By the time you turn 30, you probably feel social pressure to meet certain financial goals. Save one year’s salary. Be debt free. Have an excellent credit score. It’s good to have a financial plan at any age, but locking in on a specific money threshold until you’re 30 is completely optional. Let’s take a look at why you shouldn’t keep money goals based on age and what you should focus on instead.
Finance is not a panacea
Personal finance is very personal and depends on your individual circumstances. People who live paycheck to paycheck don’t have to compare themselves to their friends who live paycheck to paycheck. There is no universal standard for how much you should ever save for investments or retirement based solely on entering a new decade of your life. Priorities that are useful to others may not actually make sense to you.
For example, it makes sense for a friend of mine who graduated with an engineering degree to aggressively pay off his student loan debt immediately after college. But if you have credit card debt with a 20% annual interest rate, it might be best to put the extra payments on your credit card first before rushing into a lower-interest education loan.
Similarly, the guideline that one year’s worth of income must be saved by age 30 applies to people who lived at home after college to increase their savings more quickly, or who have subsequently changed jobs and had their income reset. may not apply.
Set these financial goals for yourself
More important than any arbitrary age goal is to continue to grow financially literacy. Therefore, although there is no one-size-fits-all personal finance, rule, there are certain standards you can strive to protect yourself from. Here are some important financial plans to make for your 20s, 25s, 30s, and beyond.
Track your spending and know where your money is going
Even if you don’t understand big money topics, you should at least understand your money. Get an overview of your monthly income and expenses to get a clear picture of your cash flow. Look for areas where you can save money, like cutting back on unused subscriptions or eating out a little less. Here is my guide to conducting your own spending audit.
Create an emergency fund
As previously advised, a general rule of thumb is to aim for six months’ worth of living expenses in your emergency fund. When calculating this number, take into account expenses such as housing, food, utilities, insurance, transportation, and debt payments. Non-essential expenses such as vacations, entertainment, and eating out are not included in the “emergency” calculation.
When it comes to emergency funds, you should move the funds into an easily accessible savings account (not a dedicated retirement account) for issues like medical bills or car repairs.
repay a debt
If there’s one thing that makes most of our financial situations worse, it’s debt. Don’t let the fear of debt stop you from creating a repayment plan. Here’s a guide to getting organized to get out of debt. A good place to start is to list your debts by interest rate, pay off the minimum amount you can, and put any extra funds toward the highest interest debts first. Again, the key here is to at least have a plan, even if you can only take small steps right now.
Start saving for retirement
Retirement may seem like forever away when you’re in your 30s, but it’s important to start saving now. Make the most of any 401(k) matching your employer offers. Open a Roth IRA to supplement your workplace retirement account. Check out our retirement savings calculator to find out how much you need to save. But again, there is no magic number. No matter your age, you can take advantage of compound interest even with a small initial investment. The key is to start saving and investing as soon as possible.
Update your insurance needs as your life situation changes
When you feel invincible, you don’t need insurance. But health, auto, renters/homeowners, disability, and life coverage are services you rarely want to use, but are invaluable when you need them. There are more types of insurance here than you need, but some of them are absolutely necessary.
conclusion
Everyone’s money situation is different. Rather than chasing false ideals of financial success, be proactive and make informed money decisions based on your circumstances. What we really need to do is continue to develop financial literacy so that we can continue to make sound decisions. Consistently saving and working toward your financial goals is more important than a random net worth number. This race has no set finish line.