083: Monetary Moments – Your 20s and 30s

Full Transcript

Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:
All right. Hey, hey, hey, welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. Today, we are going to be starting a new series, and we’re going to call that series, Monetary Moments with Austin and Josh.

Josh Robb:
So, that means that-

Austin Wilson:
Oh, yeah. There’s a lot of moments with money.

Josh Robb:
… each week, we’re going to be putting out a time frame. So, today is the 20s and 30s, so if you’re in your 20s and 30s, this is what we’re focusing on.

Austin Wilson:
Correct.

Josh Robb:
And that age group is the only people we ever want listening to this.

Austin Wilson:
Correct. Nope, not really. This is probably good things for everyone to hear, and you should probably listen to the whole series to get an idea of just some overall financial planning thoughts to keeping your mind going forward, because if you’re in your 20s and 30s now, this is going to be very applicable, but guess what? You’re going to be in your 40s and 50s sometime too-

Josh Robb:
Yep, and you should not what to look for.

Austin Wilson:
… and you should probably listen to those episodes to know what’s coming.

Josh Robb:
Yep.

Austin Wilson:
So, it’s going to be a fun series, it’s a four-part series, it’s going to go 20s and 30s in this episode, and then upcoming, we’ll talk about the 40s and 50s, then we’ll talk about the 60s, because a lot happens in your 60s, and then we’re going to talk about the north of your 60s, called your 70s-plus.

Josh Robb:
70s-plus.

Austin Wilson:
So, it’s a four-part series, and this is-

Josh Robb:
Four-part series.

Austin Wilson:
… only our second series of continuing things we’re doing, and we’re really excited to be putting it out.

Josh Robb:
Yeah. And that’s cool because everybody is some age, so applies to everybody.

Austin Wilson:
Everybody is some age at some point-

Josh Robb:
At some point.

Austin Wilson:
And everybody’s a lot of ages throughout their life. So, I think we’re covering a pretty broad base here.

Josh Robb:
Yep.

Austin Wilson:
So, let’s just dive into it. So, this episode is focusing on those in their 20s and their 30s.

Josh Robb:
Yes.

[1:58] – Debt

Austin Wilson:
So, first up topic, let’s talk about debt a little bit. So, debt is a very controversial topic.

Josh Robb:
Yes.

Austin Wilson:
I think generally we probably feel that… Especially, young people probably have too much.

Josh Robb:
Everybody has too much. If you have debt, it’s too much.

Austin Wilson:
Exactly. So, let’s kind of just go into some thoughts about debt in your 20s and 30s, and I’m going to start us off, Josh, by saying, pay down the debt you have, as my first point here. So, what could I mean by that?

Josh Robb:
Let’s start there, 20s, you’re probably coming out of college, and if you’re an average person in the United States, you’ll probably leave college with some form of college debt. And so, that’s the primary debt that most 20-year olds have, is that they have some sort of educational debt. And so, pay that debt off when you have it. And there’s other ways still, we’ll get into that in just a minute. And then, when you head into your 30s, there’s continuation college debt for a lot of people, and then you may see cars, homes, and maybe some other form of credit card debt as situations in life happen.

Austin Wilson:
Correct.

Josh Robb:
So, we’re going to focus in on a couple of those things, but the first one is that student debt, student loan.

Austin Wilson:
Yes.

Josh Robb:
So, as I was looking up for this episode, and I was looking at net worth, the average net worth is actually negative-

Austin Wilson:
Negative.

Josh Robb:
… for quite a few years-

Austin Wilson:
Meaning?

Josh Robb:
… in your early to mid 20s, and actually into your 30s, because student loan debt is a big chunk of that piece.

Austin Wilson:
Right.

Josh Robb:
You don’t have a lot of assets, but you have that debt that you have. And it’s, in our opinion, a positive debt, and that there’s an asset that results from that debt.

Austin Wilson:
Correct.

Josh Robb:
So, my education allows me to get a higher paying job, because I went through that. So, that debt provides some sort of reimbursement opportunity for it.

Austin Wilson:
Right.

Josh Robb:
Another version of debt that’s probably not as good as credit card debt, I really don’t get any benefit from that debt that I incurred.

Austin Wilson:
Correct.

Josh Robb:
So, there’s better debt than others, so we’ll look at that. But in general, 20s to 30s, you’re just starting out, you probably have fewer liabilities at that point. So, like you said, focus on paying down that debt when you have some cashflow.

Austin Wilson:
Right.

Josh Robb:
So, there’s ways to do that. We’ve talked about debt in prior episodes, and so we’re not going to go in too much detail, but there’s a snowball method where you take your smallest interest payment and you pay that, and you knock that off… Or the smallest balance, I should say, knock that off, and then once that debt’s done, you take whatever that payment was, and move it to the next one, and then you just snowball your way from the smallest payment amount to the largest.

Austin Wilson:
And that’s a really good mental way to do it.

Josh Robb:
It’s shown to be one of the more successful ways of completing all debt payment.

Austin Wilson:
Because you get your wins, right?

Josh Robb:
Yep. There’s another version called the avalanche, which you actually take your highest interest payment and focus on that one, and pay it down, and then work your way down. That one gives you the best total return for your efforts, but it’s less likely to succeed. Actually, less people are successful in that you have fewer wins early on-

Austin Wilson:
Exactly.

Josh Robb:
… because you’re focusing on the higher debt.

Austin Wilson:
Yep.

Josh Robb:
So, that’s it, but in general, paying down debt, you’re right.

Austin Wilson:
So, in general, student loans are probably the highest portion, you mentioned a couple, maybe you took out a car loan to buy a car, maybe you have some credit card debt, maybe some people in their 20s, but definitely in their 30s are buying houses, so you have a mortgage. Think about paying off the debt that has, A, higher interest rates first, and, B, a zone of depreciating or non-existent asset in the form of credit cards, there’s no collateral there. So, pay those things off first.

