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Save Money in Your 20's and 30's - Your entire financial life will be easier

| December 18, 2020

Delayed Gratification aka - "The Marshmallow Test"

For the intended audience, reading this post and associated materials could be emotionally difficult. Not intellectually difficult. "Eat your vegetables" difficult. Be advised.

First Principles Thinking

Writing this post and reading Jonathan Clements excellent words on this topic (linked below) got me thinking. Many of us across age groups might agree that getting an undergraduate degree is a potentially very useful - perhaps critical - accomplishment for a young adult. Many then go on to a very organized profession such as medicine or law. Requiring several years more schooling for the advanced degree, and then followed by several still more years of what beginning to due the actual work you studied academically IRL, typically closely supervised in your early years working with actual humans, i.e. patients / clients.

Young adults who follow this path typically pass the "Marshmallow Test" with ease. They really just don't have time to play much and therefore time to spend much money on anything other than basics of food, housing, transportation but very little else. They go on the good path somewhat by accident, albeit with excellent work ethic.

Primary Audience for This Post

This post is for the rest of the twenty-somethings. With or without an undergraduate degree. (But, if you are reading this and you do not have an undergraduate degree and are currently working, I strongly encourage you to research your choices. Community colleges. Some perhaps with 4 year programs. Programs for working adults. Etc. It's getting tougher and tougher to go forward without at least that undergraduate degree.)

Job markets these days for new / "new-ish" graduates are in a state of flux. But let's just say you are fortunate. You have flown the nest. You are living on your own, with roommate(s) or by yourself. You have full-time work. Now what?


The author linked below calls this "Implement Pay Yourself First." Arguably Budgeting has to be the 1st step, not 2nd.  Track your expenses. While a month is OK, really better to track them for 1 year. Or, always! You won't pick up annual expenses unless you track all of them.  I'm a big fan of any electronic payment i.e. credit card etc. because in addition to possible points  rewards, there is a record. So when you are ready to input your expenses into any kind of tool - online or excel or even a paper ledger, you don't have to remember. The information is there! yay!

"Pay Yourself First"

Big advantage of Budgeting is to control your spending "automatically." And, another one is paying yourself first. Most people these days get paid EFT. If you do, set up a withdrawal to a savings "bucket"  2-3 days after your EFT funds are available. That way, your monthly savings "disappears" and you're not emotionally counting it as available to you. If your "Pay Yourself First" amount is too small, cut your expenses and / or augment your income.

Emergency Fund

During / post Pandemic, the need for this should be obvious. More is better. 6 months minimum. 1 year is good. 2 years is better. But I'm OK with starting to invest once you have 6 months. Dip your toes in the water.

Set up health and life insurance.

Unless you have inherited wealth, or won the lottery (in which case you need different kinds of financial planning) becoming unable to work due to sickness or accident might probably be your single biggest financial risk. Some employers have LTD. Long term disability insurance. Some professional associations have it. Or you might qualify and find useful an individual plan. Research, then act.

Do you "need" Life Insurance?

Life insurance is for the survivor, not for you. If someone else is dependent on your earning power, they need it on you. Term insurance is fine until / unless you have estate issues. That's a different audience and time in life.

Manage Credit

A good low-interest, no-fee credit card. Pay off debt judiciously. Typically, the highest interest charge first. Do your research. This is a separate topic all by itself.

Initial Retirement Planning Choices - possible "free money!"

If you are in the fortunate category of receiving a match for any retirement plan contributions, get going on that as soon as realistic. 

Home Ownership vs. Rent

Another topic unto itself. If it is realistic to stay in one physical location for multiple years and you can qualify and the above steps are in order, great. Start your research on finding something to own. Make sure you understand all the numbers. Especially "Emergency Fund #2" for home repairs. Should be separate from your initial Emergency Fund

Track Your Net Worth

By the time you get to this step, you are rolling.

Do You Need Financial Planning? Or a Second Set of Eyes?

Maybe. Maybe not. See links below. In most professional and high-achievement fields, many proactively periodically want - or some fields might require - another opinion. For the DIY or users of only online financial resources, read the linked posts. it is likely another human will observe or form an opinion different than your own. Does not make you wrong and them right. But might be useful food for thought

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