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I know I’m called “Average Joe,” but I like to think that I don’t fit your average statistical model….that somehow I’m different and probably a little better off than others (and slightly more handsome, too). A good friend and very successful financial planner told me once that we all want to be different until we find people with a system that works….at which point we all just want to be clumped in with the successful people!
Sigh. In truth I’m probably a little too normal. I have two kids. I like a beer or two. My hairline is even receding a little more “normally” than I’d like. I’m following the pattern of many before me, and I’m sure if you’re reading this and are younger than me, you might end up living a similar pattern.
When I was a financial advisor, I learned to look for patterns. Patterns rule our lives. We like to wake up at a certain time and feel horrible if we awake “too late” or “too early.” We either shower and breakfast or breakfast and then shower. Similarly, there are larger patterns to our lives that planners use to predict how you’ll act at a certain age. I look back on my 45 years and realize that I didn’t use these patterns nearly as well as I should have to gain a leg up financially. Let’s see how you fit/fall out of the patterns below:
Ages 0 – 18:
You’re worried about the present, not much about the future. It’s time take on the world. In fact, the world still feels like a game, so you don’t take much of it seriously. You think you’re taking it seriously, but only in retrospect do you realize how invincible you felt and oh-how-wrong you were.
What you should be doing: Learn the basics of consumer finance: how to write a check, how savings accounts work, how to open a brokerage account, and the difference between different types of investments. If you know the difference between a CD, money market, exchange traded fund and a mutual fund at this point, you’re ahead of the curve.
Age 19 – 25:
You’re suddenly flooded with more money than you’ve ever had at your first real job. It doesn’t matter if you’re making $20,000 or $50,000….it feels like you have a never ending stream of cash. You begin to spend large sums on personal items that your parents used to buy like a car or furniture and it feels good.
What you should be doing: This is the #1 time to invest because you have a ton of time to let compounding interest work for you. While most of your friends aren’t even considering investments, you can gain a foothold on your retirement plans. Although it feels like forever until that occurs, it’ll be great when you’re 50 and getting tired of your job to know that you have a solid savings account to fall back on. This is a time to keep your budget wide so you have lots of cash flow. This is the time when people begin to make some seriously bad choices about debt that can haunt them their whole life.
Age 25 – 30:
You’re thinking about a house and maybe a family. Your friends are getting married, and just attending weddings is expensive, let alone planning your own. You’re beginning to shine at work. If you aren’t, you’re contemplating heading back to school for more advanced education.
What you should be doing: Now the stakes are higher. If you didn’t keep a high rate of cash flow earlier, it’s time to adjust your thinking and budget just to stay afloat financially. Do you have a solid foundation built? If not, you’ll work to create savings, but it will be difficult. You’re making big commitments at this point: more education, a home, a marriage, maybe children….these are all expensive propositions. Research each of these options thoroughly because the debt each could bring will have a long term impact on your financial picture. If you’re getting married, it’s a time to communicate with your future spouse about your dreams and how you’ve manage your money.
Age 30 – 40:
You’re now realizing where you messed up in your 20’s and are making amends. Luckily your paychecks are finally higher and you’re placing a more firm grasp on your budget. If you took on too much debt, you’re digging out from your hole, trying to reach net worth zero. If you stayed away from debt, things are tight, but only because you’re saving a sizeable amount of your paycheck into deferred savings while feeding yourself and possibly a family.
What you should be doing: By now, there’s a clear distinction between the “winners” and “losers.” When someone walked in my door at age 35 I knew they would either be in a panic because they’d finally figured out they were behind, or they’d accumulated enough assets that they felt they needed more professional help. Problems are only going to get worse if you don’t solve them soon. Attack your debt hard now that the budget is beginning to loosen.
After age 40:
Here’s the good news: For most, your budget will expand, your savings will grow more quickly (because now you have compounding interest working on your behalf) and you’ll be on your way to some level of success. This is the point where you should begin worrying about proper asset allocation, better estate planning and more sophisticated money management tools.
