Financial Milestones You Need to Hit Before 30
Warren Buffet said, “If you spend money buying things you don’t need, soon you’ll soon have to sell things you need for money.” You may not relate to these words early in your teens, but as you progress through adulthood, you will gain this stark realization. When you were younger, did you say “how I wish I can be an adult already so I can do the things I want?” Well, now that you are, you’ll also realize that being an adult is actually harder.
Living independently as an adult is an exciting and overwhelming phase. By now, you’re probably done with school, and you’re looking to enter the workforce. Most likely, you do not depend on your parents anymore to live and pay your bills. You begin contemplating about buying a home, investing in your career or business, get married and start a family. And in not
so very far future, there’s retirement to deal with.
Life is always a learning process, and it’s understandable if you don’t get everything correctly in your adulthood. But you should be taking your financial life more seriously at this point. You’re not a young kid anymore who asks allowance from his parents. You are now a fully-fledged grown up, and you have to take responsibility for your life. As an adult, you will make loftier goals, aspire for betterment in your career and strive for financial security. To help get you on the right track, attempt to follow these financial milestones.
12 Milestones to Hit Before Turning 30
If you’re wondering whether you’re a responsible adult or if you’re on track towards a more stable financial life in the future, here are the 12 critical financial milestones you have to reach in your adult life.
Establish Good Credit History
Perhaps you’ve started using credit cards in college and taken a few personal loans when you scored your first salaried job. But because you didn’t have a better understanding of credit history back then, you missed some payments, putting your credit standing in the red. Those were the days, but now, you should try to clear the tarnishes in your credit file.
As you grow older, you also begin to realize how much impact an excellent credit rating can do in your life. In fact, your credit rating is an essential benchmark for all your future financing opportunities, whether you intend to get a house, car or borrow money from a credit issuer. Lower credit rating can result in higher premiums and interest rates. It could also mean lower credit limit if you’re applying for a new credit card.
To enjoy better financing opportunities and have a wide range of deals to choose from, you need to act fast in improving your credit score and establishing excellent credit history. Start by diligently checking and monitoring your credit report. Strive to pay your loans, debts, and bills on time and use your credit card wisely.
Financially Independent of Your Parents
Your doting parents will try to support you every step of the way and every way they can, but as a young adult, you need to stand on your own two feet. Relying on your parents well into adulthood hinders you from taking charge of your life and prevents you from learning some of life’s finest lessons.
Living independently means moving out of your parents’ home and finding your own place. You’ll also have to be self-sufficient, funding your wants and needs in life with your income. At this point, your life takes a turning point when you become responsible for your own life, and you start making huge decisions without relying on your folks.
It’s also worth noting that being financially independent of your parents has a lot of benefits. By the time you’re in your 20s, your parents are probably nearing, if not already, in their retirement age. If you they don’t need to spend on your needs anymore, they get some extra money to sustain their own lives. You as well can take pride in being a responsible, independent human who can make his own financial decisions in life.
Living on a Budget
It’s difficult to achieve most, if not all, of your financial milestones without some budget. A budget is a tool to help you manage your income wisely and efficiently, yet it’s also one thing that some people have negative connotations on. They believe that having and following a budget limits them with what they can do with their money.
Proper financial management begins with a budget. Otherwise, it would be easy to overspend, purchase things on impulse and not know where all the money went. As you become more mature, you also become more conscious and aware of your financial situation. You’ll realize that you cannot spend money just indiscriminately because you’re starting to get serious about your goals. And living on a budget helps ensure that you set the appropriate amount for your goals.
Don’t think that a budget is holding you back. Instead, a budget lets you do many things that matter to you according to the realities of your cash in and outflows. Craft a budget that caters both your living needs and financial goals, and you’ll realize that you can still have fun with your money without being careless about it.
Have a Fully-Funded Emergency Fund
When you’ve started living independently, you can’t always expect your parents to bail you out in case of trouble, right? However, emergencies do happen, and while your folks can help you out, you should help yourself first. This is where an emergency fund comes in.
You should start establishing your emergency fund early on because an emergency never announces its arrival. When your apartment’s furnace breaks or when you need to go to the ER, the out-of-pocket expenses can hurt your budget and throw your finances off track.
