30 things to know about money before you turn 30

It's National Financial Literacy Month: How wise about money do you really feel? Sure, you could school some teens about the pain of student loans once you're in the real world, but you've got plenty to learn, too. 

Yes, Americans of all ages could use a refresher on money — which is why 20-somethings are in an ideal position to get ahead as young adults. Yet just one quarter were able to correctly answer all three questions in a quiz measuring basic financial knowledge, per a 2015 San Diego University study reported by Money. The average respondent got just 1.8 of the three questions right. 

While focusing too much on financial literacy — or lack thereof — verges on victim blaming, it's still a good idea to get some basic money facts down if you want to achieve financial success.

Not sure where to start? Check out this guide to 30 things you should know before you turn age 30.

1. How to calculate your net worth, and why it matters

Your net worth is like your financial report card. You calculate it by adding up the value of what you own minus the total that you owe. While many start out with a negative net worth, you want to improve over time. Track your progress and make tweaks, like accelerating debt repayment and putting more money towards investing, if your net worth isn't growing. 

2. How to check your credit score and report

"A 30-year-old with poor credit is likely to pay a quarter-million dollars more in interest payments over her lifetime," CBS reported. Check your report from AnnualCreditReport to ensure you aren't among the 1 in 5 Americans with a mistake. You can pull reports from each of the three credit bureaus once a year, so check your report every four months. Use services like Credit Karma or Credit Sesame to track your educational credit score — or get your real one.

3. How to make — and live by — a budget

Only around a third of families have a budget, according to a 2013 Gallup poll. Not having one can lead to irresponsible spending and make it harder to accomplish your goals. Try out different budget methods — like envelope-based budgeting or the 80/20 rule — to find a budget that works for you. Then, live by it to make the most of your money. 

4. The true costs of renting or homeownership

You have to live somewhere. Renting means you're not building equity, but aren't responsible for maintenance and upkeep. Homeowners tend to accumulate more wealth than renters because they build up equity, but buying requires a big down payment and, ideally, an emergency fund to cover costs of home maintenance and a mortgage if you lose your job. 

5. How much kids will cost you

Having kids isn't just a financial choice, but you should know how much they cost before taking the leap. If you're going to have kids, expect a big portion of your budget will go to meet their needs. Start saving for college really early because it could cost $500,000 by the time your kids are ready to go. 

6. How to negotiate to get big financial benefits

Negotiate your salary to boost your income. Bargain with creditors to lower your interest rates. Chat with your cable company for a lower monthly bill. There are endless examples of how you can improve your financial situation. Learn some negotiating skills and save money with a few phone calls.

7. When you'll be debt free 

The average American pays around $280,000 in interest over their lifetime, according to Credit.com. Know when you'll be able to pay off your balances. Look at your loan amortization schedule for student loans and mortgage loans for the payoff date. Check your credit card statement or use an online calculator to see when your card will be paid off. If you'll owe for longer than you want, increase your payments to pay down debt faster. 

8. How to make an estate plan

No one wants to think about a serious illness, an injury or death but you need to express your preferences for medical care in an emergency and specify who gets your stuff if you pass away. Create advanced healthcare directives for healthcare and make a will. Estate planning is even more essential once you have kids, in case something happens to you before they reach adulthood. 

9. How much you'll need to retire

You need to know your retirement savings goal so you can make appropriate contributions to meet that goal. One rule of thumb is to multiply your desired retirement income by 25. If you want to have $50,000 to spend in retirement, plan to have $1.25 million saved. You can also use retirement calculators to determine the total amount you should save.

10. How inflation works

Inflation is one big reason it's a bad idea to keep savings under your mattress — the money slowly but surely loses value. Inflation happens because the price of goods and services is constantly going up over time. As the price goes up, your dollar is worth less and your purchasing power is declining. Central banks, like the Federal Reserve, try to keep inflation limited, but inflation is a fact of life. Without inflation, a movie would still cost $0.36. 

11. What liquidity is and why it's so important to have liquid assets

Liquidity refers to how quickly an asset can be turned into cash. Cash is obviously the most liquid asset since it's already money usable for anything. Real estate is an illiquid asset because selling is time-consuming and complicated. Other assets, like certificates of deposit, fall somewhere in between because there may be a penalty to sell quickly or you may have to sell at less than face value. You need liquid assets for an emergency.

