9 Smart Money Moves To Make Before Turning 30, According To Ramit Sethi
If you're in your 20s, you're in a great position to set yourself up for life financially. But you need to make some big money moves before your 30th birthday -- or else you might spend the next decade catching up.
In a recent YouTube video, money expert Ramit Sethi talked about money moves that can help give you a solid financial foundation going into your 30s. Sticking with his message of living a "rich life," Sethi focused more on building financial systems than depriving yourself, and creating a plan for a life you'll actually enjoy.
Here are nine money moves you should make before you're in your 30s, according to Sethi.
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1. Use a Conscious Spending Plan Instead of a Strict Budget
Sethi hates traditional budgets and says they fail because they focus on restrictions rather than priorities. His alternative is known as a "conscious spending plan" that prioritizes what matters most.
The idea is simple: Decide in advance how much goes toward fixed costs, savings, investing and guilt-free spending. Spend on what you love, but cut out costs that take away from living your "rich life."
2. Keep Fixed Costs Under Control
Sethi states that fixed costs such as rent, utilities, transportation and minimum debt payments should ideally stay under 60% of your take-home pay. Keeping these costs under control gives you more flexibility in your day-to-day life and the ability to save and invest for future goals.
In fact, high fixed costs are one of the biggest predictors of financial stress in your life (and relationship). And housing alone often takes up more than 30% of take-home pay for younger adults, so even small changes (like downsizing or negotiating insurance rates) can create breathing room in your spending plan.
3. Build Short-Term Savings and an Emergency Fund
You need to have savings in place to help handle life's emergencies and upcoming expenses. Sethi states that savings should be set aside for any goals one to five years away, as well as a separate emergency fund for financial emergencies.
Sethi recommends building your savings to eventually hold at least six to 12 months of essential expenses in a savings account. And if that number sounds intimidating, some financial planners recommend a starter emergency fund of $1,000 to help reduce reliance on high-interest debt during unexpected events.
4. Start Investing Early, Even With Small Amounts
Investing is required in your 20s, even if you don't have a high income. Sethi encourages investing at least 10% of your take-home pay, but emphasizes starting wherever you can.
Time in the market often matters more than investing larger amounts. For example, someone who starts investing in their early 20s can end up with significantly more wealth than someone who waits until their 40s, even if the later investor contributes double the amount.
5. Automate Your Finances
After creating a conscious spending plan, Sethi says the next step is automation. His reasoning is that relying on motivation is a losing strategy, because no one is motivated to make the right choices 100% of the time. Automating bills, savings and investments is a foolproof way to make sure your plan runs in the background without decision overload.
He also recommends treating your checking account like an inbox. Money flows in and then automatically gets routed into savings, investments and bills. Automatic transfers significantly increase saving rates because it stops you from being able to spend it.
6. Eliminate High-Interest Credit Card Debt Aggressively
Sethi is blunt about credit card debt; if you hold any balances, this should be your top financial priority. High-interest debt acts like a weight on your financial life, dragging down every other goal (including investing and saving).
Sethi points out that a $5,000 balance at a 25% interest rate can take years to pay off and end up costing thousands in interest, even with consistent monthly payments. Sethi recommends choosing either the debt avalanche method, which focuses on the highest interest rates first, or the debt snowball method, prioritizing smaller balances first to build momentum.
7. Use Credit Cards as a Tool, Not a Trap
Sethi says that responsible credit card use can help you build your credit history. But you must pay your cards in full each month to avoid interest charges. Proper credit card use can help improve your credit score, which can make it cheaper to borrow for cars and homes.
Sethi advises sticking to one credit card that doesn't come with an annual fee, and use it only for expenses that are already included in your spending plan. Autopay should ideally be set up to pay the full balance each month, just in case you forget and get stuck with an interest charge.
8. Invest Early Using Simple, Low-Effort Strategies
Sethi is a believer in starting retirement investing before 30, even with modest amounts. He recommends a Roth individual retirement account (IRA) as a powerful tool because contributions grow tax-free and you don't pay tax on withdrawals in retirement.
Sethi recommends simple target-date funds because they automatically adjust over time and give you diversity between stocks, bonds and international investments. Brokers like Vanguard, Fidelity and Schwab offer low-cost target-date funds you can invest in easily.
9. Increase Your Income and Define Your 'Rich Life'
Sethi is a huge fan of making big money moves with your income. He argues that cutting expenses is limited, but income growth is not. Developing skills to ask for raises, negotiate offers and build workplace skills can permanently raise your financial ceiling. He also stresses the importance of talking openly about money with partners, friends or family before major life decisions.
Finally, Sethi encourages people to define their version of a "rich life." This does not have to mean luxury travel or designer clothes. It could mean travel, flexibility, better housing or simply peace of mind. Having a clear vision of what you actually want in life makes saving and investing easier because you really care about the outcome.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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