It’s best to keep an emergency fund easily accessible. However, you need a lot of discipline not to touch it if the situation is, indeed, not an emergency. How much you keep in your emergency fund is a matter of personal perspective, but most experts agree that you need to have at least six months’ worth of expenses safely tucked away somewhere. It’s supposed to tide you over in case an urgent expense arises, or when you’re facing critical life changes, say an income loss. This way, you get to pay your bills and live your life normally while trying to survive the emergency.
Have Your Own Health Insurance
You will soon, if not yet, get uncovered from your parents’ health insurance policy. Make sure to get your own health insurance before you turn 26.
As a responsible grown up, you need to make sure that you have your health insurance in place, and better sign up before getting evicted out of your parents’ policy to avoid any lapses in contributions.
First, you can ask if your company provides health insurance. If not, or you feel that the coverage isn’t extensive enough, shop for your own policy. Healthcare costs are mounting every year, and like most emergencies, you cannot predict when an illness could hit you. Spending out-of-the-pocket for every medical emergency can throw your budget off whack and adds to your financial stress. Start looking and contributing for policy that best suits your needs and meets your budget.
Start Saving Towards Retirement
Ideally, you should already start saving towards retirement from the very first paycheck of your tenured job. Retirement savings works with compounding interest, so the earlier you start contributing to it, the more significant your retirement nest will be. Otherwise, you’ll play catch up in your 40s and 50s, and you would miss out on all the possible growth have you started saving in your 20s.
Most young people who are getting their first dibs on being financially independent take retirement savings to the back burner. It may not be your priority yet, but you also don’t want to ignore it altogether. You can start as low as 5% of savings off your salary, then aim to bank at least one-year worth of income by the time you reach the age 30. If this is not possible yet for your current income, aim to save $25,000.
As you earn more and eliminate some of your debts, you also gain some more money to fund your retirement. Should you finance your retirement first or your child’s college education, you might wonder.
Well, the answer is up to you. But consider this: your kid can probably go to college by taking student loans and perhaps some funding from you, but it would be tough to live on pension alone and without a substantial nest egg. Worse, you’ll be forced to work again just to afford your retirement lifestyle, when you’re already old and fragile.
At this point, your youth has probably taught you a lot of lessons regarding finances. And hopefully, one of them, is that having debts adds to financial stress. It’s understandable if you’ve made some debts back in the days when you were younger, but as your age adds up year after year, you also need to try to crush those debts to the best that you can.
Your student loans should be gone, if not significantly reduced by the time you hit 30. You should also have zero credit card debt because you’re paying your bill in full every month. Most, if not all, of your short-term consumer debts, are down to zero. Perhaps you still have mortgage to pay like most people do, but your car should already be fully paid-off way before.
Don’t wait long before you start tackling your debts. You should already try paying off your student loans when you score your first job. It’s possible to acquire a few more long-term debts when you apply for a new home and car, but never neglect your credit card bills. And as you eliminate some of your debts, use that extra money to pay off other debts aggressively. Strive to be debt-free before you retire so you can enjoy your retirement money without owing anyone.
Have an Investment Portfolio
Saving your money in your bank account will not get you very far. When you factor in low interest and high inflation rate, you’ll notice that the slow savings growth is hardly making a difference. As you become more settled into your job and learn the art of balancing your finances, you can already start investing.
Investing can feel like a complicated affair, but you don’t have start with those you don’t understand or unfamiliar with just yet. As you try to learn the ropes of investing, you can start small and simple, say mutual funds and stocks. And since you also have to take your risk tolerance into account, it’s best to study any investment vehicle you’re interested in.
Remember, investment grows with compounding interest and it’s a secret to building wealth for the long-term. Over time, your financial situation will change, and most likely you will have to check and balance your investments. The market is volatile and constant flux, but having a portfolio, and ideally a diversified one at that, can certainly help you cope.
Maximize Employer Benefits
It’s also important to understand your company’s retirement savings policy. In most workplaces, employees get to contribute to retirement plans like 401K and Roth IRA. In this setup, your company matches your retirement contributions, therefore growing your retirement savings even faster. Max out those matches as much as possible, because you’re essentially getting free money you can use in your golden years.
