All right, Brian, so we’ve talked about the 20s. Now let’s talk about the 30s. How do you become a millionaire in your 30s? Well, I think one of the things that you have to do is you have to not look like the average American in their 30s because, unfortunately, we all hit the messy middle. It may look different for us, but we all get pulled in different directions. We all have different things happen to us. What’s so interesting, though, is the way that we respond to that is not the same, and it is a stark contrast between those that have the mutant mindset and the average American because the average American falls into traps that can absolutely derail your long-term financial success.
I think it’s interesting. I found when I was in my 30s, this is probably when you are in that messy middle. You found a significant other, you may be settling down to grow a family, but for me, when you have these life things happen, when you settle into the neighborhood, it can feel a little bit like high school again, in the fact that now you’re the comparison, the whole comparison to you. What are the Joneses doing down the street? Moving the goalpost on what success is for you, and it’s easy because more than likely somebody down the street’s going to be driving the luxury car. Yeah, you’re going to go in their kitchen, and they’re going to have a little bit better countertop than you. You’re going to see the Rolex on their arms, and you go back, “Holy cow, I am just not doing this right.” So make sure you don’t fall into these consumption traps that I think a lot of people…
And one of the first ones is automobiles. When I see these stats, Bo, it actually makes me sad. It’s absolutely awful. You know, we talk all the time that when it comes to buying a car, when it comes to reliable transportation, we want you to subscribe to 238. When you buy a car, we want you to put 20% down. We don’t want you to finance it for any more than 3 years or 36 months, and your total car payments cannot exceed 8% of your gross income. So you think, “All right, that seems pretty easy. Seems pretty simple.” Well, let’s see how most Americans stack up. We say that you want to put 20% down. The average American only puts down 14%, so we fail right there. Three years or less, the average new car loan right now is 69 months. That’s 5.8 years, nowhere near the three-year limit. But by the way, before you do the 8%, you realize if people are putting down less and they’re financing it that far, people are buying way too expensive cars, because look how much it is as a percentage. Yeah, if we say that you need to stay below 8%, of your gross income, the average car payment right now is $733. If you look at that relative to the median income in this country, it represents 12% of the median income. If you are someone who has a $1,000 car payment, we know you’re out there because you put it on social media. You are spending 177% of the median income in this country. You are more than double what we recommend on 238. If you’re doing it this way, you’re doing it wrong.
I think it’s interesting. In a minute, we’re going to show you what a person in their 30s needs to be saving per month to become a millionaire at retirement. And I want you to remember that the average car payment in the United States right now is $733. Because if you just understand the power of your army of dollar bills and the value of what time is, because remember those three ingredients, discipline creates money, and money over time is what creates wealth. You’ve got to have those three components. If you’re spending money of $733 on a car, I would tell you that you are sacrificing the good discipline that is then costing you the money, and you’re wasting valuable time. You’ll never get ahead.
All right, so it’s not just cars that these 30-year-olds or folks in their 30s are falling into. They also fall into the trap of high-end debt, running up credit card debt. Listen to this. The average Millennial right now today has $66,000 of credit card debt. Now, that doesn’t mean that they’re putting $6,000 on their card. That means that that is $66,000 that’s carrying over month to month to month. We’ve talked about in the market if you can go out there and earn a 10%, 8% rate of return, that’s amazing. These credit cards are charging you what? 20%, 25%, 30% interest. You will never get ahead if you’re racking up high-interest debt. So don’t live beyond your means and rob your future self by using credit cards.
Well, and I think this third one I’m going to tell you, a little contrarian thing that I see about, is they’re house poor. Oh, yeah. You know, there is a financial kind of contrarian advice out there. It is, you want to be the cheapest house on, you know, on an expensive street. Sure. I don’t know that I completely agree with that one because you do not want to be the poorest person on your street. And because I think there’s a lot of people, they stretch and they try to get in as big of a house as possible so they can, you know, grow into it for their growing family. But guys, if you have all of your money going toward housing, how are you going to have money for memories? How are you going to have money for investing for your future self, so you can live a better life even in the future? I’m telling you, you’re going to come up short, and the stats show this.
Yeah, look at this one in five U.S. households say they spend over 40% or more of their gross income on housing. Almost half of their gross income on housing. Well, what happens if something goes wrong? What happens if something doesn’t go quite the way that you thought? You’re going to be in a pickle. And look at this, nearly one in three households are over 30% or more of their gross income in housing. You know that our rule is we say that when it comes to buying a house, your housing cost should not exceed 25% of your gross income. And yet, here we are, one in three households grossly breaks through that. If you want to be a millionaire in your 30s or if you want to have the millionaire mindset in your 30s, you cannot look like the average American. You have to look a little bit different.
Yeah. I want you to have margin in your life so you can save for the future, so you can actually take the family on vacation and create memories. If all of your money is going into your house, by the way, the nicer the house you live in, the more furniture it’s going to require, the higher your property taxes are going to be, the higher your insurance is going to be. It is, you give a mouse a cookie and all this stuff starts piling on top of itself. Be careful with these consumption decisions, because they can work against your happiness and your long-term financial success.
