Personal Finance in Your 20s & 30s For Dummies

Eric Tyson, MBA, is an internationally acclaimed and bestselling personal finance author, counselor, and writer. He is the author of five national best-selling financial books including Investing For Dummies, Personal Finance For Dummies, and Home Buying Kit For Dummies. He has appeared on NBC's Today Show, ABC, CNBC, FOX News, PBS, and CNN.

Introduction 1


About This Book 1


Foolish Assumptions 2


Icons Used in This Book 3


Beyond the Book 3


Where to Go from Here 3


Part 1: Getting Started with Personal Finance 5


Chapter 1: Your Financial Checkup 7


Calculating Your Financial Worth 8


Defining net worth 8


Figuring what you own: Financial assets 8


Determining what you owe: Financial liabilities 9


Netting the difference 10


Grasping the Importance of Savings 10


Netting your income and spending 10


Assessing the change in your net worth 11


Understanding and Improving Your Credit Score 12


Deciphering how lenders use credit reports and scores 12


Obtaining your credit reports and fixing errors 13


Getting your credit score 14


Improving your credit reports and score 15


Comprehending Your Investment Options 15


Examining Insurance Coverage 17


Identifying Common Financial Mistakes Young Adults Make 17


Chapter 2: Budgeting, Goal Setting, and Valuing Saving 21


Developing a Savings Mind-Set 22


What It’s Worth: Valuing Savings over Time 24


The difference of continual savings 24


The difference a few percentage points on your return makes to your investment 25