Things like mortgages, it’s an understandable debt. Usually, we say, “Hey, get a fixed rate mortgage, shorter term, the better.” And that’s a decent kind of debt, but it’s not. Even that, if you could pay it off… Of course everyone would want to, but the reality is, that most people don’t have one to $200,000 or more in today’s market just sitting around. My other point about this is, avoid taking on new debt. So, when you get that supposed student loan paid off or whatever, get that car paid off, whatever that may be… Exclude the mortgage for now, but other things kind of paid off, this is a great opportunity to use that as a time of stability and not take on another car payment. And, hey, if you don’t have to, if you have a great job in your field, don’t just take on new school for the sake of taking on new school and going into debt for it, because that is going to be stuff you have to pay the piper eventually.

So, I would say, this is a great time, and once you get to that point, to avoid taking on new debt, and generally, we would say, avoid credit card debt… I’m saying, aside from using it every month and paying it off every month, but avoid longer term credit card debt at all costs for everyone, always.

Josh Robb:
Avoid paying interest on credit card debt.

Austin Wilson:
That’s terrible.

Josh Robb:
Yes.

Austin Wilson:
Yes. So, those are kind of our thoughts on debt, it’s definitely a discussion that is evolving for those in their 20s and 30s. The likelihood of any material student loan help coming through seems pretty low, it keeps being talked about, but there’s-

Josh Robb:
At this point, it’s low.

Austin Wilson:
At this point, it’s pretty low. Don’t count on getting bailed out, you have to put in the work, and that’s what you do.

Josh Robb:
Yeah. And when it comes to student loan debt, we’ve talked about it in the past, but it’s hard to avoid it at this point in time. Education is so expensive and most careers at this point require a four-year degree. And so, at this point, that is one of those things that… It’s hard to get out of college with no debt. There’s scholarships, there’s a lot you can do, you can work through college, but sometimes, it’s just worth weighing the future benefits of, what will my career offer? And if I get debt now, can I pay it off?

[7:55] – Emergency Fund

Austin Wilson:
Yeah. And we’re in an interesting economy right now where everyone is making decent money, and there are a lot of jobs out there. So, if there was a time to not feel like you needed a degree to get a job… I mean, you can work at restaurants, or sporting goods stores, or Lowe’s, or whatever, and you easily make an easy 15 bucks an hour, 20 in a lot of cases, and that’s dang good money. So, that’s something to think about. Next up, Josh, emergency fund.

Josh Robb:
Yes.

Austin Wilson:
I think this is something that is important, and it’s not something that should be overlooked, and this is the time of your life, in your 20s and 30s, to build it, so that when you need it, it’s there, right?

Josh Robb:
Yep. So, if you’re moving into creating your own new life, and you’re not used to those unforeseen expenses coming up, you may not have prepared for that, so this is a great time to start building that up. You may be used to being at home, and, “Oh, no, this happened,” and then you say, “Hey, mom or dad, I need some help,” and they say, “Okay, we’ll help you.” When you’re out on your own, and you say, “Okay, oh-oh, I got a flat tire, I have a repair, I have something,” you kind of need to be prepared for that. So, you’re right.

Austin Wilson:
Things happen.

Josh Robb:
20s and 30s, when you do have… A lot of people, they have yet to maybe get married, or have kids yet, you have fewer of those expenses, now is a good time to build up that emergency fund.

Austin Wilson:
So, the natural next question is then, Josh-

Josh Robb:
Yes.

Austin Wilson:
How much should I have in my emergency fund?

Josh Robb:
About $1 million.

Austin Wilson:
Wow. That will cover a lot of emergencies.

Josh Robb:
All emergencies. No. You start off with whatever you can to get that buildup. A lot of people have $1000, is what they use as a target, nice round number, but in general, the target is, and we’ve talked about emergency funds again in the past, three to six months living expenses.

Austin Wilson:
Right.

Josh Robb:
If you’re a single person, or you’re in a high risk career, where you could lose your job quickly, six months is where you want to lean. If you have multiple incomes in your household, or you’re in a easy to find replaceable job, you could be close to two to three months. You decide where your comfort level is, but three to six months is the target. But again, you live in college, what’s your target? Just enough to cover those unforeseen expenses. Can I have enough money in that if I need a new tire, or if I’m renting… You don’t have to worry so much about repairs, but the things that if something could go wrong, I take care of it.

Austin Wilson:
Yep. Absolutely.

Josh Robb:
So, whatever that number is for you, where you’re living your lifestyle, make that determination start there.

Austin Wilson:
And something to think about with that is, that three to six month number is basically… Use your budget, and you can… Take out your non-essentials right? Use your base budget, these are the non-

Josh Robb:
If I had to live for three months-

Austin Wilson:
I need my-

Josh Robb:
… in a tight situation-

Austin Wilson:
… mortgage or rent, food and groceries, insurance, yadda, yadda, yadda, the basics.

Josh Robb:
Donuts.

Austin Wilson:
Yeah, donuts, that’s a non-negotiable. Then multiply that by three or six. You don’t need to use what you’re actually spending, there’s a lot of fluff in there.

Josh Robb:
Or your gross pay. Don’t look at your paycheck, look what you’re spending.

Austin Wilson:
Right. So, go with that. But also think that if you were to need to dip into that, there is a lot of likelihood that could go further than that, because the chance… So, here’s what I would do. If I, whatever happens, needed to use my emergency fund, lost my job, people like me would think, “Hey, I have this for a reason, so I can use it when I need it, this is what it’s for.” But in the meantime of finding that ideal job or whatever, boom, I’m working at Lowe’s, boom, I’m working at McDonald’s. You can slow the drain and slowing it…

Josh Robb:
You can sell some stuff. Garage sale.

Austin Wilson:
Exactly. So, that’s something that I think is another lever you can pull. Obviously, don’t count on it. That’s what the emergency fund’s for, you can count on it, but try and slow that draw if you can, because that’s less you have to rebuild up once you’re getting back stable. So, we kind of touched on it, but what is an emergency fund used for? Emergencies, right?

Josh Robb:
Yes.

Austin Wilson:
So, that can be the unexpected flat tire, a couple of hundred bucks right off the bat, got to come up with it. Refrigerator breaks. Wow, that happened to me recently, that’s not cheap.

Josh Robb:
Nope.

Austin Wilson:
I crashed my car, and it’s old, and I didn’t have collision insurance, so I need a new car.