12. The difference between assets and liabilities

Assets are resources you own that provide you an economic benefit. Liabilities are obligations that impose costs upon you. Investment accounts are assets. Student loans are liabilities. There's a lack of consensus over whether a primary home is an asset because it can go up in value, or a liability because it comes with ongoing costs like property taxes and maintenance. Everyone agrees, though: The goal is to have more assets than liabilities. 

13. What asset allocation means

Asset allocation refers to different kinds of assets you own. You don't want to only own real estate. You want to own assets in different categories, like cash, real estate, stocks and bonds. You also want to divide up investment dollars into different asset classes: don't own all retail store stocks or all energy company stocks, for example. Invest in many different things so if one part of the economy sucks, your whole life savings won't suffer. 

14. What prime rate means

Prime rate is the interest rate very trustworthy big borrowers are charged by commercial banks. This rate serves as the reference point for other financial institutions when they set the loan interest rates they charge the average person — like you. If you ever borrow at a variable rate — like if you take an adjustable rate mortgage — it will often be linked to the prime rate. Your interest rate might be prime +2, so if the prime rate was 4%, you'd pay 6%. 

15. How credit scores are calculated

Your credit score is calculated based on your payment history, the amount of available credit you utilize, your mix of different kinds of accounts, the length of time you've had credit and the number of inquiries on your report from lenders when you applied for new credit. Avoid closing old accounts, opening too many new ones or maxing out credit cards to protect and improve your score. 

16. The way Annual Percentage Rates work

You may have heard the term APR, referring to the interest you will have to pay for your credit card or mortgage, for example. As ValuePenguin explains, let's say you carry a $5,000 balance at the beginning of a 25-day billing cycle, following a charge on a credit card with an APR of 15%. Because of the way interest compounds, you'll actually end up paying more than $50 in interest charges — or a 1% interest rate for the cycle.

Confused? NerdWallet has an even simpler example: "Let's say that your average daily balance was exactly $1,000 for the entire year. If the bank had a 15% interest charge just once at the end of the year, you'd pay $150. But since your interest compounds — meaning, the interest gets added into your balance, and then you pay interest on that interest — you're actually on the hook for more than $160."

17. How compound interest works — and why it matters

Speaking of compounding, compound interest can make you very rich or very poor. Compound interest is interest calculated on principal (initial loan or investment) and accrued interest. If you make 10% on a $100 investment, you have $110. Because of compound interest, interest now accrues on $110. If you make 10% again, you now make $11 instead of $10. Over time, this adds up. Great if compound interest helps investments grow, but very bad if you owe money and pay interest on interest.

18. How to do your own taxes

Taxes are inescapable and you'll be doing them forever. Paying a professional is often unnecessary, unless your taxes are really complicated. You don't have to fill out old-school forms from the IRS, but you should find a free or low-cost software tool you're comfortable using so you can figure out how to maximize deductions and pay the IRS what you owe.

19. How tax rates work

If you are in the 25% tax bracket, this doesn't mean you literally pay 25% of your income. Because of marginal tax rates, when you jump into a higher bracket, you pay a higher rate only on part of your income.

For example: You're in the 10% tax bracket if you make up to $9,275 and the 15% bracket if you make between $9,276 and $37,650. But if you earn $9,276 or more, you pay 10% on the amount up to $9,275 ($927.50) and then pay 15% on every dollar of income between $9,276 and $37,650. 

20. The difference between tax deductions and tax credits

Tax deductions and tax credits aren't the same. A deduction reduces taxable income and savings is determined by tax rate. Need an example? If you make $20,000, are in the 15% tax bracket and take a $1,000 deduction, you reduce taxable income by $1,000, pay tax on $19,000 and save $150 (15% of $1,000).

A credit, on the other hand, is a dollar-for-dollar reduction on tax owed. Way simpler. If you owe $1,000 and get a $250 tax credit, you save $250 and only owe $750 in taxes now.

21. What capital gains and capital losses are

If you sell an asset for more than you paid, you have capital gains. If you bought $100 worth of stock and sold it for $1,000, you have $900 in capital gains. If you sell an asset for less than you paid, you have capital losses.