Budgeting and Boosting Your Savings 25


Setting and Prioritizing Your Savings Goals 27


Identifying common goals of accomplished savers 27


Valuing retirement accounts 28


Dealing with competing goals 30


Saving When You’re Strapped 30


Chapter 3: Using Loans and Paying Down Debts 31


Eyeing the Causes of Generational Debt 31


Making the Most of Loans 32


Dealing With Student-Loan Debt 33


Tracking your student loans and making timely payments 33


Prioritizing the payback of student loans 34


Using education tax breaks 35


Weighing the costs and benefits of education expenditures 36


Making the most of student loans, grants, and other financial aid 37


Benefits for military people 38


Working Off Consumer Debt 38


Kicking the credit-card habit 39


Discovering debit cards: Convenience without credit temptation 39


Lowering the interest rate on consumer debt 40


Negotiating better rates from your current credit card 41


Tapping investments to reduce consumer debt 41


Paying down balances 42


Getting Help for Extreme Debt 43


Seeking counseling 43


Considering bankruptcy 44


Preventing Consumer Debt Relapses 47


Chapter 4: Everything Credit: Scores and Reports 49


A Primer on Credit Reports and Credit Scores 49


Differentiating between credit reports and credit scores 50


Understanding how credit scores are determined 51


Knowing the value of a good credit score 52


Jump-starting your credit score as a young adult 52


Getting Your Hands on Your Credit Reports and Scores 53


Recommended websites for free credit scores 54


Websites to avoid 54


Scrutinizing Your Credit Reports to Improve Them 55


Identifying errors and getting them fixed 55


Boosting your credit score 56


Preventing Identity Theft 57


Part 2: Saving and Earning More 61


Chapter 5: Proven Ways to Spend Less and Save More 63


Containing Housing Costs 63


Reducing rental costs 64


Slicing homeowner expenses 66


Cutting Your Taxes 67


Managing Food Costs 68


Trimming Transportation Expenses 69


Finessing Fashion Finances 71


Relaxing on a Budget 72


Taming Technology Spending 74


Keeping Down Insurance Costs 76


Getting Professional Advice 76


Handling Healthcare Expenses 77


Chapter 6: Taxes: Reduce Them or Else! 79


Understanding Taxable Income 79


Comparing Marginal Taxes 80


Reducing Taxes on Work Income 83


Contributing to retirement plans 83


Using health savings accounts 85


Deducting self-employment expenses 86


Increasing Your Deductions 87


Lowering Investment Income Taxes 88


Investing in tax-free money market funds and bonds 89


Selecting other tax-friendly investments 89


Making your profits long term 90


Enlisting Education Tax Breaks 90


Preparing Your Tax Return and Minimizing Your Taxes 91


Chapter 7: Housing: Comparing Renting and Buying 93


The Ins and Outs of Renting 93


Seeing the benefits of renting 94


Considering the long-term costs of renting 94


Completing your rental application 95


Figuring the Costs of Owning and Making It Happen Financially 96


Deciding to buy 96


Comparing the costs of owning versus renting 96


Considering your overall financial health 99


Calculating how much you can borrow 99


Accumulating your down payment 100


Finding the Right Property 100


Points to research 101


Working with Real-Estate Agents 103


Financing Your Home 104


Understanding your mortgage options 104


Deciding which mortgage type is best for you 105


Avoiding negative amortization and interest-only loans 106


Getting your mortgage approved 107


Putting Your Deal Together 108


Chapter 8: Relationships and Money 109


Handling Roommates 109


Living-Together Contracts 111


Getting Married 112


Understanding Your Money Beliefs and Practices 114


Examining your money history 115


Exploring your attitudes toward money 116


Understanding your friends and money 117


Making sense of your environment and money 117


Getting a Grip on Procrastination Where Money is Concerned 118


Diagnosing procrastination 118


Coming to terms with why you may procrastinate with money issues 119


Overcoming money avoidance 120


Chapter 9: Making the Most of Your Career 125


Getting Your Career Going 125


Putting everything in order 125


Educating and training your way to career success 126


Seeking value for your education dollars 127


Investing in your career 130


Exploring Entrepreneurial Options 131


Starting a small business 131


Purchasing a small business 132


Investing in a small business 132


Changing Jobs or Careers 133


The Young and the Unemployed 134


Understanding how joblessness can hit younger adults harder 134


Accessing unemployment benefits 135


Taking action 135


Part 3: Investing for Your Future Goals 137


Chapter 10: Successful Investing Principles 139


Understanding Investments 139


Examining bonds and other lending investments 139


Exploring stocks, real estate, and small-business investments 141


Getting a Handle on Investment Risks 148


Establishing goals and risks 149


Comparing the risks of stocks and bonds 149


Spreading Your Investment Risks 151


Understanding why diversification is key 152


Allocating your assets 152


Holding onto your investments and shunning the herd 153


Selecting an Investment Firm 154


Evaluating Pundits and Experts 155


Chapter 11: Making the Best Use of Bank Accounts 157


Identifying Your Options 157


Brick-and-mortar banks 158


Online banks 158


Other choices 159


Understanding Your Bank Account Options 159


Transaction accounts 159


Options for getting cash 160


Savings accounts 161


Banking Online 161


Evaluating a bank: What to look for 161


Protecting yourself online 163


Considering Your Alternatives 164


Brokerage accounts with check writing 165