Josh Robb:
Yep.

Austin Wilson:
That’s a real one. Health bills from medical procedures, and doctor’s appointments, and stuff like that. Those are all real expenses that aren’t necessarily part of your monthly budget, that’s exactly what that’s there for.

Josh Robb:
And you made a good point, things that are not normally in a budget, right? It’s an emergency. So, if you keep tapping emergency fund because I ran out of money, and I need to buy groceries, that’s not quite right.

Austin Wilson:
Yeah, your budget’s wrong.

Josh Robb:
Your budget’s wrong. Your spending needs to be figured out. Emergency is, “Oh, no, this happened,” which doesn’t normally happen.

Austin Wilson:
Exactly.

Josh Robb:
Where do you need it? Where should it be?

Austin Wilson:
Well, there’s a lot of options. We’ve actually talked about this in an account types episode before, what I do, and I think you do the same. Nowadays, there are good options to digitally store this money in an online only savings account. There’s a number of different providers that do that, but you generally get a little bit better interest rate. The provider typically doesn’t have locations to be funding, so they can offer a little bit better rate to be competitive. So, you just really get a fraction. You get much better than your normal bank savings account, but you’re still earning less than a percent in today’s world. It’ll go up as interest rates go up, or go down as interest rates go down.

That’s what I do. It’s easily accessible, you can get to it quickly and easy. It’s stable, and secure, and ensured. You can also do things like, you keep it in a savings accounts, totally fine. Just say, your bank, totally fine. I wouldn’t necessarily leave a ton of it in a bag under your bed, you could do some of that, but I would say, not a great idea for a lot-

Josh Robb:
If you’re going to do that, at least get a safe.

Austin Wilson:
Exactly. Another thing is, you could open up a taxable investment account, and I would say, generally leave it very conservative in what you have there invested. But maybe you could invest it in some sort of interest bearing, or ETF, or something like that-

Josh Robb:
Or people layer CDs, anything where you can get a little return is fine as long as the access is there, because that’s the key.

Austin Wilson:
Liquidity.

Josh Robb:
Emergency fund, you want to be able to access your money.

Austin Wilson:
Yup.

Josh Robb:
Along with it, layering it. Maybe you have a little bit at your local bank, a little bit online, or a little bit in a brokerage account, because you know there’s a delay, it’s fine. Just make sure that if something happens, that money I could get to to take care of the need.

Austin Wilson:
Absolutely.

Josh Robb:
That’s, again, where credit cards come in, is they’re that in between. I could use my credit card to fix an emergency, and then pay off the credit card with my emergency fund.

Austin Wilson:
Don’t let that credit card bill outstanding earn interest.

Josh Robb:
Right.

Austin Wilson:
Exactly.

Josh Robb:
If I know, hey, I got a flat tire, well, I got my emergency fund, but it’s three days to move it from my online to my checking account, I’ll just pay with a credit card, make that move, and then in three days, I can knock that debt off.

Austin Wilson:
And one more thing to point out when it comes to the emergency fund is, it’s okay to use it, right?

Josh Robb:
Yes.

Austin Wilson:
Don’t let it stress you out to dip into your emergency fund, because that’s what you put it there for.

Josh Robb:
When it’s an emergency.

Austin Wilson:
When it is an emergency. Don’t dip into your emergency fund for non-emergencies, for normal bills, or whatever, that’s just not what it’s for. But when you do have those things, this is precisely what you put it there for, and it should give you peace that you have it there, right?

Josh Robb:
Yes.

Austin Wilson:
So, it’s okay to use it. Don’t feel bad about yourself for these things happening, that’s why you prepared.

Josh Robb:
Yes.

Austin Wilson:
So, it’s okay to use it for emergencies, but the key there, Josh, is for emergencies, right?

Josh Robb:
Yes. Definitely.

[14:37] – Investing

Austin Wilson:
All right. This is kind of what I feel like is going to take a lot of our time and discussion today, but investing in your 20s and 30s.

Josh Robb:
Yes.

Austin Wilson:
It’s very important. This is how you build, A, the habits, and, B, the base numbers that compound for years, and years, and years to come. So, kind of talk a little bit about investing in your 20s and 30s, and how that sets you up for a successful retirement, or future, in general, how do you think about that as a financial advisor?

Josh Robb:
Again, we’re talking to 20 and 30 year olds, so, for them, it’s habits, right? I talk about this a lot, is building up those habits. And the biggest thing for someone that age is, you have a lot of time to let it grow. And so, what we want to see happen is, hey, let’s get in those habits of investing where you can let that money compound. So, the big thing right now is the cost of missing out. Your biggest risk is the cost of missing out on those compounding years.

Austin Wilson:
Right.

Josh Robb:
All right. So, I’ve run some different numbers, and there’s all different ways, but if you get an 8% return, if you put $6,000 in, if you start at age 20, at age 65, you’re going to have two and a half million dollars, if you just put $6,000 in a year. And the reason I use 6,000 is, that’s the Roth contribution amount for a Roth IRA, an 8% return. But if you just wait until your 30s, you lose out on almost $1.4 million for waiting 10 years. So, the cost of waiting matters. Each year you wait, that compounding is less for that dollars that you were going to put in that year.

Austin Wilson:
Yeah. One thing that as a high level spitball, I like to keep on there is, for every dollar that you put away that you don’t need to touch for 30 years, it multiplies by 10 on its own, if it’s invested in the market. That is craziness, and that’s why the more dollars that you can put away that you don’t need to touch for 30 years… That’s precisely this period of someone’s life, 20s to 30s, the more money you can put away now, the more that money is being multiplied by 10, just for sitting there growing.

Josh Robb:
Yup.

Austin Wilson:
And that’s awesome.

Josh Robb:
So, talk about that. So, there’s risk involved.

Austin Wilson:
Oh, yeah.

Josh Robb:
There’s a difference between volatility and risk.

Austin Wilson:
Yeah. So, obviously, there’s a lot of fear surrounding the stock market, and I think a lot of people in their 20s and 30s, they were scarred by ’08, ’09, right? This is probably when a lot of them were just starting their jobs, maybe they had just started a retirement account, or their parents were in the market and in the economy at that time, and they’re seeing it as well there, and they hear or saw all of these stories of, the equity market fell 50-something%, right? The S&P 500. That’s real, and that happened within our lifetimes, and I think it shaped the way a lot of people in this age range invest.

