Once you reach your 30s, there are few milestones left to celebrate. You’ve long since been able to rent a car, buy a case of beer, and play the lotto. But by 35—assuming you’re a natural-born citizen who’s lived in the U.S. for at least 14 years—you’re technically eligible to be president.
Maybe those aren’t your aspirations right now, and as we’ve seen in the past couple of elections, you can be elected well into your 70s, so don’t give up just yet.
Navigating your big money (no whammies) questions
No matter your hopes and dreams for the future, here are 10 money questions you should be able to answer—from how to consolidate debt with bad credit to why your credit score is important—by the time you’re in your mid-30s.
1. What should I factor into my budget?
A popular way to create a budget is using the 50/30/20 system, which allocates 50% of spending for needs, 30% for wants, and 20% for savings and debt repayment.
The most important items you should include in your budget are the essentials, or needs like food, housing (mortgage or rent), utilities, and if you have kids, childcare. Next, factor your wants or discretionary spending, like entertainment, travel, and happy hour. What’s left should go toward savings, like an emergency fund, and paying your financial obligations like credit card bills, student loans, and car loans.
2. How much should I actually include in my emergency fund?
Oh, that age-old question. Financial experts differ on how much to include in your emergency fund. Many recommend saving three-to-six months’ worth of expenses. Others suggest starting with $1,000 and build up as you’re able to. Something’s always better than nothing to help cover an unexpected expense such as a car repair or medical bill.
3. Where should my short-term savings go?
For an emergency fund or other short-term savings, the best place to keep your money is a high-yield savings account. The national average interest rate on savings accounts is 0.05% annual percentage yield (APY), according to the Federal Deposit Insurance Corporation (FDIC). The best high-yield savings accounts, which tend to be online savings accounts, can have an APY upwards of 0.6%.
4. When will I be able to retire?
Hopefully as soon as possible, right? This really depends on when you started saving for retirement and how much you’re putting away. With a few exceptions (e.g., if you have high-interest debt), you should start saving for retirement as soon as possible.
Recommendations for how much to save vary between 10% and 20% of your annual income. Of course, your goal will depend on when you’re aiming to retire and how long you expect to live. You want to make sure you have enough saved to last the rest of your life. Many retirement plans offer a tracker or calculator to make sure you’re progressing as you’d like to.
5. Why is my credit score important?
The three-digit number known as your credit score can affect whether you qualify for a loan and the interest rate you’ll get if you do qualify. FICO Score and VantageScore, the two most widely used credit scores, range from 300 to 850, or very poor to exceptional/excellent.
Creditors and lenders use this figure to determine how likely you are to repay your loan. Your credit score could even factor into whether you’ll be able to rent an apartment or get a particular cell phone plan.
6. Should I consolidate my debt?
Debt consolidation is when you combine multiple unsecured debts into one manageable, low-interest monthly payment. Consolidating can be ideal for streamlining your bills and paying off your debt faster, depending on your individual financial situation.
Debt consolidation is a good idea if you have a steady income, good-to-excellent credit score, and are dedicated to paying down your debt. Debt consolidation might not be the best idea if you have a small amount of debt that you can repay in under a year, you’re not dedicated to paying down your debt, your total debt is more than 50% of your income, or you have poor credit and won’t be able to qualify for a better interest rate.
There are alternatives to a traditional debt consolidation loan if you have bad credit and want to consolidate your debt, though. If you’re a homeowner, you can consider a home equity loan or home equity line of credit (HELOC). If you’re not a homeowner, you could try balance transfer card or debt management plan (DMP).
7. When will I be debt-free?
Debt-free living is the dream, and it’s an attainable one if you plan accordingly. A loan payoff calculator can help you figure out your timeline, but the best place to start is by choosing a debt repayment strategy.
The most common debt repayment methods are debt snowball and debt avalanche. Debt snowball focuses on paying down the lowest balance first then working your way up to your highest balance, while debt avalanche prioritizes your highest-interest loan and working toward your lowest-interest loan.
8. What’s the difference between a 401(k) and IRA?
Your retirement investment options typically boil down to employer-sponsored programs or individual options. A 401(k) is the former, and it allows you to allocate a certain percentage of your pre-tax income to your retirement fund. Many employers offer a company match, meaning they contribute to your 401(k) up to a certain percentage threshold.
An IRA, or Individual Retirement Account, offers tax-free growth but isn’t employer-sponsored, much like the name implies. With a Roth IRA, you make after-tax contributions, but future withdrawals aren’t taxed. This is a good option if you anticipate your taxes being higher when you reach retirement than they are now.
9. When should I create a will?
Hopefully you’re a long way off from really needing a will, but it’s an important document to think about, especially if you’re planning a family or already have children. You should create a will as soon as you have assets that are worth passing on to those family members.
In the event that you’re unable to make a decision on your own, it’s also important to designate a financial and health power of attorney who knows your wishes and can advocate for you.
The earlier you have these documents in place, the better—but it’s also important to update these documents with any life-changing events like the birth of a child or divorce.
10. How many credit cards is too many credit cards?
In the famous words of Cady Heron, “the limit does not exist.” According to the 2019 Experian Consumer Credit Review, the average American has four credit cards. But that doesn’t mean four is the optimal number of credit cards to have.
The optimal number of credit cards you should have depends on how comfortable and responsible you are with spending and repaying your debt each month. If you’re dedicated to repaying your balance in full every month, you can have as many credit cards as you want. If you tend to carry a balance and have interest to worry about, you’re probably better off limiting the number of credit cards you have.