All right. So what do 30-year-olds do well? The first thing they do is they understand they have to keep their debt in check. High-end debt is not nonexistent for millionaire mindset mutants, and they’re following the Money Guy Rules. They understand 238 when it comes to buying a car. They understand keeping housing at less than 25%. They recognize that debt can be a very useful tool, but they use it as a tool and don’t let it be something that can be dangerous and actually ends up hurting them. They also, if you look at what 25%… We always have that chart that shows, “Hey, man, if you’re good with money and you can just defer and save 20%, 25%, look what it can do in your 30s. There’s still lots of green on that. If you go to MoneyGuy.com/resources, we actually will show you what your savings rate needs to be by age, and there’s a lot of prime opportunity for those in their 30s. Now, remember, we already told you that it’s super easy in your 20s if you start. But guess what? It’s not so hard in your 30s if you just start. At age 30, and you can save 25%, there’s still a really good chance you could be on track for early retirement or you can have a life that you get to live a great big beautiful tomorrow. But your 30s, where you have to get serious about it. In your 20s, you get a little bit of leeway. You’re going to see in a moment in the 40s, it doesn’t quite work that way.
The other thing that you have to do in your 30s is you have to make sure that you’re keeping an eye on the things that could cause you to derail your financial life. You understand if you have the millionaire mindset, how important an emergency fund is, how important it is to have contingencies in place to keep you and your family protected. And this isn’t just, “Don’t take my word for it.” We actually have analytical data to share with you. Every year, Brian, we ask all of our financial planning clients of the firm, we ask a questionnaire that they go through, “Hey, how do you approach this? What do you think? How do you do these things?” And we ask them, “Hey, how big is your emergency fund?” And it’s really interesting, the vast majority… The vast majority of our respondents said, “I have at least four months, even to as much as more than seven months in an emergency fund.” Less than 1% of folks said, “I’ve got under one month.” Less than 1% of folks said, “Hey, I’m not prepared for an emergency that might rear its ugly head, and I know that no matter what happens, I’m not going to be derailed.”
Well, I think this is the decade of the messy middle, meaning you more than likely have a significant other, you more than likely are starting the process of having children. If people are counting on you and your income and your money to pay the bills, make sure you’re not overlooking the need to have emergency reserves. Life is going to come at you fast with all kinds of emergencies and obstacles. How you’re able to overcome that is definitely going to be part of your success story. Don’t get caught swimming naked with no money in cash reserves because you thought you’re going to be cute and smart and have everything invested because that is when it rains, it pours. Good news, bad news travels in groups, and I just don’t want you to get caught in a desperate situation by not paying respect to emergency funds.
All right. So now let’s look at the numbers. Let’s do a spot check first so you realize if you’re a 30-year-old and you’ve been saving in your 20s and you’ve already accumulated $43,000, just that $43,000 will put you on track to be a millionaire by age 65. But maybe you’re not. You’re starting at age 30, or maybe you want to figure out how much does it take to have another million. Well, every $340 a month you can save starting at age 30 can turn into a million dollars by the time you get to 65. A 35-year-old, if you’re starting at zero, you need to save $600 a month to get to a million by 65. And then if you wait till 39, this is where it starts to get a little bit harder. If you wait until 39 to start, it takes almost $1,000 a month to be able to get you to millionaire status. However, time is still on your side. If you’re a 39-year-old and you’ve saved up through 401(k)s, through Roth IRAs, through all the other investing means, and you’ve saved up $122,500, you already have enough soldiers in your army of dollar bills that are putting you on track to get to millionaire status by the time you get to age 65.
Well, I also want to remind people, small decisions go a long way. It’s just like I was talking about the car purchases. We showed you the stats for the typical American. Their car payment is well over $700. They’re financing for close to six years. Look at the stats here. You only need to be saving for a 30-year-old $340 a month. That’s less than $700 bucks. 35-year-old, $66 a month. That’s less than the average $700 car payment. So you can see there is an incremental decision being made by every American on fancy car or a million dollars in the future. And that’s the part I want you to be slapped with the reality of that you do have a choice here. It is a choice to become a millionaire. Don’t fall into the consumption traps. Comparison is the thief of joy, and also comparison is the thief of your financial independence. If you’re moving the goalpost and trying to keep up with the broke Joneses and not funding your financial future… Yes, I know deferred gratification is not as fun as living for the now, YOLO, despite what all my team wants me to say, I’m still going to say it because you’re going to live to a ripe old age. Plan and act accordingly. If you want to check out a free resource, go to MoneyGuy.com/resources, and we have this deliverable, “Are you on track to be a millionaire?” Well, you can actually look at your specific age, and you can see two pieces of information: how much do I need to have saved presently to be on track to be a millionaire, or how much do I need to start saving to get to a million dollars? Go check that out and let this be the motivation to get you to start making those incremental decisions today.