But the truth of the matter is that, given enough time, historically speaking… Now, there’s no guarantee of future returns, but historically speaking, the US stock market has always rebounded. And what’s the statistic? There has never been a 20 year period for the US stock market where you’ve had a negative return.

Josh Robb:
Correct.

Austin Wilson:
Never.

Josh Robb:
Yeah. The actual number I think is 17, but they use those… 10, 15, 20.

Austin Wilson:
Right.

Josh Robb:
And so, the 20 year, if you look at any 20 year period in the history of the stock market, you’ve never lost money by investing in the stock market over 20 years.

Austin Wilson:
And the stock market does go down.

Josh Robb:
Yep.

Austin Wilson:
But the reason that you can get a eight, nine, whatever, seven, eight, 9% return over time, historically, is because you’re taking on that risk. And if you’re not taking on the risk, if you’re not willing to take on the risk, you’re not going to get that kind of return, and that’s just going to mean that you actually have to put more of your dollars to work by putting more money in and out of every paycheck every month, every whatever, where if you have a higher rate of return, because you’re taking on more risk, you can put in less, and have more money at the end.

Josh Robb:
Yep. So, what most people equate to risk, they’re actually just talking about volatility.

Austin Wilson:
Correct.

Josh Robb:
Talking about the ups and downs swings. And so, for a 20 and 30 year old, that’s a minimal risk. The volatility over the lifetime of that investment… Again, we’re talking retirement savings, 401(k), those type of things, as a 20, 30 year old, you have that 30-plus year timeframe, and so the volatility risk is minimized. Your risk is on the risk of missing out-

Austin Wilson:
Yes.

Josh Robb:
On missing out on those years to let it compound.

Austin Wilson:
And actually, volatility in your 20s and 30s is a good thing.

Josh Robb:
Yes.

Austin Wilson:
If you look at how the stock market has worked over time, and if you periodically invest, like we advise about everyone to be doing, you’re putting in money, every paycheck into your 401(k), you’re putting money every month, or whatever into your Roth, you’re putting money in periodically on set times, and you don’t care what the market’s doing, because you’re just putting money away, you are doing what’s called dollar cost averaging. So, as the market fell 50% in ’08, ’09, you were buying shares at a 50% discount that would eventually recover, so you’re buying things cheap, and you’re buying more shares.

Josh Robb:
Yep.

Austin Wilson:
And then, as the market gets a little bit more expensive, you buy less shares, and you buy less shares, but you’re consistently buying shares, and you’re buying them at every single price. So, over time, your returns as an actual investor are actually different than the market, because you’re buying things when they’re cheap, you’re buying things when they’re expensive, but you’re always buying, but you’re taking advantage of that volatility. And that is actually the key to long-term wealth growth, right? So, you are buying when the market’s up, you’re buying when the market’s down, but you’re always buying, and the smoothing of that is the key.

So, you’re not worried about volatility in your 20s, or your 30s, for that matter. If you were to see that last spring, 30% market drawdown, right? Freaks people out, in your 20s and 30s, if you had any cash lying around, and you would have put that to work, what would’ve happened?

Josh Robb:
You would’ve been fine.

Austin Wilson:
You would’ve been-

Josh Robb:
No, you would’ve been fine.

Austin Wilson:
You would’ve been great.

Josh Robb:
You would’ve been great.

Austin Wilson:
So, historically speaking, volatility is actually an opportunity for those in your 20s and 30s. Now, that does change, and we’ll talk about this in future episodes, but as you get a little older, there is some volatility risk, especially as you near that retirement age, but we’re going to hit those when we get to those episodes. But the stock market going up and down is not something to be feared in your 20s and 30s.

Josh Robb:
That’s true. And in general, 20 and 30 year olds, you have the ability to make mistakes and recover from them. Like you said, there’s… Look, and somebody we’ll talk about the 50s and 60s, and 70-plus. There’s a different mindset, is I can take investment risk because the ability for those investments to have time to play out. And if I do have a time where the markets are down, I have time to recover. And if I’m averaging in, I’m going to not only recover, but I’m going to benefit from those lower prices.

Austin Wilson:
Right.

Josh Robb:
So, yeah, that’s great. So, what are some targets that we can have? And again, when you talk about it, everybody’s situation is different. So, these are just rules of thumb kind of industry standards, but what are some targets for 20s and 30 year olds?

Austin Wilson:
And we’re going to look at this as a multiplier of your salary, so it’s not a dollar amount. Dollar amounts are going to be different for everyone, everyone’s salaries, situation, is going to be different, but if you look at in terms of multipliers of your salary, by the time you’re 30… So, that’s halfway through the time period we’re talking about today, and that’s pretty much where I’m at.

Josh Robb:
Yep.

Austin Wilson:
You should have, according to many experts, around one times your salary.

Josh Robb:
Yep.

Austin Wilson:
So, that’d be a gross salary.

Josh Robb:
So, if I’m making $50,000, when I turn 30, I should have $50,000 saved in some vehicle for retirement.

Austin Wilson:
Saved for retirement.

Josh Robb:
Yeah. So, Roth IRA, Traditional IRA-

Austin Wilson:
Sum them up.

Josh Robb:
SIMPLE IRA, SIMPLE IRA, 401(k), it doesn’t matter, but it’s retirement investments one times myself.

Austin Wilson:
Correct.

Josh Robb:
Okay. So, if I’m in my 20s, that’s my goal. That’s my target.

Austin Wilson:
That’s what you’re working towards.

Josh Robb:
I’m working towards, when I hit 30, 1X my salary.

Austin Wilson:
And if you have more than that, you’re ahead of the curve, and if you’re a little bit behind that, you just have a little bit of catching up to do, but that’s kind of a high level bogey.

Josh Robb:
On target.

Austin Wilson:
Yep. So, let’s flip flash forward, so you’re about to turn 40.

Josh Robb:
Yep. That’s close where I’m at.

