Financial freedom allows you the choice to do things you like with your time. It improves the quality of life for your family. By planning for it, investing thoughtfully, and taking advantage of good debt, you can leverage your money to work for you. While some people strike rich overnight, most of us have to plan and work for it. Set the right steps in motion in your 30s to be free in your 40s.
Advice is free. Experience is not. Early in our life, we receive advice and also read about the advantages of savings early on when we're still young and able. Although it's not a new mantra, many have different thoughts about it in their 20s. Personal priorities are different – while some of us did not know about financial planning, others felt that there’s still time to make a financial plan. Your perspective is different when the expenses are low in your 20s, sharing housing costs with roommates, perhaps enjoying free breakfast and lunch offered by your employer, etc. Perhaps this may even make you feel there’s a lot of money in your pockets. As the need to have our own space, the need to support our growing family, or aging parents increases, the reality dawns. You are left wondering how can I build my wealth in my 30s? Suddenly the advice from others in our 20s makes sense – we feel the need to attain financial freedom and prepare for the future.
According to the SEC, 12% of the people in their 40s don’t have investment accounts. When they do invest, they have about $68,764 outside of the investment accounts in their 40s and $29,267 in their 30s, according to business insider. Unfortunately, this is not a sustainable path to financial freedom, particularly with the ever-increasing health care costs. The amount you save and invest affects the retirement age.
If you want to attain financial freedom by 40, it's not too late to start in your 30's. In fact, this is the best time to plan and make it a reality. Financial freedom allows the money to work for you instead of you working for the money. This allows you to responsibly live the kind of life you desire. Having financial freedom, allows you to cater to the demands of your growing family in your 40s.
You are ready to rock and roll. You want to get started and put things in motion so that the money can work for you. You want to know how much you should save in your 30s? This article will point you towards some ways to save money, how to invest in real estate, and other important tips to help you secure your financial future. First, let’s get some basics in place.
There’s a big difference between saving and investing. They are both different from earning. You can earn a million dollars a month and still lose it all if you are not careful. Earning doesn’t make you rich. How you make that money work for you is where things fall in place. Many people strive to just get a little bit more raise in their work so that they can get richer. Sure, a better income certainly gives you more to invest and grow if you are disciplined. Saving in a low yield instrument doesn’t make you rich either. However, investing and growing the money is where people really get richer – income alone doesn’t cut it.
We all want a better quality of life. What’s the point of money if you can’t get yourselves a nice place and a comfortable living environment? We agree that these are good to have. Just strike a balance. While a couple of fancy shoes and a name brand handbag are good to have and may even be essential so that you look great for your job, there’s no reason to have 50 handbags and 100 shoes. Splurge on a few good things, enjoy some quality of life, and invest the rest. Think twice about spending on repetitive luxuries like owning the latest gadgets all the time, expensive coffee, and eating out regularly – they all add up. Plus, home-cooked food is better for your health too!
While getting that brand-new BMW gives you a nice feeling, keep in mind that it costs you $500 in monthly payments for the next 5 years. Plus, the value of the car drops the moment it leaves the dealership. This is a bad debt. If you are borrowing money to put into an asset like housing, you are in good debt. Not all debt is bad. Learn the difference and use it to your advantage.
Now that you know what a good debt is, how do you use it to your advantage? Well, leverage is your friend. You are borrowing money to get a higher return. Let’s say you want to buy a house that costs $500,000. If you put down $100,000 and are borrowing $400,000 in mortgage, you are leveraging. With leverage, you could potentially buy 5 houses with $500,000 at $100,000 down payment each, allowing you to eventually own $2.5 million.
Real estate is one of the most profitable options to consider in your 30s. In fact, it may be a better investment option over the stock market, depending on your behavior. The difference between leveraging in stock market and housing is that, when the stock drops, you’ll be required to pay back immediately whereas you can stay put in the housing market and continue to pay your mortgage. Use leverage wisely and take the right risks without losing it all in one sweep.
How do you get started? Follow these 6 tips to save more money and invest in real estate in your 30s:
Reduce your expenses: Your salary may only change significantly once in a blue moon like when you change jobs. When it’s not possible to increase the top line, focus on what you can control – reduce the expenses. This discipline is the most important factor to steer you towards a stable financial life.
Prioritize the plan: They say when something is out of sight, it's out of mind. The moment you sway from saving up for investment and spend lavishly on irrelevant items, is the moment you start losing focus. Plan the savings in your budget and ensure you're working towards it diligently. You can even set automatic deductions from your paycheck. Take advantage of tax-free savings options like 401K. You may even be able to borrow money from your 401K eventually to contribute towards the down payment of your real estate purchase. Depending on how you do the paperwork, you’ll have up to 5 or 10 years to pay it back.
Save extra and unexpected income: There are times you receive money unexpectedly. Instead of buying things that were not originally planned for, focus on saving. This is true for your bonus as well. Put it aside for a better future.
Have a small business that brings in more income: Let’s face it. Your salary only goes up a few percentage points, mostly to keep up with inflation. The gig economy makes it possible to have a side business that allows your income to spike. Some of the businesses you can do to increase your income are freelance jobs and affiliate marketing. What you garner from this business can help you towards reaching the goal of having your own real estate as soon as possible.
Increase your income: Get a higher education or change jobs to capitalize on your experience to increase your income. If you have a higher income and you are disciplined, your savings will go up. You can afford to buy more houses and increase your net worth.
Be realistic: You are indeed passionate about having your own real estate but you must ask yourself if you're realistic about it. Know the kind of home you're planning to buy or invest in. In our example above, you could choose to buy and live in one $2.5 million home with your $500,000 investment or you could choose to buy 5 homes. What’s the difference? When you have 4 extra homes, someone else is helping you pay the mortgage and cover your expenses with the rent you collect. If you get one $2.5 million home, you have to pay everything out of pocket. Just don’t get a heart attack when you see the property tax bill! We all want to live in a nice house – learn to strike a balance. Pick a reasonable house instead of a mansion for yourself and focus on building a nest egg with the rest of your money.
Here are some factors to consider before you invest in real estate:
Location: Take the time to study the location of the property. Location is the key to succeeding in real estate. Even price fluctuations iron out over a long time, but location evolves slowly. Understand if it's near your target audience and the price range of houses in that area.
Investment value: Assess the property properly and talk to experts. Understand the different types of housing (Class A, B, C) and know what you are getting for the money.
Renovation expenses: Before you buy a property, ensure you estimate how much it'll cost you to renovate the property and calculate the implication of buying such an investment. You may be able to save some money by purchasing a house that needs a minor facelift. For example, if the décor is stuck in the 1990s instead of being in 2020, it’s still good enough for renting as long as the bones are in great shape.
Appreciation of property: Real estate appreciates over time and rent increases with inflation. However, estimating the appreciation is important as that will give you a clue into what the investment would be worth in the next 20 years. While value swings with the economy, houses in certain neighborhoods hold their value better than others. The equity you build will allow you to buy more houses.
Cash flow: Generating passive rental income allows you to reinvest and buy more properties in the future. Rent generally tends to go up, giving you some extra income.
As the saying goes, the best time to invest was 10 years ago. The second-best time is to invest now. It’s never too late to start investing. 30s is still a great time and you can achieve financial freedom if you plan it right. Get started now so that you can reap the rewards of a higher net worth and the lifestyle it awards.
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