You're taxed on capital gains at a different (typically lower) rate than regular income, and you can deduct capital losses to reduce gains. If losses exceed gains, declaring losses can reduce regular income up to a $1,500 for singles and $3,000 for couples — which helps save on taxes.

22. What kinds of accounts to use for saving and investment

Different kinds of accounts are best for different purposes. If you are putting aside money that you may need, like cash for an emergency or an expense you'll incur in the next two years, use a high-interest savings or money market account, or consider breakable CDs. If you're making longer-term investments, a brokerage account that allows you to invest in stocks, bonds and mutual funds is a better option. 

23. What accounts give you tax breaks for retirement

A workplace 401(k) allows you to invest up to $18,000 annually with pre-tax funds (as of 2017) for retirement. Your employer may match part of your contributions; always invest up to the match. An IRA, which you open yourself, lets you invest up to $5,500 tax-free annually (as of 2017, depending upon income). Roth IRAs allow investing with after-tax money, but you get tax-free gains. Know the rules to take advantage of tax breaks.

24. The difference between a bull and bear market

A bull market occurs when prices are rising, or expected to rise, in the stock market. A bear market occurs when prices are falling. Some investors try to time markets by buying early when prices are expected to rise. It's really hard to time markets and you usually shouldn't do it. But you should still know what these terms mean.

25. The difference between stocks, bonds, mutual funds and ETFs

Stocks are ownership shares in companies. Investment performance depends on company success. If you buy many different stocks, you limit risk and may earn higher returns. Bonds are debt from governments or companies. Risk depends on a borrower's creditworthiness. If you buy a bond from the U.S. government, risk is low since default is unlikely. Riskier bonds have higher rates of return.

A mutual fund pools your money with many others', and the fund buys a mix of other assets, like stocks and bonds. Finally, ETFs, or exchange-traded funds, allow you to buy into a basket of securities built around an asset class, such as an ETF that tracks stocks in the S&P 500. ETFs are like mutual funds, but are traded like stocks.

26. What diversification is and why it matters

Diversification means not putting all your eggs in one basket: It's not investing your whole retirement fund in the stock of your favorite company but a mix of different assets. One option: Invest in mutual funds for diversification across asset classes. Or consider ETFs. "Exchange-traded funds afford investor access to narrow markets such as commodities and international plays that would ordinarily be difficult to access," explains Investopedia.

While mutual fund prices are determined once daily after the market closes, ETFs can be traded throughout the day. You can purchase as little as a single share in an ETF, which means you can avoid minimum investment requirements many mutual funds have. 

27. How to measure return on investment

Return on investment is the amount you make, or lose, relative to the amount invested.  To calculate ROI, divide the amount you made on an investment by the investment's cost. Since ROI is usually expressed as a percentage, multiply this number by 100.

This calculation makes it easy to assess relative performance of different investments. If you invest $1 and end up with $2, your ROI is equal to $1 (profits) / $1 (cost) x 100 = 100%. This is a better return than if you'd invested $100 and ended up with $101 — even though you made a dollar on both investments. The ROI on the second investment — $1/100 x100 — is only a 1%. 

28. What your risk tolerance is

Riskier investments can produce higher rates of return; safer investments tend to produce lower rates of return. Make a calculated decision about how much risk you're willing to take on. You don't want your money in a safe deposit box where there's no risk but no gains.

You also don't want to give your life savings to Uncle Joey to bet in Vegas, even if he promises you a 1000% return. When you're younger, you can afford riskier investments because you have more time to recover — but take reasonable risks and don't give Uncle Joey money.

29. How to calculate fees on investments

Some investments, like mutual funds, come with fees and expenses. Fees can cost you a fortune. Before you make an investment in ETFs or mutual funds, use a tool like the Mutual Fund Expense Analyzer from the Financial Industry Regulatory Authority. A prospectus for each investment should also list fees and expenses you'll have to pay. 

30. How to rebalance your portfolio. 

Don't just assume you can buy investments and sit back and count your cash. "As market performance alters the values of your asset classes, you may find that your asset allocation no longer provides the balance of growth and return that you want. In that case, you may want to consider adjusting your holdings and rebalancing your portfolio," FINRA advises.

If some of your asset classes overperform others, you can sell off a portion of these assets to buy more investments that are currently lagging. If you're using robo-advisers, you may not have to worry as much about actively managing investments. But you still want to keep an eye on your portfolio.

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