Austin Wilson:
Okay. So, we’re right here. By the time you’re about to turn 40, the goal is about three times your salary. So, you’re actually going to be putting away a lot of money in your 30s, but that money that you put in your 20s has also grown a good bit since then, so about three times your gross salary. And again, that is this whole suite of retirement accounts, that could be. Yeah, Roth, traditional IRA, that could be 401(k), and that includes your employer contributions that went into there.

Josh Robb:
The total assets.

Austin Wilson:
Total… And that’s just retirement assets.

Josh Robb:
Yep.

Austin Wilson:
So, that is kind of where we think you should be from an investing standpoint. And again, it’s going to be a little bit different for everyone, but these are just very high level targets that people can have to realistically hit some goals.

Josh Robb:
And as we talk through that… And we’ll have some targets and checks for you later, but the minimum you should be doing, what is that for investing?

Austin Wilson:
We would say the minimum for anyone who has it at their disposal, is you should put in enough money into your employer retirement plan to get your company match.

Josh Robb:
Yep.

Austin Wilson:
Regardless of the status of anything else you’re doing, even before you’ve paid off your student loans, before you’ve done any of that stuff, that is the bare minimum.

Josh Robb:
Yeah.

Austin Wilson:
That’s free money. You can’t beat free money.

Josh Robb:
It’s free money. It’s leaving some on the table you can’t get back. The power of compounding is stronger than that debt payoff, in our opinion.

Austin Wilson:
Right.

Josh Robb:
And so, there’s situations that… For all these things, there’s exceptions too, but in general, for most people, at least get that company match, and then target in on your other goals, because that’s money you’re leaving on the table that could be compounding as well as your investments.

Austin Wilson:
And it’s already setting up that habit. It’s automatic.

Josh Robb:
Goes back to the habits.

Austin Wilson:
You won’t even think about it, you won’t even see it in your paycheck, and you’re building that habit early. So, yeah, I think generally speaking, Josh, when it comes to investing in your 20s and 30s, there is way more risk to not do it than to do it.

Josh Robb:
Yep.

Austin Wilson:
You need to do it, and that’s… The thing is, our generation, we do not have the luxury that prior generations did when they’re looking at retirement planning and sitting around saying, “Okay, yeah, I’ve had a 401(k) for 20 years, the last half of my career, whatever, but really the bulk of my assets are coming from this pension. I have this pension, and I got the bulk of my retirement assets, they’re hundreds of thousands of dollars to do what I need, or I can take annuities, whatever I want to do.”

Josh Robb:
Yep.

Austin Wilson:
We do not, generally speaking… Not for everyone, but generally speaking, have that at our disposal, it’s become much more advantageous for employers to not offer that. So, this is why it takes more effort on our part as individuals and as investors in our 20s and 30s.

Josh Robb:
Yep.

[25:17] – Insurance

Austin Wilson:
So, next up, Josh, one of your favorite topics in the entire world, and we’ve had discussions about this on the podcast before, but at a high level, what do life and disability insurance decisions look like in your 20s and 30s?

Josh Robb:
And if we look at insurance in general, right? So, you leave college, or leave high school, and you’re heading into your career early 20s, right? You’re going to start needing to get coverage on things, right? You may be leaving your parents’ insurance at some point in your early 20s, so car insurance, those things matter too. A renter’s insurance is very important. So, there’s a lot of insurance that you’re going to need to get that maybe someone else had for you for a little bit.

Austin Wilson:
Right.

Josh Robb:
Renters insurance is super cheap, covers your stuff inside wherever you’re renting. That’s important. The other thing is car insurance. You may be covered-

Austin Wilson:
That’s a legal requirement.

Josh Robb:
You have to have it. We had a whole thing on this in another episode, but you’re going to need to get your insurance as well, but let’s get outside of those insurances, life insurance, disability insurance. So, statistically speaking, statistically, you have a higher chance of being injured and disabled than passing away early.

Austin Wilson:
Mm-hmm (affirmative).

Josh Robb:
So, disability insurance is a very important piece. And so, some companies offer that, if they do great, that’s usually cheaper.

Austin Wilson:
Right.

Josh Robb:
If not, you can get your own, but disability insurance is very important to have.

Austin Wilson:
And it’s affordable.

Josh Robb:
It is affordable, and it provides income if you’re unable to work. So, that’s big. Then life insurance is the other piece. Now, life insurance is only needed as a lump sum to help cover either expenses at end of life, or to provide for someone relying on you. If you’re a single person on your own, life insurance, isn’t as important as disability insurance, because disability insurance says, “Hey, I’m still around, and I still have expenses, but I can’t work right now.”

Austin Wilson:
So, a goal for a single person who has no dependents and all that stuff, is essentially just… You just need enough life insurance to cover funeral expenses and any debts you have.

Josh Robb:
Yep. That’s pretty much.

Austin Wilson:
That’s about it.

Josh Robb:
Yep. So, between the two, most people don’t think too much about it, that disability insurance is pretty important.

Austin Wilson:
Right.

Josh Robb:
Take advantage of what your employers offer, right? There’s a lot of times, short-term or long-term disability insurance, they may offer life insurance there. They may give it to you as a default, or they may have the ability for you to buy into it. Those are all important health insurance.

Early 20s, you may be on your parents still, but at some point in time, you’re going to need to get your own, check with your employer again, do they offer insurance? If not, I got to go on the open exchange market and find my own. Those are important. Don’t just think, hey, I’m young, and healthy and invulnerable, I’m never going to be sick, those are expensive costs, and it goes back to that debt.

Austin Wilson:
Yep.

Josh Robb:
You do not want to get into debt because you didn’t have the insurance.

Austin Wilson:
It’s good for every young person to discuss with their parents the situation, because oftentimes, their kids will just stay on their parents’ insurance, even though they’re offered at work, because of whatever, but the reality is that, you may be offered a better insurance, or a cheaper insurance through your employer, and then you can save your parents money, and I’m sure they would be happy about that. It’s good to be open and honest about these discussions, and I think that this is an opportunity to have just very clear candid conversations with your parents as you’re a young person going through all of this.

