Many people in their 20s believe that being financially secure before the age of 30 is impossible, but it is not. Working toward financial security does not have to include self-deprivation, as many individuals believe. Attaining this objective provides some immediate benefits, as financial insecurity can be a major source of stress.
The following are 7 things to take to obtain financial security before turning 30.
- Knowing how much you spend can help you stay inside your budget.
- Live within your means, avoid using credit to fund a lifestyle, and establish short-term, attainable financial goals.
- Become financially informed and save as much as possible for retirement.
- Take reasonable chances, such as relocating to a city with more work opportunities or accepting a new position with lower compensation but higher upside potential.
- Invest in yourself by consistently improving your skills and expertise.
- Strike a balance—working toward financial security does not require you to deprive yourself.
1. Keep track of your spending.
Knowing how much you spend and what you spend it on helps you stay inside budget. Mint, a free budgeting program, can help you with this.
You may realize that ordering in meals several times a week costs more than $300 per month, or that recurring fees for streaming services and memberships you never use are a waste of your hard-earned money.
If you can afford to spend hundreds of dollars per month ordering in, that’s excellent. If not, you’ve just discovered a simple way to save money in addition to canceling those streaming services you forgot you owned.
2. Live within your means.
Maintain a lower quality of living than your earnings allow. As you develop in your job and get more experience, your salary should rise. However, rather than spending the extra money on new goods and a more opulent lifestyle, the wisest course of action is to use it to pay off debt or increase savings.
If the expense of your lifestyle lags behind your income growth, you will always have spare cash flow to invest in financial goals or cover an unexpected financial emergency.
3. Do Not Borrow to Finance a Lifestyle.
Borrowed money should be used when the gain exceeds the borrowing costs. This could include investing in yourself—for education, to start a business, or to buy a home. In these circumstances, borrowing can provide the necessary leverage to help you achieve your financial goals faster.
On the other hand, borrowing credit to fund a lifestyle you cannot afford is a losing proposition in terms of wealth accumulation. The additional interest expense of borrowing raises the overall cost of living.
4. Set short-term goals.
Life is full of risks, such as an economic crisis or job loss, and a lot can change between your 20s and, say, 40 years later when you retire. As a result, long-term planning might be intimidating.
Rather than setting long-term goals, set a series of small short-term goals that are both measurable and exact, such as paying off credit card debt in a year or contributing to a retirement plan at a defined monthly rate.
If you create goals, you’re more likely to achieve them than if you just claimed you wanted to pay off debt but didn’t set a schedule. Even the act of setting down certain goals can help you reach them.
Set new goals as you meet your short-term objectives. Constantly defining and completing short-term goals will help you achieve longer-term goals, such as having a substantial nest fund when you retire.
5. Develop financial literacy.
Making money is one thing; conserving it and watching it grow is another. Financial management and investment are lifetime pursuits. Investing and learning about personal finance will benefit you for the rest of your life. Making solid financial and investing decisions is critical for meeting your financial objectives.
6. Save as much as you can for retirement.
When you’re in your twenties, retirement seems like a distant dream, and planning for it may be the last thing on your mind. If you can take a few actions today to begin saving, compounding will benefit you. Saving even a tiny amount of money early in life can have a significant impact on your future. The longer you delay, the more difficult it is to save for your retirement.
Set up automatic monthly contributions to a retirement plan, such as an employer-sponsored 401(k) if one is available, or an IRA if not. You can increase your payments as your income rises or as you meet more of your short-term objectives.
If you follow the pay yourself first principle, you will not have to worry about how much you contribute. The most important thing is to form the habit of saving.
7. Do not leave money on the table.
If you work for a firm that offers a 401(k), make sure to contribute at least the maximum amount that your employer will match; otherwise, you are leaving money on the table. Furthermore, you can deduct your donations in the year they are made, lowering your annual taxable income.
If you don’t work for a company that offers a 401(k), contributing to a regular IRA will result in tax savings because you can deduct your contributions.
Finally, It is also crucial to strike a proper balance between your current life and your future plans. Financially, we cannot live as if today were our final day. We must choose between spending now and spending later.
Set a short-term objective, such as saving for a trip to a destination you’ve always wanted to visit, rather than financing it with a credit card. Finding the right balance is a key step toward financial security.