Young professionals have a ton on their plate, which often creates a paradoxical financial conundrum. With all the time spent on socializing, education, career, technology, and everything else — how is one supposed to focus on personal finance goals? The paradox is that there may be no more important time in your life than your twenties (to mid 30’s) to hit high impact financial milestones.
Not everyone will have the resources to hit all of these targets by the age of 30; however, there’s no harm in striving to reach these goals. In fact, you can only benefit from doing so. Below are 5 financial milestones to aim for along with recommended turbo-charged “all-star” action items. How many will you be able to cross off the list? What other goals would you recommend adding?
Image from AngerOnMyMind.com
Setting Goals: 5 Financial Milestones to Aim for By Age 30
1. Contribute to a Roth and a Traditional IRA
Look for a no-fee IRA through a discount broker. It will literally take you 10 minutes to open an IRA account — the hard part is being disciplined enough to keep funding it. Having both a Roth and a Traditional IRA gives you the opportunity to split your tax benefits between the present and your retirement. For more tips on IRAs, including the recent updates to Roth IRA regulations, check out this post on IRA contribution limits.
2. Build Six Months Worth of Expenses in your Emergency Fund
If we’ve learned anything from living through a recession, it’s that nobody’s job is truly safe (and there are times when jobs can be hard as hell to get). After seeing my wife get laid off for several months during the last slowdown, I can personally speak to how thankful you will be towards having a financial safety net. We were lucky that she was out of a job for only 3 months — it has taken many others much longer to recover. Without our emergency fund to back us up, we might have had to rack up high-interest consumer debt. Had it been longer, we might have had to sell our home.
3. Make the Credit Card Companies Hate You
I don’t advocate ditching your credit card, unless you carry a balance month to month. A long and solid credit history pays dividends in the long run. If you avoid miscellaneous fees and penalties and collect rewards without incurring unnecessary expenses, then having a credit card can be a useful and integral part of a solid financial portfolio. Just make sure that you don’t win any “customer of the year” awards from your credit card companies (hint: their favorite customers rack up lots of fees).
4. Collect your Full “Pension”
Pensions are a thing of yesteryear, right? Yes, but their weaker replacement, the 401(k), should be taken advantage of to the fullest. It is a crime not to get at least your employer’s full matching contribution in your 401(k) on an annual basis, if you have the funds to do so. Besides collecting that match, you should also think about simultaneously contributing to your IRAs, which you have a lot more control over; in fact, you may want to consider funding your IRA first before maxing out your 401(k).
5. Create a Monthly Budget Plan
Expecting financial success without a budget is equivalent to an explorer finding new land without a map or a compass. A few hours set aside to create a monthly budget covering all income sources and expenses may yield you the best return on investment you will ever see. Want a template to start? Check out this free budget planning worksheet. Too lazy for the manual? Many budgeting software applications like YNAB are available for you to try.
To The Digerati Lifers
Some food for thought:
- What would you add to or subtract from this list?
- In your opinion, what is the most important thing to accomplish financially by the age of 30?
- How many of the 5 financial milestones have you completed already?
This is a guest post from G.E. Miller, who focuses on personal finance topics for young professionals at 20somethingfinance.com. He also writes for Mint and works full-time for a Silicon Valley outfit.
Created January 1, 2010. Updated November 8, 2011. Copyright © 2011 The Digerati Life. All Rights Reserved.
{ 21 comments… read them below or add one }
Another good addition, if you want to work in the field of finance is to get your MBA BEFORE you turn 30, so you have a longer time to leverage your degree.
Over 30, a lot of new stuff pops up, as well as expenses, so best to get as much education as you can in your 20’s.
I have read this article in my mailbox itself and attracted me a lot. Even I am planning to write similar but have seen same kind here. I have given special attention on the emergency fund and budgeting part and both was my resolutions for last year and beautifully completed these resolutions before the end of 2009. As I don’t have practice of using credit cards, I am little bother in that.