One of the advantages of workplace retirement plans is that you can automate your contributions. This way, you’re always saving from each paycheck you earn, even before you get to withdraw your salary. When it’s out of sight, it’s out of mind, and before you know it, your retirement fund has grown incredibly.
Have Life Insurance & a Will
When someone depends on your income for their living needs, you must consider signing up for a life insurance. Nobody likes the grim idea of death, but having life insurance ensures that your beneficiary, be it your parents, children and/or spouse, can still finance their lives even after your passing.
You must also re-evaluate your policy when you get married and make sure to update your beneficiaries. Life insurance is important whether or not you and your spouse are both working because your family as a whole is dependent on your income. Also, the loss of your income, especially if the other partner is not working, can cause instant financial difficulties upon your passing. Life insurance is one thing you need to invest in to ensure that your family can go on with their lives even after your death.
As adult, you also need to start considering writing a will. A will is legally binding document that dictates where your assets should go in time of your death. Without a will, the state will decide on your hard-earned money and properties which can potentially leave out your living loved ones. Preparing both will and life insurance can feel grim and depressing, and while you can only wish that you never have to use them, we all come to an endpoint. What matters most is that you’ve done the right thing in protecting and providing for your loved ones while you’re still alive.
Responsible Credit Card Use
Most adults have at least one credit card to their name. Credit cards allow you the flexibility and convenience that cold cash can’t provide, but it’s also a tool that can keep you in a financial rut for a long time.
You may have used the credit card unwisely in your younger years. But now that you’re set to tackling your debts, it’s high time you become more responsible with your plastic money. After all, you wouldn’t want to bring all that credit card debt well into your retirement, or worst into your grave.
The key to maximizing the benefits of credit cards and keeping risks low is to have enough that serves your needs. You can probably live with just one to three credit cards, but having seven or twelve of them can only complicate your finances.
Also, make sure to charge purchases that you’re 100% sure you can afford and pay on time. It’s also advisable to not exceed your credit limit. Instead, keep your bill at most 30% off your available credit. Check your credit report regularly and dispute any inconsistency. Using your credit card wisely can bring your credit score up, which in turn, can bring in better financing options in the future.
Regularly Avoid Impulse & Unnecessary Expenses
Are you still that young and immature person who takes out his wallet the moment he sees a sale sign flashing in the store? Hold your reins because your impulsive expenses will only bring your finances down.
It’s about time you master self-discipline and restraint. Come to think of it, do you really need a new vacuum, a new coffee maker and a new couch and then charge them all to your credit card? You might feel temporary bliss seeing new shiny things, but that would soon ebb away with the realization that you’re acquiring more liabilities, and not assets.
At this point of your life, be more wary and thoughtful of your purchases. If possible, ponder for a huge-ticket purchase for at least 48 hours. By then, you would know if you’re truly committed to making that expense (and chances are, you would have changed your mind). If you’re prone to making impulse purchases, set a “fun budget” that you can spend any time on whim, without the guilt and avoid ruining your entire budget.
The financial life in your adulthood is very different than when you were in your teens. You’re now responsible of your own income and bills, so you need to act and decide with caution.
Also, now that you’re starting to build a larger picture of your financial life, you’re also considering the more serious stuff like investments, retirement and life insurances. Don’t fret if you’ve not started with them right now, but you should start acting on them soon.
Lastly, do remember that even old and matured adults make financial mistakes. You don’t have to get it right every time, but you must have the will and intention of doing things properly. You will go through phases in adulthood like moving up in your career, getting married and expanding your family. Soon enough, you’ll be facing the idea of retirement. Hopefully, you have achieved and mastered the financial milestones listed above so you can go through the motions of adulthood with relative ease and lesser financial stress.
Cary Silverman is a consummate entrepreneur having sold multiple companies during his 20 years of business experience in the financial industry, but for him, it isn’t about the money. His success is rooted in his passion to focus on doing something better today than it was done yesterday. These days, he’s the CEO of Waldo General, Inc. that oversees the operation of King of Kash.