Josh Robb:
But consider those essentials. So, if I’m looking at my budget, those are things… They’re not discretionary, I need to have insurance to have to be part of my fixed expenses in my budget.

Austin Wilson:
Those are the things you have covered in your emergency fund for months and months, or whatever, right?

Josh Robb:
Yes. Right.

Austin Wilson:
Yeah. They are essential that’s built into the non-negotiable.

Josh Robb:
Yep.

[28:48] – Estate Planning

Austin Wilson:
All right, next up. This is the part that people may not think about in their 20s and 30s, but are actually pretty important, and actually pretty simple. So, let’s talk about estate planning, and kind of how that… It’s going to tie into a little bit with taxes as well. So, Josh, as far as estate planning goes, what do people in their 20s and 30s really need to consider?

Josh Robb:
So, estate planning is just saying, “Okay, if something were to happen to me, what do I want to happen to all the things I’ve accumulated, my retirement assets, my physical assets, all that.” So, estate planning is just really setting those documents in place. So, for a young person in their 20s or 30s, probably a will is really all they need. There’s a lot of additional estate planning you can get into, but usually, that’s later down the road, we’ll talk about it in the future episodes.

But for a 20 or 30 year old, a will just directs the executor, whoever’s in charge of your estate, what you want, what your wishes are. The nice thing about a will, is it helps bypass probate for a lot of things, if you title things correctly and have everything done, as you can get things to go around the court system, which is just slow, tedious, and can be expensive. So, will should just say, “Here’s my stuff, here’s what I want to happen to it.” And you make sure that, when possible, you title those correctly.

So, for instance, a 401(k), the 401k needs to have a beneficiary. If you’re in your 20s or 30s, and you are single, you need to choose somebody, because if not, it’s going to go through the probate system, and they’re going to pick for you, you won’t pick.

Austin Wilson:
And you can’t pick your dog.

Josh Robb:
Yes, it has to be a person. And so, those are the things that are important for estate planning, the things where just… Wills or not, you’re talking about end of life, a lot of people push that off, but it’s very important to have, because you’re going to put a lot of burden on whoever gets put in charge of that if you’re not clear on your wishes.

Austin Wilson:
And you know what else happens in your 20s and 30s, a lot of people get married and start families-

Josh Robb:
That’s true. Yes.

Austin Wilson:
… as we both did. So, as you’re in that phase of life, which is very much in the 20s to 39 range, or whatever, it is very important to have wills because that will determine what would happen to your family, should you pass away, yes, but also what would happen should you both pass away to your kids.

Josh Robb:
Who’s going to be in charge of them? Who’s going to raise them?

Austin Wilson:
Yeah. Your guardianship or whatever for all of that. So, that is actually something that is even more important as a parent to think about. So, it’s not something to skip.

Josh Robb:
Mm-hmm (affirmative).

Austin Wilson:
It’s just not a box to skip.

Josh Robb:
No, don’t. Again, it’s relatively easy, not that expensive.

Austin Wilson:
It’s not expensive.

Josh Robb:
And should just take a day or two of thoughts and going and meeting with an attorney. Sit down, if there is a family, sit down together and talk through your wishes, make sure you’re on the same page, and then go in and have an attorney draft the will. It’s not too hard to process.

[31:33] – Taxes

Austin Wilson:
Yep. All right.

Josh Robb:
Taxes.

Austin Wilson:
Taxes.

Josh Robb:
Yes-

Austin Wilson:
Taxes.

Josh Robb:
Everybody loves taxes. So, in your 20s and 30s, you’re probably in the lower income of your working career, right? You start off working through. So, the best things to do are find ways to take advantage of the lower tax brackets while you’re in it.

Austin Wilson:
Yes.

Josh Robb:
So, that comes back to that Roth IRA, we’ve talked about-

Austin Wilson:
Post-tax dollars.

Josh Robb:
Yes. So, get that match in your 401(k). If they offer a Roth option, go ahead. Again, you’re putting money in after tax, you’re going to pay the tax on that at a lower tax bracket than you probably will be throughout the rest of your working career. Taxes are also important in that as you look through… Maybe if you have an inheritance, anything like that, in your 20s and 30s, taxes are great when you’re realizing gains. If there’s not a step up, and you have this high cost basis, that’s probably a good time because you may pay zero to 15% tax, instead of a higher one. So, be aware of taxes, but in general, you’re probably in a lower tax bracket than you’ll experience during your working career, so you utilize that.

Austin Wilson:
As you get through a year or two of tax returns, if you’re finding yourself owing money for taxes, you should probably adjust your withholdings to withhold a little bit more. If you find yourself getting gigantic refunds, you should probably be withholding less. Just ideally, we would tell everyone, in a perfect world, you’re not loaning the government-

Josh Robb:
Zero.

Austin Wilson:
Yeah. You’re not loaning the government money for free, and you don’t have to… Oh, so it would be zero, but you should just aim on the side of a teeny refund every year and adjust your withholdings accordingly.

Josh Robb:
Yep. A lot of people say, “Well, I like getting that big refund check, which is fine, it’s a forced way of saving in a sense, as long as you don’t blow it all when you get it, but that’s a way of putting money aside. But you’re getting zero interest, you just get the same amount of money withheld back. So, it’s just, like you said, target trying to break even on that.

Now, if you own your own business, or have some sort of supplemental income, self-employment, it’s a little harder to do that, because you probably have ups and downs. So, you have to caution on the side, you don’t want to pay extra for penalties to the government. So, do estimated taxes and all that fun stuff, but in general, like you said, do your best to minimize taxes.

Austin Wilson:
Yes.

Josh Robb:
Everybody likes to do that.

Austin Wilson:
Of course.

[33:53] – Dad Joke of the Week

Josh Robb:
All right. What do you got for me? Dad joke of the week.

Austin Wilson:
It’s more of a dad thought of the week. So, Josh, yesterday, I spotted an albino Dalmatian-

Josh Robb:
Albino Dalmatian. Okay.

Austin Wilson:
It was the least I could do for him.

Josh Robb:
Could you spot it? I like it.

Austin Wilson:
Speaking of that, apparently, Cruella is this awesome movie-

Josh Robb:
The new series?

Austin Wilson:
New movie on Disney Live-Action.

