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Smart Money Decisions for Every Decade of Life

November is Financial Literacy Month, and finance professor Albert “Pete” Kyle at the University of Maryland’s Robert H. Smith School of Business has some smart saving advice for every decade of your money-making life. He’s also part of the UMD Center for Financial Policy’s Consumer Finance Speaker Series.

Over your lifetime, you’ll earn quite a bit of money. But it might never feel like a lot, depending on how you spend, save and prioritize. If personal finance leaves you feeling clueless, you’re by no means alone, judging from the results of the Organisation for Economic Coordination and Development’s recent global survey about financial literacy.

The survey of nearly 52,000 adults across 30 countries showed that only 60 percent of people had a set household budget. Fewer than half of people shopped around when choosing a financial product. And barely 40 percent of people could determine whether a $100 savings account compounding at an annual interest rate of 2 percent a year would grow to more or less than $110 over five years. 

In Your 20s
When you’re still in college, teach yourself self-discipline in spending and get by with as little debt as possible. “That means don’t go to bars too much,” Kyle says. It also means avoiding pricey coffee drinks and expensive snacks. 

Get yourself a credit card, and pay it off at the end of every month, if at all possible. “This is as important as any university course you’ll take,” Kyle says. 

When you leave college and you’re interviewing for jobs, ask about the potential for advancement within the company and choose a job that has a pathway for growth. 

Pay close attention to the kinds of retirement benefits that companies offer. 

Most employers offer defined-contribution plans – not defined-benefit plans. Defined contribution plans generally are well-suited to younger workers, since the benefit is portable, and most people move on from their first job after a few years. But the “great beauty” of defined-contribution plans, Kyle says, is the ability to deduct savings from your income, potentially lowering your tax rate.  

When choosing from the funds your employer offers, look for the cheapest fees and an asset mix that’s virtually all equities. And consider target-date retirement plans, which automatically rebalance your retirement plan between stocks and bonds as you get older, to keep the proportions optimal.

Maximize your contributions to your 401(k), if you can afford to. If your employer doesn’t offer a 401(k) or similar investment tool, max out your IRA, or Roth IRA, contributions. 

If you have done that, and still have money to squirrel away, Kyle suggests a money-market account or short-term bond mutual fund.

In Your 30s
Welcome to your 30s. Recently married? Planning a family? Buying a house? It’s a huge decade for your money. 

Hopefully, you spent your 20s establishing yourself in your career and being a disciplined saver, because Kyle recommends you skip the starter-home stage, and move right into the big family house. You’ll need a few bedrooms, a yard, a good school district and a reasonable commute. 

And you’ll want to stay in this house for at least 10 years, if you hope to get the most out of the investment and to make the closing costs and associated fees worth it, he says.

If you buy the house, don’t renovate, he says, unless you have some expertise and can do some work yourself. Hiring professionals is a massive expense and rarely pays off financially. “If you have a lot of fun doing it, then fine,” says Kyle. “Or if your occupation gives you a comparative advantage, then that makes sense. But otherwise it’s not a good financial decision.”

If you decide to buy a house in your 30s — first-time home-buyers in the U.S. are 33 years old on average, according to Zillow — opt for a fixed-rate mortgage, Kyle says. And consider holding the mortgage for longer. “Low interest rates are not a reason to get a mortgage, but they might be a reason to take out a longer-term loan,” he says.

Homeownership isn’t always a shrewd financial decision – the stock market has at times delivered stronger returns than the housing market – but owning a home can force savings discipline for some people, and that’s a good thing. 


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