This is a good article from Miller to help setting new resolutions for readers.
Hey, I thought I’d probably be struggling to come close to any of the five based on the title, but I’ve actually accomplished two of these and have a handful of years yet to go. I’m not so sure that the participation with financial products is as important as personal discipline and good organization, but I guess there are plenty of routes that are best started early on, if that’s your cup of tea.
I’d add the occasional responsible yet enjoyable splurge purchase to the list –being able to keep a healthy financial net while also enjoying it in the present is a pretty great skill to cultivate, imo.
I’ve accomplished all of these (with some caveats–I make too much money to invest in a Roth, for instance, and the last time I had a job with a matching 401(k) was 2001–and I got the full match.)
Before 30, I’d say the most important thing is to get off the consumer bandwagon and save/invest as much as you can. Too many people my age (I’m 28) buy all the latest cell phones, MP3 players, TVs, digital cameras, etc. without thinking about their future. Get a budget set up, understand where your money goes every month, and then get really well-versed in needs vs. wants. Cut back your “stuff” expenditure by 50% and use that money to invest in your future.
Also: learn to cook.
-Erica
I would add:
Have open discussions with your manager about your financial goals at the beginning of every year. Be sure to outline the actions that need to be taken to achieve your goals. Most importantly, complete these actions and make sure your boss knows it!
All too often we concentrate on reducing expenses and fail to take action to increase your income. Only when cut our spending and increase our income can we accomplish all of our financial goals.
Generate passive income!
I’d add:
Whatever you do, and no matter how old you are, GET STARTED!
Too many times we postpone getting started on a 401K, or even on making up a simple budget plan, because we are constantly waiting for the “right moment” to do so. There’s not going to a perfect time to do any of these financial moves. Even if you end up with an imperfect solution, that will be better than no solution at all.
I was going to say that 6 months of emergency fund isn’t enough but I see that you already set it at 1 year. Even that is not safe. With the recession-almost depression happening, depending on a year of money isn’t enough. How can you depend on money if its value goes way down? Also, let’s say that the present recession lasts just enough for your emergency fund. What now? In my opinion, the best financial milestone to aim for by age 30 is to be independent from the dollar. So that when the next recession kicks in, you won’t be affected.
Good ideas. I would substitute develop a long term saving account (for house, new car…) over budgets but I know some people really find budgets useful. I just never have had any use for doing them. I also have increased my target emergency fund from 6 months, given 2 realities of our modern world (say the last 20 years and increasingly so): more instability in the job market and high cost of health insurance if you lose your job.
Happy that you’ve compiled new insights on numbers 3 and 5. 🙂 I have already learned as well that setting aside budget plans can always give a wrinkle so it should always take part in the to-do list that will not keep you from worrying aside from managing whole lot of projects in your desk. Thanks for the template, made life easier!
I am turning 30 this year, and definately have some work to do in the emergency fund department.
-Dan Malone-
Good to know, I turn 30 in eight months…
1) I have been maxing out an IRA since I was 25.
2) I have a years worth on living expenses saved.
3) I have no debt except my mortgage and the credit cards must hate me! I get about 300-500 bucks in rewards every year but have never paid them interest or fees.
4) I am contributing up to the match in my 401K but have never maxed out for a year and probably never will.
5) We have been living on a budget since I was 22.
Go me!
Counter intuitive & very controversial idea that I read once that I liked – lose it all before the age of 30 😎
Principal behind it – take shots investing and educating yourself on learning how to expand your income. Consider the lost money the cost of financial education. You can do this earlier in life and potentially lose a chunk of your money without severely damaging your future. It’ll also teach you not to fear rock bottom (having no money).
Ideally you don’t really wipe yourself out though!
I like Dan’s take on this. Your 20’s are a time to be risky with potential investments and businesses. It’s the best time to live way below your means since you don’t have a family or house yet so you can avoid a ton of expenses and leverage what you have the most of… time.