Money market funds 165


Chapter 12: Portfolios for a Purpose 167


Before You Begin Investing 167


Investing Nonretirement Account Money 168


Emergency money 168


Long-term money 169


Investing Retirement Account Money 172


Establishing and prioritizing retirement contributions 173


Allocating money in employer plans 173


Designating money in plans you design 175


Investing for Education 177


Understanding the importance of applying for financial aid 177


Paying for educational costs 180


Chapter 13: Real-Estate Investing 183


Understanding Real-Estate Investment Pros and Cons 183


Evaluating Simpler Real-Estate Investments 186


Assessing Residential Housing Investments 187


Investing in Commercial Real Estate 188


Shunning Sure-to-Lose Real-Estate Investments 189


Researching Where and What to Buy 191


Considering economic issues 191


Taking a look at the real-estate market 192


Examining property valuation and financial projections 193


Digging for a Good Deal 195


Part 4: Insurance: Protect Yourself, Your Loved Ones, and Your Assets 199


Chapter 14: The Lowdown on Health Insurance 201


Making Sure You’re Covered 202


Transitioning your coverage 202


Seeing how the 2010 healthcare laws (Obamacare) changed your coverage 203


Trumpcare? 204


Finding Your Best Health Plan 205


Selection of doctors and hospitals 205


Plan benefits and features 205


Shopping for Health Insurance 206


Uncovering the best policies 206


Handling insurance rejection 207


Health Savings Accounts: Tax Reduction for Healthcare Costs 209


Chapter 15: Safeguarding Your Income 211


Protecting Your Income for You and Yours: Disability Insurance 211


Understanding disability coverage you may already have 212


Determining how much disability insurance you need 213


Identifying useful disability policy features 213


Shopping for coverage 214


Protecting Your Income for Dependents: Life Insurance 215


Assessing your current life insurance coverage 215


Determining how much life insurance to buy 216


Deciding what type of life insurance to buy 216


Shopping for life insurance 217


Caring for Your Loved Ones: “Peace of Mind” Insurance 219


Chapter 16: Home, Auto, Renters, and Other Insurance Policies 221


Protecting Your Home and Possessions: Homeowners and Renters Insurance 222


Dwelling coverage 222


Personal property protection 223


Liability insurance 223


Natural disaster protection 223


Shopping for homeowners insurance 224


Insuring Your Car 227


Liability protection 227


Collision and comprehensive 228


Riders you should bypass 229


Getting a good buy 229


Part 5: Your Information Diet 231


Chapter 17: Using Media Resources 233


Going Online: The Wild West of Advice and Predictions 234


Eyeing the real cost of “free” 234


Being aware online 235


Using the web for gathering information 236


Getting Financial Perspectives and Advice from the Media 238


Being a smart news consumer 238


Separating the best from the rest 239


Trusting unnamed “sources” is a bad idea 240


Understanding that political partisans are hazardous to your wealth 242


Chapter 18: Professionals You Hire 243


Seeing the Value of Professional Advice 243


Considering Financial Advisors 244


Preparing to hire a financial advisor 244


Finding good financial advisors 245


Interviewing advisors 246


Taming Your Taxes with Help 248


Working with Real-Estate Agents 249


Using Online Resources to Find Service Providers 251


Angie’s List 251


HomeAdvisor 252


Other resources 253


Part 6: The Part of Tens 255


Chapter 19: Ten Ways to Save on a Car 257


Don’t Buy a Car in the First Place 257


Pay Cash: Shun Leasing and Borrowing 258


Consider Total Costs 259


Compare New with Used 259


Understand a Car’s Real Value Before Negotiating 259


Take Care of Your Car 260


Explore Your Servicing Options 260


Drive Safely 261


Take a Lean and Mean Insurance Policy 261


Track Tax-Deductible Auto Expenses 261


Chapter 20: Ten Things to Value More Than Your Money 263


Investing in Your Health 263


Staying active and at a healthy weight 264


Using fitness trackers to monitor your activity level 264


Making and Keeping Friends 265


Appreciating What You Have 266


Minding Your Reputation 266


Continuing Education 266


Having Fun 266


Putting Your Family First 267


Knowing Your Neighbors 267


Volunteering and Donating 268


Caring for Kids 268


Chapter 21: Nearly Ten Things to Know About Apps 269


You May Well Get What You Paid for with “Free” Apps 270


Conduct and Manage Financial Tasks 270


Use Apps Only from Legitimate Companies with Lengthy Track Records 271


Consider the Alternatives to an App 271


Keep Focused on Your Spending 271


Settle up with Friends but Beware Fees 272


Save Money on Commonly Purchased Items 272


Tap Into the Latest Economic and Financial Data 273


Invest With Confidence 274


Investing in Your 20s & 30s For Dummies 275


Bonus: Investing in Funds: Mutual Funds and Exchange-Traded Funds 277


Understanding the Advantages of Funds 278


Maximizing Your Chances for Fund Investing Success 280


Understanding the importance of performance and risk 280


Examining fund management experience 281


Keeping costs down 281


Understanding and using index funds 282


Understanding exchange-traded funds: Index funds that trade 283


Creating and Managing a Fund Portfolio 284


Identifying the Best Mutual Funds and ETFs 286


Investing in the best ETFs 286


Picking the best stock funds 288


Balancing your act: Funds that combine stocks and bonds 290


Finding the best bond funds 291


Considering Alternatives to Investing in Funds 296


Your own online fund 296


Unit investment trusts 297


Brokerage managed accounts 297


Hedge funds for the wealthier 298


Index 299