Context
Your Money Life is a book series by Peter Dunn that advises readers at every decade: 20s, 30s, 40s, etc. on financial prudence.
Summary
This book proposes three “essential truths” about one’s thirties:
- Your housing decisions can break you.
- Get out of your past.
- You are not the passenger of your financial life.
The Past chapter concerns debt. In it, Dunn discusses the various types of debt and how to pay them down with various strategies.
The Present chapter concerns spending. Mitigating unnecessary expenses like groceries, dining out, and utilities are key to increase cash flow. This is the typical, “don’t go to Starbucks or eat avocado toast” financial tribble.
The Pie chapter proposes a budget breakdown. Dunn suggests this layout for post-tax income as follows:
| Category | % of Income |
|---|---|
| Housing | 25% |
| Transportation | 15% |
| Groceries | 12% |
| Savings | 10% |
| Utilities | 10% |
| Holidays/Gifts | 5% |
| Charity | 5% |
| Clothing | 5% |
| Entertainment | 5% |
| Misc | 3% |
The Possessions chapter gives common sense understanding of the major purchases in life: the automobile and the domicile. When making these critical decisions, one must account for everything. In housing, understand the interest rate tradeoffs of a 15 year versus 30 year loan. In the vehicle, he emphasizes the realistically assess the car costs including tires, oil changes and washes.
The Picture chapter explores credit reports and how to build credit. He explains how credit score is calculated:
| Factor | Weight |
|---|---|
| Payment history | 35% |
| Outstanding amounts owed | 30% |
| Credit history | 15% |
| New credit lines | 10% |
| Types of existing credit | 10% |
Your goal should be to rectify your credit and never drop your score again!
The Piggy Bank chapter discusses saving and investing. The book illustrates the following example of a conservative 8% return portfolio. Consider stashing away $5,000 per year for 5 years, then never investing again. In a portfolio yielding 8%, that initial piggy bank would amount to $100,493.13 after 20 years. That is, in fact, the same sum one would make by saving $5,000 every year for 20 years stuffed under the proverbial mattress: $100,000. Therefore, for a quarter of the effort, one gains the same result by compound interest. Hence, Albert Einstein’s quote: “compound interest is the eighth wonder of the world.”
The Pitfalls chapter engages insurance (health, car, renters, homeowners, life and disability). Insurance is a burden until it is needed, therefore, get a trusted insurance agent to accurately assess personal risk tolerance to mitigate overspending on life’s potential disasters.
The Plan chapter enumerates financial goals to hit by turning forty years old:
- Free of student loan debt
- Securing an emergency fund of at least three months’ expenses
- Freeing up 10% of income to a company-sponsored retirement plan
- Hitting a net worth of $250,000
- Be within 15 years of paying off your mortgage
- Freeing up 20% of your take-home pay for saving and investment
Key Takeaways
- Housing is the single most consequential financial decision of your thirties – getting it wrong can derail everything else
- Debt from your twenties must be actively eliminated, not passively carried
- The 25/15/12/10/10 budget split gives a concrete framework, even if the numbers need adjusting for your reality
- Compound interest is transformative: $25,000 invested over 5 years at 8% equals $100,000 saved over 20 years at 0%
- Credit score is built on payment history (35%) and amounts owed (30%) – focus there first
- Insurance is the cost of protecting against catastrophe; assess risk honestly, don’t over- or under-insure
- By 40: zero student debt, 3-month emergency fund, $250K net worth, 20% savings rate
Review
“Your Money Life: Your 30s” cannot serve as a proper guide for the average American to produce the next generation; therefore, it is largely junk.
What does this book say concretely? Let’s take the average American single income filer Q4 of 2023 was $59,384. That yields roughly $3,925 monthly take-home pay depending on state taxes.
Ultimately, what you’ll have is $981 for housing, $588 for transportation, $471 for groceries, $392 for savings, $392 for utilities, $196 for holidays/gifts, $196 for charity, $196 for clothing, $196 for entertainment, and $117 for miscellaneous.
On the other hand, the average household income as of 2022 in the USA was $74,580, yielding roughly $4,767 monthly take-home pay.
That household, then, gets $1,191 for housing, 715 for transportation, $572 for groceries, $476 for savings, $476 for utilities, $238 for holidays/gifts, $238 for charity, $238 for clothing, $238 for entertainment, and 143 for miscellaneous.
If these numbers don’t make sense to you, you are not alone. Let’s try to fix it. Cut the charity immediately to go into housing. The budgeted $1,191 will barely get a one bedroom, one bath thirty minutes away from a metropolitan area. The $572 for groceries? The inflation of 2024 makes this number laughable. On a positive note, the $476 monthly invested in a an 8% returning portfolio will yield $87,084.53 after 10 years. Nevertheless, how will you stash that savings away when children enter the picture?
By admission, Dunn’s budget spread ignores student loans, vacation, and other types of debt. It also ignores, openly, costs of raising children: college tuition funds, recreational activities, clothes, food, diapers, toys and daycare.
Yes, the American dream is truly in peril when raising a family for the average American requires gutting a healthy budget. As usual, the status quo does not suffice. The pop-finance of yesteryear, just nine years ago in this country, is wildly out of touch with the needs of the red, white and blue household.
Apparently, your money life in your 30’s will leave you childless, unless you and your partner rise above the fray economically or choose to forego savings of any kind. Therefore, the book is bankrupt on all accounts.
I will be throwing it away now.