If you work towards things you enjoy you shouldn’t really be retiring in the future anyways, right? I fund my retirement accounts at the moment, but am skeptical about the idea of ever retiring because it just seems like one of the most boring things in the world. I would much rather work until I die, make significantly less and take greater risks. I do agree with your list though, but it might not be as possible if you’re taking chances in your 20’s.
I’m 30 right now and in the same boat as JEM above.
I’ve accomplished all of what is listed and have just 40% of the market value of my home left on a mortgage. I would pay the mortgage out, but my variable rate mortgage is at Prime-0.5% for the next 3 years (Right now I am paying 1.75%). As you can see, it doesn’t make any financial sense to pay off a mortgage when I am paying so little interest.
I’m much better investing that money (in dividend growth stocks) and if (when) rates climb, I can always liquidate some of my holdings to pay off the mortgage when the ROI of paying down the debt becomes greater than investing the money. Also, agree with getting your MBA as soon as possible if you work in finance. It has helped me ramp up my career much quicker.
Thanks for the great tips.
Tyler
I was shocked when I realized that I have accomplished all 5! Like JEM said, yay! go me! I do still need to do a lot more to improve my finances.
I would add getting life insurance to your list. Aren’t the rates lower when you get it while you’re still young?
I am 27 and my husband is 26. We make a combined $62,000 a year after taxes and seem to be on track:
1) I have been maxing out a Roth IRA since 2007. We are opening one for my husband this year once he finishes graduate school since that money will be available for investing.
2) We have 6 months of living expenses in our emergency fund right now, and that will be increased to a full year by the end of 2011.
3) We have used credit cards since we were 18 and have never incurred any fees or interest. Ever. We receive $300-$400 a year in rewards. We bought our home in 2007 with 20% down and will have paid it off by 2016 (maybe sooner). We do have a used car loan, but it is at 4.1% and the house is at 5.375%, so we are overpaying the house and paying off the car by 2011 as normal. My car is paid off, is 5 years old, and has a little less than 38,000 miles on it…it should be fine for at least a few more years.
4) I am contributing the maximum my employer will match in my 401K (6%) but we will probably never max it out completely. My husband has a pension plan, we will both have Roth IRA’s, I have a 401k, and we hope to buy a rental property in the next few years and/or will rent out our home when we move. We just don’t have enough excess left to max out a 401k and have any fun at all.
5) My husband and I have been living on a budget since we started college at 18. I took over my college costs completely at 19 and worked 2-3 part-time jobs any given semester to cover what my scholarships couldn’t. We got married when he was 21 and I was 22 and have continued living frugally to reach our goal of retirement by age 52. We also have cable, a maid, yard service, and an annual vacation fund…we do live life now, we just live it cheaper than most.
We have hit everything on the list except for having a Roth IRA for my husband, which will be opened in June…not too shabby for an office worker and a teacher. 🙂
I agree with so much that’s been said, the last point, #5 is very important -– writing a monthly budget and reviewing it, helps a lot.
You’ve made some great points. I love point number 2: emergency funds are an essential part of our finances!
Digerati almost without fail provides accurate truthful information on financial and business issues. Keep up the good work! I am probably older than most of the commenters (@ 57) and I am doing fine. If I had implemented the above in my 20s, I would be in a much stronger position now. My dad was born in 1921 and lived thru the depression, fought ww2 after I got out of grad school, he told me to pay yourself first. At 24, I did not get that, but now I do! 😉 The key to financial success and security is more about how little you spend and how much you save, than how much you make. Making $150,000 a year and spending every penny is not the way.
The other thing to consider is home ownership….in spite of the disastrous time that much of the real estate market in the U.S. has gone through, sooner or later it will take off again…and when you turn 50, there are two types of people…those who own their own home, and have paid it off (hopefully), and those who are still renting…at that point in life, the ones who own their own home are in a much better position than those who don’t.