a goal to buy a car in five years or 10 years or whatever the case is for you guys, then you want to make sure that you're automating that couple hundred dollars a month toward that specific goal, whether that be an investment account or a CD or money market, whatever makes sense for you. And, and make sure that that is going there every month. into that particular bucket. And so again, check out episode 14 to learn a little bit more in depth about pay yourself first, but budgeting or understanding where your money is going is going to be the second most important step to making sure that you are maximizing your thirties. The third thing is to focus on increasing your income And your savings rate, people worry way too much about what type of investments they have in their thirties and for the vast majority of people in their thirties, they don't have enough investments to really need to worry about the type of investments. Yes, should align with your risk tolerance. And your time horizons for those given accounts, it certainly should, but trying to do hours on hours of research on a specific sock or mutual fund or ETF, is just not going to move the needle as much as it is when you do things to increase your income or increase your savings if you can save more money than the interest you're going to earn on your given investments. Then you should be certainly worried more about how much you're saving and increasing your income. Then you should be worried about which particular large cap fund or large cap stock that you're investing in. Um, your income can increase infinitely, but the amount that you can save or the investment return that you can get on any given year is. theoretically capped, right? most, let's say all equity portfolios that's well diversified is going to be somewhere between 8 and 12 percent on an average each given year. Yeah, are there some years where there's more like last year? Where it was in the mid twenties, the thirties, of course, but over your lifetime, that's going to average out between somewhere between eight and 12%. And in an all equity portfolio, you can do small things each year to increase your income, 10, 15, 20, 25%, even more depending on what type of industry you're in, if you start a business. asking for promotions, things of that nature, getting in, in a company that is newer and growing with, ability to expand your role into management and making larger decisions for those businesses, giving more value to that business. So. If you're getting more value, you're getting paid more. And so people in their thirties should be worried about increasing their income and their savings. Now, that being said, it is not easy, right? Starting a business isn't easy going into your boss's office and asking for a promotion or asking for more pay. But you have those priorities that we talked about in the first point is, Hey, I have things that I want to accomplish, whether that's an early retirement, flexibility, going, going down to part time, not billing as many hours, whatever the case is. So I need to make sure that I'm doing each and everything that I can to increase my income because. In turn, that's going to increase my savings rate. And so in those years where we have more expenses, because maybe we have daycare and we're still managing our debt, paying down student loans and things of that nature, we save what I, what we can as much as we can, But in years where the income is much better, we've maybe paid off some of that debt or kids have moved on to public school and we're not paying daycare anymore, well then we can start really saving and investing more, but also taking a little bit to increase our lifestyle as well. And so point number four and where I see people get tripped up the most and make, I don't want to say bad decisions, but not the best decisions longterm. is not managing their debt well. And so whether that be student loans, auto loans mortgages, whatever the case is, they just don't manage debt very well. And so we have to be very intentional about the debt that we take out, because it can, it can really affect our ability to save. If your debt to income ratio, is 30 to 40, potentially 50 percent of your income is going to debt. Well, that's really going to hinder your ability to save. And be able to spend on other things lifestyle wise, then if you had a somewhere between 10 and let's say 20 percent of your income going to debt. And so make sure that you have a plan. If you have student loans, make sure you're on the correct payment plan that makes sense for you, whether that is getting the payment as low as possible so that you can be on our forgiveness plan later on down the road, whether it's public service forgiveness. or the new save plan, whatever makes sense for your particular situation. or if you plan to pay it off relatively quickly to avoid some interest. Um, and then the, the biggest, two other biggest mistakes that I see people make as far as debt. getting a car loan and one having a very large payment, but also extending that payment out for five, six, sometimes seven years. we all know that cars are generally depreciating assets. So, If you're spending five, six years paying off that debt, you're going to be upside down on that car. So if that car breaks down or for whatever reason you need a new car, you may have more loan out on that car than the car is worth. So if you go to sell it, you're still going to be stuck with that loan. So you have to be very cautious. We want to try to pay that car off within the first three years. Um, and then if, if it makes sense, we would want to maybe find a car that is a year or two old where we can kind of buy it at a discount if you will, um, because obviously the new cars are, are set at a premium, you're going to pay most for those new cars, obviously. try to find that sweet spot between a one and a three year old car, and pay that thing off, uh, either immediately or within the first three years. so that you don't necessarily, have a car payment for a very long time, but also you're able to start saving. Um, for that next car as well. And then the biggest mistake that I see people make, um, especially the higher income earners. So you're a doctor, you get out of residency, you start making some good money because you're an attending physician now, or you're an attorney and you make partner, you make it a little bit more money. Um, you go out and you buy this big old house. Well. If, if again, that mortgage is taking a large percent of your income because you have the mortgage principle and interest, you have taxes, insurance, and then everything else that comes with the maintenance of the home, then you're really hindering yourself from one saving into having the ability to have flexibility later on down the road, with your life. So be very intentional and mindful about. How much house you're buying, uh, if you should even purchase, cause what if, what if you plan on moving again, if your residency is in Kalamazoo, Michigan, and you're from Florida and you don't necessarily like snow, then you may want to move. And so. Purchasing for a short amount of time generally doesn't make sense. You want to, the longer you own that home, the more fruitful it gets. if you're not expecting to live in that home for a very long time, then you should certainly consider renting, whether that's a quote unquote starter home with a growing family, or you're just in a situation where, you know, you're going to move to a different city. So consider those things as well. And then number five. Is not necessarily the most important thing, but I think it's the most underrated, aspect of creating some financial flexibility and freedom later on down the road in your forties and fifties. And that is open a darn brokerage account. What is a brokerage account? this is money that is post tax. You paid money on it and you're, you're putting it in an account just similar to like a checking account. You can put as much as you want in, you can take as much as you want out whenever you want. But you're going to have the ability to invest this money. So