Josh Robb:
Okay.

Austin Wilson:
People are freaking out because it’s dark.

Josh Robb:
They like it. Oh, is it really?

Austin Wilson:
Freaking out, because it’s dark. I’m like, “What did you expect?” Her name is Cruella, cruel-

Josh Robb:
And if you saw the cartoon-

Austin Wilson:
And the cartoon, she’s-

Josh Robb:
… she’s crazy.

Austin Wilson:
Well, she skins puppies, right? Or something like that.

Josh Robb:
She wants to make a coat of them.

[34:36] – Things to Do in Your 20s & 30s

Austin Wilson:
So come on, people, stop freaking out that the movie Cruella is dark. I think it’s hilarious. All right. So, we got some lists for you here.

Josh Robb:
Okay.

Austin Wilson:
These are-

Josh Robb:
Summarizing kind of everything we’ve talked-

Austin Wilson:
… summarizing what we’ve talked about. So, we’re going to leave you with some things to do, five things to do, five things not to do, and a couple of bonus tips. Okay?

Josh Robb:
Alright.

Austin Wilson:
So, Josh, what is the first of five things to do?

Josh Robb:
We’re going to kind of work backwards, but this is very important, have a will.

Austin Wilson:
Have a will.

Josh Robb:
Have a will.

Austin Wilson:
Simple, easy, not too expensive.

Josh Robb:
Yep. Now, familiar to someone named Will, that’s not what we’re talking about. Say, “I have a Will, he’s sitting right next to me.”

Austin Wilson:
Exactly.

Josh Robb:
That’s not it.

Austin Wilson:
It doesn’t count.

Josh Robb:
Have a will for estate planning.

Austin Wilson:
The state document. Number two, get your employer match for your retirement plan. Non-negotiable, you got to do it.

Josh Robb:
Free money. 100% return.

Austin Wilson:
Free money.

Josh Robb:
Number three, create in fund a emergency fund.

Austin Wilson:
That’s a great thing to do.

Josh Robb:
Yes. So, again, that’s there for emergencies, make sure you have one. So, to do that, you have to create one and fund it.

Austin Wilson:
Yes. Number four, really look at all of your insurance needs, but that includes life and disability insurance. So, look at your situation, make sure that you are insured as required.

Josh Robb:
Yes. And last but not least, number five, pay off student loans.

Austin Wilson:
It’s definitely not least.

Josh Robb:
It’s not least, but it is very important, but also, on the list of things, an emergency fund is very important, a will is extremely important, paying off your student debts is important.

Austin Wilson:
Yes.

Josh Robb:
But you need to get those… That’s why it’s number five on our list. You need to do that, but first, have a will, have an emergency fund.

Austin Wilson:
Get your match.

Josh Robb:
Get your match, do all that. But student loans are a burden, they’re no fun, pay those off as soon as you can.

[36:15] – Things to NOT Do in Your 20s & 30s

Austin Wilson:
Pay them off as soon as you can. Pay off all debt as soon as you can. Five things not to do, let’s flip the page here. Number one, do not buy more house than you need in your 20s, because rates are low right now, regardless of them spiking.

Josh Robb:
Get a big house.

Austin Wilson:
You can get a lot of house, maybe you’re qualified for a lot of house, anyway, don’t feel like you have to use up your entire allotted approval or whatever, because you could become what’s called house poor, where you technically on paper can fund with cashflow your house, your payments, but-

Josh Robb:
Keep doing anything else.

Austin Wilson:
… you will not be able to go on vacation, or pay for… You’re going to be living on ramen. Don’t buy more house than you need, because that can also set you up for a drag in… Even though you’re going to be making more money in the future, it can be a bit of your drag on your lifestyle.

Josh Robb:
Yeah. And along with that, don’t feel like you have to buy a house, renting has advantages-

Austin Wilson:
It sure does.

Josh Robb:
… depending on your life situation. So, very good. Number two, do not-

Austin Wilson:
Don’t.

Josh Robb:
… take on car loans. Car loans are one of those debts that are tied to a depreciating asset.

Austin Wilson:
Wrong way.

Josh Robb:
The car gets less valuable over time, and your debt stays along with that depreciating asset.

Austin Wilson:
Correct.

Josh Robb:
So, do not get car loans when you can avoid it.

Austin Wilson:
Number three, kind of in the same bucket, don’t carry credit card debt. So, we’ve had an episode where we’ve talked about the ways that we use credit cards, and we think that can be a very good tool, but we also say that every single month, pay that statement balance, so you don’t pay a dime in interest.

Josh Robb:
Yep.

Austin Wilson:
And then, you’re just kind of using it to your advantage, which is a great tool, and we like it. But the second that you don’t pay that full amount, and you’re carrying balances over, you’re earning… You’re not earning interest, you’re accruing and having to pay interest, that’s the wrong way. And the reason that those interest rates are so high is because they don’t go back on the things you’ve purchased, the food you purchased, the vacation you took, they can’t take that from you-

Josh Robb:
Nope.

Austin Wilson:
That’s why you’re getting charged exorbitant amounts of interest.

Josh Robb:
Yes. It’s not worth the risk.

Austin Wilson:
So, do not, not, not, not, not ever carry credit card debt, because if you have to put a big purchase on there, you should be funding that with some money you’ve already set aside, whether that’d be from an emergency, or from a short term savings that you just were saving up for a new whatever, and you put it on the credit card, you should always be funding that with actual cash.

Josh Robb:
Yes. Number four, do not touch your retirement savings.

Austin Wilson:
Do not.

Josh Robb:
Retirement savings are for-

Austin Wilson:
In only.

Josh Robb:
Yes.

Austin Wilson:
Putting money in.

Josh Robb:
Yes.

Austin Wilson:
And for retirement.

Josh Robb:
And for retirement.

Austin Wilson:
Don’t take money out until you’re in retirement.

Josh Robb:
Yep. And so, you have a goal, it’s for a purpose, but while in you’re 20s and 30s-

Austin Wilson:
Don’t touch it.

Josh Robb:
… most people are not retiring. So, unless you retire in your 20s to 30s.

Austin Wilson:
Even then, you’re going to have taxes and penalties.

