Discover the top 5 money moves you need to make before turning 30 if you want to maximize wealth and dominate your personal finances for decades to come.

Introduction

There’s an overwhelming amount of personal finance information out there for millennials. Some of it is good. Some of it is…not so good. But the sheer volume of data and “can’t-miss” advice is paralyzing for many.

My goal here is to lay out a super simple plan. It doesn’t bring all the fanciest bells and whistles. And it doesn’t go into extreme depth.

Instead, I encourage you to use this as a cheat sheet. I’ve written extensively about many of these topics in the past and linked to these posts below. Poke around these links as you progress through the 5 money moves and find yourself looking to learn more about the dirty details underlying each of them.

This post starts the conversation. It builds the foundation. We can layer on the complexity later.

Build an Emergency Fund

Money move number 1 is building an emergency fund to cover 3-6 months of expenses.

First, take a close look at your expenses so you know the total amount you’re targeting. You don’t have to build a complex budget or become a wizard in Excel! Just comb through your bank statements and credit card apps for the past couple of months. Alternatively, you can use a free app like Personal Capital. It’ll do all the heavy lifting for you. (Note: CashSnacks.com will receive a bonus reward if users sign up using this link.)

Look closely at your expenditures and go beyond what I call “surface expenses” which are top of mind items like food, housing, utilities, and transportation. Lurking below the surface you’ll find healthcare, storage facility payments, gym fees, routine drug store trips, Spotify subscriptions, etc. Include these to arrive at your true average monthly expense amount.

Once you’ve determined your target emergency fund total…start saving. Put these savings in an account that is highly liquid (meaning the funds are easily accessible) and secure. High yield online savings accounts are a great option here. These pay higher interest rates than traditional banks, and separating the funds from your daily checking account will diminish your temptation to spend.

Note that there is some debate about how to most optimally store your emergency fund. Some folks think that it’s better to invest the emergency savings into more risky assets to generate greater returns. You can check out my detailed analysis on the topic here.

Snatch Your Employer Match

Money move number 2 is all about putting some “free” money in your pocket.

Most traditional employers will reward you with additional compensation just for investing in your future. This takes the form of what’s called a 401K match. With it, companies offer to match up to a certain percentage of an employee’s retirement account contributions. There is no catch. You’re leaving completely risk-free money on the table if you don’t contribute up to your match amount.

Not sure if your company offers a match or how large their matching contribution is? Give your HR department a call. They would be happy to answer all of your questions. This is quite literally their job. Just ask.

When it comes time to investing these funds, I highly recommend searching for the lowest-cost, diversified index funds that your 401K plan offers.

Max Out Your Health Savings Account (HSA)

Money move number 3 is a bit advanced, but the financial benefits are oh so juicy.

If your health insurance qualifies as a High Deductible Health Plan, you are eligible to open one of these magical HSA accounts. Individuals may contribute a maximum of $3,600 to their HSA’s in 2021. For families, the contribution limit is doubled to $7,200. Strive to hit these maximums each year.

HSA’s offer a lethal combination of three tax benefits rolled into a single account. There is a realistic path to you never paying taxes on the money that you contribute. To summarize:

  • Money contributed to an HSA reduces your tax bill today
  • The funds grow tax free while held in the HSA
  • Withdrawals from the account are then distributed completely tax-free (assuming you play the game the right way)

What most people miss is that the fun doesn’t stop with simply funding the HSA, enjoying a tax deduction, and saving for future healthcare expenses. In actuality, the most powerful component of the HSA is the ability to leave these funds untouched and invest them for massive tax-free growth.

Check out my step-by-step HSA guide if you are curious how this all works in practice.

Fully Fund Your Roth IRA

Money move number 4 is maxing out your Roth IRA ($6,000 limit in 2021). The Roth is a type of individual retirement account (IRA) that allows you to make contributions on an after-tax basis. The investments then grow tax free. Forever.

It’s almost as sweet a deal as the HSA, but you do have to pay taxes upfront when you originally earn this money.

You’ll open a Roth IRA independently at one of the big brokerage firms (Charles Schwab, Vanguard, Fidelity, etc.) or banks of your choice. This differs from a 401K which is funded through your employer’s plan sponsor.

The Roth IRA provides an incredible opportunity for you to take advantage of a concept called “tax arbitrage.”

Essentially, you pay taxes today, when income is at a lower level than it likely will be in the future as you scale your career. This allows you to frontload your tax bill at the most advantageous point in your life. You can then ride uncapped, tax-free upside for decades as the investments grow.

For more details, check out my full post on Roth IRAs here.

Pay Down High Interest Debt

Money move number 5 works best if you re-frame the way you look at paying down debt. Think about it this way, paying down debt at a high interest rate (say 20%) means that you are guaranteeing a 20% return on your money. In other words, by avoiding an interest payment, you are locking in a massive risk-free return on your money.

Considering that long term market returns hover in the 6-8% range after inflation, this is truly game-changing. Keep in mind, this market return is also far from risk-free. The smartest activist investors and hedge fund managers in the world would salivate at the opportunity to generate this kind of yield. You should be salivating too.

A key point to emphasize here is that not all debt is created equal. I’m encouraging you to pay down “high interest debt”…not necessarily all debt. In fact, making only minimum payments on low interest student loans can actually be a savvy strategy for many young investors.

While there’s no hard and fast rule for what classifies a debt as high interest, I generally use a 5% rate threshold. Anything above 5% interest gets paid down aggressively. Anything below 5% interest, (like many federal student loans) gets extended with minimum monthly payments.

Why? I believe the long term returns on my market investments will outpace this rate.