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In a manner

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to invest in a company in a manner that is

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a checking account

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and potentially could earn you much more interest because you're going to invest in things like stocks, bonds, mutual funds, ETFs. And so depending on your risk tolerance and the time horizon and what goal you have for this particular account, generally, I call it like a large purchase account or flexibility account, where it's going to be a five, Plus or 10 plus year time horizon where you can get a little bit more aggressive, in the risk tolerance or the portfolio being built. this is going to be a great option to go ahead and build that and you're going to get, tax, preferential treatment. So instead of paying ordinary income tax on this particular investment, as long as you hold it for longer than a year, you're going to have capital gain rates, long term capital gain rates, which is generally less than your ordinary income. So if you're. Making under about 500, 000 a year, you're going to get a 15 percent tax rate versus, your ordinary income would be at about 24 percent as the tax rates stand now. So, so opening up a brokerage account is again, one of the most underrated. things that you can do in your thirties to set yourself up for some major flexibility. Later on, you have this brokerage account and you can go on vacations. You could potentially, maybe there's a business you've always want to start and you've been saving in this brokerage account for five, 10, 15 years. Well, this is going to be kind of that bridge to get that business up and running, or you want to retire early and you're not yet 59 and a half. This can be that bridge. if there's a particular. type of vacation that you want to take every year with your kids, whatever it is, this is a, this account has the ultimate flexibility. So make sure that you're considering opening up a brokerage account so that you can have that flexibility

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So those are the five things that I think people in their 30s should incorporate into their lives at a minimum to help set them up financially, for more flexibility and freedom in their 40s, 50s and 60s. so if you're in your 30s, let me know how those things are going. you can leave a review or you can email me at hunter at Palm Valley, wm. com love to hear from you guys. then also if you're in your forties, fifties and sixties and you feel like you've done a good job, what are those things in your thirties, that you have done to set yourself up successfully, to give you more freedom. And so like always, if, if you've been left with more questions than answers, feel free Feel free to reach out through my website and schedule a call at palmvalleywm. com. I love helping people, set themselves up for an early retirement or gearing into retirement. Mainly attorneys and physicians, but we like working with multiple different professions as well. hope you found this one valuable. We're going to continue to do more of these and have a few more interviews coming up here soon. It's that we have a mortgage broker coming on here in a few weeks. Also a real estate agent and the real estate industry is going to be, I think, shaken up a bit here, here in the summer as there's a big lawsuit, with fees and things of that nature. so I'd love to get their perspective on it and then obviously, where mortgages are going as far as how the Fed is moving rates and so on and so forth. So if you're still listening, and you continue to listen, I just want to again say thank you to that. and we'll see you in the next one. This podcast is for educational purposes only. This podcast is not meant to be financial or investment advice. If you would like help on your specific situation, please reach out to a financial, legal, tax, or insurance professional. And please keep Palm Valley Wealth Management in mind when making those considerations.