The $1M Mistake Almost Everyone Makes in Their 30s

Introduction – The Million-Dollar Mistake (0:00)

Brian: There’s a common mistake people make in their 30s. It ends up costing them six, even sometimes seven figures. And most people don’t even realize they’re making it. So, what is it and why does it happen in your 30s? We’ll talk about that in today’s video. And I’ll also share what you can do to avoid this million-dollar mistake. With that, let’s jump right in. When you saw the title of this video, you probably thought it was going to be about buying an expensive car or maybe too much house or picking the wrong investments. And those definitely can be costly mistakes. But the big mistake we’re talking about today is actually something far more subtle and far more common. In fact, it’s more like a series of decisions that add up over time. And that mistake is misusing your pay raises.

The Big Mistake: Misusing Pay Raises (0:45)

Brian: And here’s what I mean. When your income increases from a raise, a bonus, or even from a side hustle, you have a choice about what to do with that extra money now that you have it. Are you going to spend it or are you going to financial mutant it and invest it? And if you’re not intentional, that money will find its way to clothes, cars, and coffee runs. And that’s the big mistake here, letting lifestyle creep eat your pay raises instead of increasing your savings and investment rate.

Why This Happens in Your 30s (1:11)

Brian: So, why do people in their 30s make this mistake so often? Well, for one thing, this decade of life is likely a time when you’ll see your income start to rise. And with all the milestones that can happen in this season, like marriage, kids, and buying a home, this is when we start seeing the lifestyle upgrades quietly sneak in. It’s called the messy middle for a reason. On top of that, retirement still feels far away when you’re in your 30s. But this is actually a stage of life where investing is super important because of how much time you still have for your army of dollar bills to benefit from compounding growth.

Aaron vs. Becky: A $2.6 Million Difference (1:48)

Brian: Let me show you an example using two 30-year-olds. We’ll call them Aaron and Becky. They both make $70,000 and they’re investing 10% of their gross income into retirement accounts. That’s $7,000 per year. Now, let’s say they start getting a $2,000 raise every year. Aaron keeps saving $7,000 a year because retirement, hey, that’s a future him problem. And that new 4Runner isn’t going to drive itself. Becky, on the other hand, she increases her investing as her income increases. She decides to allocate 60% of her pay raises to investing until she reaches her goal of investing 25% of her gross income. Sounds like the Financial Order of Operations. More on that later. Once she reaches her investing goal, she maintains that 25% investing rate until age 65. Assuming a 9% rate of return, Aaron will have a portfolio value of just under $1.9 million at age 65 and will likely need to keep working past retirement age. Becky, on the other hand, will be able to retire comfortably with over $4.5 million. That’s a difference of over $2.6 million, which illustrates how this simple mistake of misusing your pay raises can be a seven-figure problem.

How to Avoid This Mistake (3:14)

Brian: So, how do you keep this from happening to you? Just avoid lifestyle creep, but that’s easier said than done. Most people know they should be saving more and spending less, but it can be hard to actually put that into practice. So, I want to give you three practical ways to overcome lifestyle creep and avoid this seven-figure mistake.

Solution 1: The 60/40 Rule (3:32)

Brian: Number one, the first is to follow what we call the 60/40 rule. When you receive any income boost, I want you to allocate 60% towards savings and investments while allowing that 40% for lifestyle upgrades. This is what Becky did in our example. It’s a balanced approach that lets you enjoy the rewards of your hard work while still making progress toward your financial goals. This rule can help you avoid the common trap where increased income leads to proportionately increased spending.

Solution 2: Aim for 25% Savings Rate (4:00)

Brian: The second way to avoid this costly mistake is simply to aim for an investing rate of 25% of your gross income. Just like Becky, you might think that sounds high, but the reason we recommend 25% is because frankly it’s pretty realistic when you consider that many people get a late start when they start saving for retirement. And a lot of people want flexibility and freedom before they get to the age of 65. Plus, assuming a 6% annual rate of return, we went conservative here. If you’re investing 25% for retirement by age 30, you can replace 119% of your pre-retirement income if you retire at age 65. Is 25% the magic number for everyone? No. It’s a great starting point. You may need to invest less or more for retirement depending upon your retirement needs and aspirations. But even just having 25% as a target number to aim for can help keep you on track.

Solution 3: Automate Your Investing (5:05)

Brian: And finally, let’s automate your investing. If you set up automatic contributions to your retirement account so that a specific percentage of each paycheck goes straight to your 401(k), you don’t even have to think about increasing your investing with each pay raise. It just happens. It’s truly automatic for the people and it’s a great way to beat lifestyle creep. Remember, small decisions today can have major differences tomorrow. Even just a 1% increase in your investing rate can have incredible effects on your long-term growth. In fact, we did the math to prove it. Go check it out at moneyguy.com/resources.

Closing (5:44)

Brian: Hey, and if you want to know if you’re on track financially, I want you to check out this video right here to see the three money milestones to hit in your 30s. And as always, keep building towards your great big beautiful tomorrow.