Is it right to clump people into these groups? Not always. There were often outliers that didn’t fit this model. However, I was amazed by the number of clients who fit these stereotypes. By identifying these patterns I was able to more quickly recommend solutions that would help them escape any negative portions of the stereotype and place my clients on a path toward financial security.
Author Bio: Joe Saul-Sehy, AKA Average Joe, was a financial advisor for 16 years and media contributor on television, radio and print. Now you’ll find him hosting the popular Stacking Benjamins podcast and writing at Average Joe’s Money Blog.
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Interesting post. Its about spot on for me (28 yo). I would love to see the average net wealth of each band of ages to make a financial comparison.
moneystepper I’d love to see that statistic also…..AND that was the most common question in my practice: “How am I doing next to everyone else you see?” My answer was usually, “It’s far more important for us to see how well you’re doing vs. your goals.”
That usually wasn’t a very satisfying answer! ;-)
AverageJoeMoney moneystepper It’s amazing how powerful a comparison to our peers is. I desperately want to know how I stack up against my colleagues, old friends from high school & college…
We barely did anything right until we approached 30. Now we’re trying to make up for lost time…
Great post! I do think that we are doing well for our age. It did help that we had a head start :)
“You’re now realizing where you messed up in your 20’s and are making amends.”
Yes! I’m 33 and painfully aware that I wasted a lot of my 20’s in a financial sense. But, there’s nothing I can do about it now!
Holly at ClubThrifty Hopefully, though, someone reading this in their 20’s will learn from your comment (and your blog….).
AverageJoeMoney Holly at ClubThrifty I’m in my 20s and I’m definitely learning from both your blogs.
I’d have to second Holly – I am very aware of how I screwed around too much in my 20’s and 39 right now. There’s not a whole lot I can do in regards to that now so we focus on what we can control and invest like there’s no tomorrow. Good post Joe!
FrugalRules The biggest problem I had in my 20s was that I wanted to spend time reinventing the wheel for myself because I felt like I had forever. There were so many cases that I decided to take the long way rather than a short cut because “I wanted to know how it works.” Now I’m looking for any help possible toward reaching my goals. If some tool can make it easier….bring it on!
Luckily I had my financial reality check early on in the 20-25 period. Lack of income will do that to ya :) The only now is that the lack of income continues, so the wonderful financial system I put in place is not being well funded :/
brokeandbeau We actually are talking about that on tomorrow’s podcast! For some people it isn’t an expense problem (broken budget), it’s an income problem.
AverageJoeMoney brokeandbeau I’m looking forward to that podcast! Definitely a big issue for young adults.
Very interesting post! I starting off really well…I was always frugal growing up and started investing at an early age (contributed to IRA and 401K) with the encouragement of my dad. I continued to do that throughout my 20s. Although I feel like I’m falling behind some of my peers. Part of it is because I took out student loans for college and then law school. And another part because NYC is so expensive. Buying a house is a dream, although we’ve been looking into buying a co-op since we just had a baby.
Andrew LivingRichCheaply I love that your dad encouraged you to start early. Investing in your education will set you back ahead because you chose a career where the education needs are matched by a payoff later.
My competitive nature just kicked in and I’m thinking YES! I’m doing better than “average” in the 20-25 range! Hope to always keep it that way. Great post, Average Joe.
Great post Joe
If I look back there are certainly some areas I would change when it came to finances one being I would have kept my flat and rented it out. I lost lots of money selling it because today it would have been worth a small fortune to me lol.. compared to what I paid for it. Otherwise it’s looking forward from this point forward.. debt free and happy! Cheers mate
CanadianBudgetB The cool part about that realization is that you’ve learned from it. I know many people who’ve made financial mistakes and didn’t learn anything (or they learned the wrong lesson altogether).
This is a great reminder of how we change as we get older. Looking back, I wish I’d saved more and spent less (so easy to say that now!). But looking forward, I’m learning to save as much as possible and think hard about retirement.
Great post Joe. The question I struggle with is what amount of money I’m going to need to retire at age 60? I live a frugal life, no debt except a mortgage, and don’t piss money away – any thoughts on a good rule of thumb?