Josh Robb:
Yes. So, avoid it. But don’t touch it. All right? Just think of that money as future money not available to you. So, again, when we talked about those goals, 1X at 30 and then 3X at 40, that money that sits there, I mean, if you 3X your salary, let’s say, you make $50,000, that’s $150,000 of retirement assets, that’s a good chunk of money.

Austin Wilson:
Right.

Josh Robb:
Don’t touch.

Austin Wilson:
Don’t touch it.

Josh Robb:
That’s right. You may say, “Well, I can use some of that for my down payment on a house.” No, no, it’s not for that goal, it’s for a different goal.

Austin Wilson:
Exactly. And number five, this is something that we are passionate about, but we don’t think that… So, just because you’re in your 20s and your 30s doesn’t mean that this is necessarily intuitive for everyone, so we don’t think you should try to do it alone. So, Josh, give us a couple minutes on that.

Josh Robb:
So, in your 20s and 30s, it’s great to have some sort of financial advisor that are helping guide you. Now, depending on where you’re at in the area, some financial advisors may have a minimum, and it may be as a 20 or 30 year old to fit into there, but some employers offer that as part of the retirement service, is that you can talk to an investment professional. There’s also great advisors out there who have no minimum, or do just one-off financial planning. So, find someone that can help you at least set up the goals and get you heading in the right direction.

Austin Wilson:
Right.

Josh Robb:
And just for fun, we’ve got a couple of bonus tips for you.

Austin Wilson:
Little bonus tips.

Josh Robb:
So, the first one I have is, develop a marketable skill, and then build on it, right? In your 20s, you’re starting out in a career, chances are, your entry-level job may not be your ideal job for the rest of your life, but you can definitely learn skills and develop from there. You may get into an entry-level position and be able to watch, observe, and maybe even train under a spot where you eventually want to be.

Austin Wilson:
Right.

Josh Robb:
So, in your 20s and 30s, it’s a great time to try out different things, find what you like, but build on those talents and skills that you have.

Austin Wilson:
Number two, build up a credit history.

Josh Robb:
Yes.

Austin Wilson:
So, credit is something that is very important when it comes to taking on more debt, essentially, because the better your credit history, the better your credit score, all of these things, the better terms that you will have when you want to take out a loan, and we would say, specifically, speaking as it comes to buying and refinancing your home, that’s going to be the kind that we would say, “Yeah, that’s why we want people to have good credit.” Well, how you do that is through responsible uses of credit prior to that, right?

Josh Robb:
Yes.

Austin Wilson:
So, things that matter, having credit lines open for a long time. So, we would say it’s smart for someone maybe later in college or whatever, to open up a credit card and put something simple on.

Josh Robb:
Yep.

Austin Wilson:
Put your gas on it, only your gas-

Josh Robb:
Pay it off.

Austin Wilson:
… and pay it off every single month, but that starts that credit history. Also, never miss a payment, always pay things on time, pay things in full, that is how you’re going to have good credit. Avoid opening too many accounts, it’s good to have some, avoid closing accounts because that takes your length of time down. But this is a good time in your life to build up credit history, because maybe you’re renting throughout your 20s, and you want to buy that house when you’re in your 30s. And if you were unwise with your credit in your 20s, that’s going to really limit your options in your 30s when you go to buy that house. So, credit history, build it up, keep it good, that’s what I would say.

Josh Robb:
Yes. And then, finally, and this is just more of a personal tip, is clean up your online presence.

Austin Wilson:
Yeah, you’ve really had to do that lately.

Josh Robb:
If you look backwards on your life and say, “You know what? I made some decisions that weren’t quite so smart, or I just posted some things on there that maybe when I’m out there in the professional world just don’t look very well on me,” clean that up. And I’m looking 20-year olds as you’re heading out into the people who do a background check on you.

Austin Wilson:
Oh, yeah.

Josh Robb:
In a sense of, they’ll look for you and try to find you on social media.

Austin Wilson:
Right.

Josh Robb:
And if you have a bunch of college pictures that you thought, “Oh, these are great, they’re hilarious-”

Austin Wilson:
Probably not.

Josh Robb:
… and they are, but for an employer-

Austin Wilson:
Probably not good for an employer.

Josh Robb:
Look at it from an employer’s eyes. But in general, that’s a great thing. 20s and 30s, as you’re heading to a more professional career, those are the things you just want to think about than not, especially in today’s day and age, there’s a lot of information on you out there, just be aware of it, and be cognizant of what story it tells.

Austin Wilson:
Think about that one tweet that you sent in college that was inappropriate in some way, shape, or form, could really turn around to bite you on the butt. It can cost you a job, if you’re interviewing for it, or even one while you’re in it. So, that’s just the way the world is today. So, keep a close eye on that. I would say this is a great opportunity to thin out your social media reach.

Josh Robb:
Mm-hmm (affirmative).

Austin Wilson:
I think everyone would be healthier if we spent less time on social media anyway.

Josh Robb:
That’s true.

Austin Wilson:
So, as always, check out our free gift to you, it’s a brief list of eight principles of timeless investing, these are overarching investment themes meant to keep you on track to meet your long-term goals. We talk about a lot of the things that we talked about today in that. Check it out, it’s a free PDF on our website. So, Josh, how can people help us grow this podcast?

Josh Robb:
First of all, make sure you subscribe, that way, every Thursday, you get our newest episode. Leave us a review on Apple Podcasts, it helps us be found by more and more people. If you have any thoughts, or questions, or maybe you’re in your 20s to 30s, and you want some more clarification, shoot us an email at hello@theinvesteddads.com, and we’d love to hear from you, and answer your questions. And if you know somebody in their 20s or 30s, please share this episode with them, and help them out to get them on a good path for financial success.

Austin Wilson:
The next episode of this series, Monetary Moments, will be around your 40s and 50s, so stay tuned for that. Until next week, have a great week.

Josh Robb:
All right. Talk to you later.

Austin Wilson:
Bye.

Outro:
Thank you for listening to The Invested Dads Podcast, this episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode, and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode. Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only, and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for a loss of principle. There is no assurance that any investment plan or strategy will be successful.