College is over and late nights followed by even later mornings are all but a thing in the past. You may find yourself thinking about your future in ways that you never have before. Focusing on things like marriage, children, careers, homeownership or a combination of all. “What could this shift in thinking possibly mean?” you might ask. Yes, you got it, you’re growing up. Don’t worry this is good thing, but as your lifestyle and priorities change, certain financial practices should begin to change too. Below we have compiled a list of 9 financial steps to take before you hit the glorious 3-0.
Step 1: Make a game plan
You know the old adage, “those who fail to plan, plan to not retire until they’re 100.” I think that’s how it goes. The point is make a plan. If you’re starting out fresh in a new career or have been working for a few years, now is the time to start setting financial goals for yourself. Here’s the thing: if you have a goal with no written plan of action, you are far less likely to achieve it. Sit down, put pen to paper or download one of the many financial planning apps and get to it!
Step 2: Save your money
If you’re in your twenties I’m sure you still remember a time when Top Ramen and Cupcake wine were your college staples. They were good and they were cheap, right? So why give up a good thing? Ok, maybe you don’t have to revert back to your college diet but you should maintain a thrifty lifestyle even though you’re seeing an increase in your income. It can be tempting to go out and blow your disposable income simply because you can, but that doesn’t mean you should. Without many of the financial responsibilities you’ll eventually inherit as you grow older, now is the perfect time to build your savings account.
Step 3: Say goodbye to debt
Student loans are the absolute worst and if you went to a traditional four-year university, chances are you have some. In fact, 70% of college graduates have student loan debt so don’t worry, you’re in good company. Most repayment plans you set up with your lender are anywhere between 10 and 25 years! However, paying down interest and paying more than the minimum can get you debt free much sooner. Incorporate a three or five year payment strategy into your game plan and while you’re at it, add in your credit card debt. Start now and make it your goal to be debt free by 30!
(read about the growing debt for new grads)
Step 4: Establish and maintain good credit
We live in a credit based society. Say you want to take out a loan, lease a car, rent an apartment or even get a job, having a good credit history makes all of those things possible. Yup, you read that right. In today’s job market, employers checking candidates’ credit background is becoming a common practice to determine an individual’s financial responsibility. So if you’re one of the many college grads with less than stellar credit, there is hope! First and foremost, you must learn self-control. Having a credit card or two is a great way to build positive credit but it can also be tempting to spend well beyond what you can pay off in a month. If that is you, work on becoming more disciplined before applying for more credit. Nothing feels worse than maxing out a card that you can’t afford to pay off!
Step 5: Live below your means
No, that’s not a typo and I know what you’re thinking, but living within your means is the end goal, the after 30 goal, not the right now goal. Right now we are preparing for your healthy financial future and that means learning to live a frugal lifestyle; learning to live below your means. Ok, so how is it done? First, write down all of your fixed expenses (e.g. bills, rent, utilities and other necessary and fixed payments). Next, write out all of your flexible expenses- this is where people get into trouble. Create a reasonable (spending less than you earn) budget for food, gas, entertainment and grooming, and then stick to it. Easier said than done, yes, but with the right motivation you’ll be reaping the benefits of increased savings and great spending habits that will pay-off in the long run.
Step 6: Emergencies happen; plan for it
Wouldn’t life be better if nothing bad ever happened? Yes, yes it would, but that’s not reality and unexpected car damages, job loss, or medical expenses are bound to happen at some point. Unfortunately for many, when tragedy strikes, few are prepared to take on the financial burdens. They then end up relying on credit, but with such crazy high interest rates your financial troubles could snowball and put you in a hole that’s tough to climb out of. This is why creating an emergency fund with about 6 months worth of living expenses is vital. However, with hard work and discipline, you could save that, and then some, for your emergency cushion before your 30th birthday.
Step 7: Don’t neglect your retirement fund
Savings, savings and more savings. I know it seems like a lot but it’s all setting you up for a happier, less stressful financial future. Speaking of the future, contributing to a retirement plan is the epitome of future planning, especially if you’re in your 20’s. You may think that retirement savings is a bit premature, but many experts would argue that any age after 20 is late. Because of compounding interest, now really is the most lucrative time to invest in your future as you will reap more return than if you were to wait until you turned 30. Don’t believe me? Consider this popular example:
Two people save for retirement. One person puts away $3,000 per year from age 22 to 30, then nothing until 65. The other person started putting away $10,000 per year from age 30 to 65. They both have the about the same amount of money when they finish at age 65.
Step 8: Have a little fun
So maybe you think steps one through eight are anti-fun and maybe you’re right, but that doesn’t mean there isn’t any wiggle room to have a little fun! In moderation of course. For many pre-30 year olds, you’re not bound by the same responsibilities that come with age. This is a prime time to have fun. We make money to spend it in some form or another and investing in fun is an investment in long term happiness.
(check out our article on how to reduce your debt-to-income ratio)