KyleJames1 Thanks, Kyle! I’m not a big fan of rules of thumb, but there are lots of good calculators out there. Here’s what we did: start with the relative lifestyle you want in retirement (in today’s dollars), use a decent inflation rate (3-5% is good) to calculate what that means after age 60. Then pick a date to die. That’ll tell you how much you’ll need. Run the number back to today at a reasonable rate of return based on your investment profile (8 percent is a good number for many) and that’ll tell you how much you should be saving AND give you benchmarks to hit in upcoming years.
I’m looking at what I just wrote and it looks like it’s complicated, but really there are calculators on many popular sites like Yahoo! Finance that’ll help you do that work pretty quickly. It isn’t as complicated as it looks.
I know I am behind because of my choice to go back to school. It’s a hard pill to swallow sometimes, but I’m committed to getting out of debt asap and putting that $ straight into retirement, savings and other investments. I wish I did save more money since I’ve been working consistently since I was 17.
deardebt I was behind also because I invested heavily into my business. The good news: because I chose businesses well and worked hard to “build to sell,” I was able to catch up quickly when I sold it a few years ago. School can be the same: if you choose subjects wisely, you could also catch up quickly.
I imagine it’s tough not to panic when you realize you’re so far off track. Panicking generally isn’t a good thing unless you use it to straighten things out and get on the right path. Nice assessment, Joe. One other wrinkle here is how your spouse’s financial past impacts yours. For example, I’ve always been a saver. I even had a Roth IRA opened up at 18 (although wasn’t contributing much)!! However, my wife had zero savings and boatload of debt (over six figures!). So, when finances are combined into one household, it can rock the boat a bit.
PFUtopia That’s a tough wrinkle that sidetracks many great plans (the power of love!). That’s why it’s important to be open about money before marriage. You can decide together how to attack the financial mountain together. Hopefully you were able to share your good habits with her!
I just hit 30 and I think I am doing better. I learned and fixed my debt problems later into my 20’s, but now I am making the change. While I might be a little behind, I have a good plan to get ahead and put myself on the right track.
I’m so far behind…28 and still have never had a full time career, and still struggle to find even part-time work. I’m married, but don’t have kids or a house, no retirement savings, but I do have a big, heaping pile of debt. :/
Almost 25 and I think I’m doing pretty well! I’m contributing to my 401k AND a Roth. Can’t wait to get rid of my debt, though.
I should be able to kill about 2/3 of my student loans by the time I hit age 30. If I can get a little extra income coming in, maybe erase it all together. That would be ideal as it would leave me with no debt when I decide to get a house. If not, searching for a house with only 4 figure student loan debt isn’t the end of the world in my eyes.
I think I’m pretty far ahead of most people my age, but occasionally I’ll see someone killing me at my age on the Suze Orman show. We’re working on destroying my wife’s student loans and once they’re gone we’ll be rockin it!
I’m having a great time reading this post! I’m 28 and right now I’m trying to save for my daughter’s future, paying life insurance and retirement. I hope 2014 will be good to me.
You nailed me to a tee on the 30-40 group. I certainly hope I end up in the winner group. I might have known how to write a check at age 18, but that was about it. I hope our daughter can know all about ETF’s and all types of ways to save and invest. She might act like I’m the most lame person on the planet for teaching her, but I bet it will stick and help her later on.
Interesting insight! I fell a little behind as I wasn’t quite ready and investing at 18, but I am hoping that I can catch up quickly in my early twenties. It makes me glad that I learned what not to do from my parents at an early age. I believe you when you say a great amount of people fall into these groups – my parents went through everything you described.
“You’re now realizing where you messed up in your 20’s and are making amends” Isn’t that the truth! I’m having to do a lot of catching up for retirement savings. Thankfully no debt though!
I like it, that describes most of the people I can think of. Great perspective!
Great tips Joe. I’m happy that I started investing early. I wish more young people would get in the game early. It makes all the difference.
I’ll just say I’m better than the average Jane but definitely not where I should be! I can’t wait until I can get to a smaller town to help get my savings up and my costs further down.