Thirty is more than a number. It’s a state of mind. Approaching 30 often comes with a sense of urgency about checking things off your bucket list; and hopefully, getting your financial house in order becomes a priority. You don’t need to have your entire future planned out just because you’re getting a bit older, but you do have to start working towards building financial security.
According to a survey conducted by the National Foundation for Credit Counseling, adults 34 and younger grade themselves worse than any other age group in their personal finance knowledge. Few have a solid savings account, while even fewer started setting money aside for retirement. To make sure you’re heading in the right direction, we’ve compiled a checklist of financial tasks you should master before hitting 30 to get one step closer to achieving your money goals.
1. Understand How Credit Cards Work
If you weren’t taught how to deal with credit responsibly, applying for your first card during your twenties can have a negative impact on your credit score. Credit is easy to get and easier to abuse. Making only minimum payments, spending money you can’t afford to repay, using credit to live well above your means are all disastrous decisions that wreck your credit score and tarnish your financial history. Your reckless financial behavior will eventually catch up with you. Closing credit card accounts, running up high balances, applying for new credit repeatedly are other bad habits you should steer clear from. For more useful information about credit card use, take a look here.
On the other hand, building credit is necessary if you’re looking to get a good deal on a loan later on. Using credit cards sparingly and paying your balance in full every month will help you establish a good credit score over time.
2. Become Financially Literate
Taking your financial education into your own hands will empower you to improve your financial position and use the right tools to increase your net worth. Luckily, there are plenty of free resources online you can take advantage of on your road to becoming financially literate. CNN developed a hefty course about personal finance. Investopedia helps you understand the jargon associated with the finance world. Khan Academy covers a variety of disciplines, including financial subjects and economics.
Additionally, certain financial institutions are also striving to educate consumers on matters of personal finance. For example Metro West Credit Union, located in Massachusetts, created a Financial Wellness Program that connects individuals with leading experts in diverse financial fields, providing better access to resources that further financial knowledge. Research the institutions and courses in your area for similar opportunities.
3. Start Building a Career
Trying out different jobs can be exciting in your early twenties. Once you pass that 25 mark, though, figuring out what you want to accomplish career-wise should move on top of your to-do list. In “The Defining Decade: Why Your Twenties Matter – And How to Make the Most of Them Now” clinical psychologist Meg Jay notes that the majority of thirty-somethings she got to work with shared a common regret – not choosing a career path early enough. She advises young people in their twenties to build capital throughout these years by picking jobs that allow them to advance in their chosen field and expand their professional network.
Think of it this way – you are your most important financial asset. Your knowledge, abilities, and experience decisively influence your future earnings. Also, your career is the crucial factor that determines if you’ll be able to achieve financial security. Objectively speaking, efforts to improve yourself through hard work and continuous education are more important in your twenties than saving for the future is. Being truly passionate about your job is important, but so is making sure that your current employment will impact your long-term career in a positive way.
4. Have Clear Financial Goals
Most successful people are goal-oriented individuals: they set their mind to something and don’t give up until their dreams become reality. When it comes to financial security, you need clear goals of what you wish to accomplish both short and long-term. Even the simple task of writing down your objectives brings you one step closer to achieving them, because it helps you focus on what’s really important to you.
Your long-term goals can include buying a house, paying off debt, or retiring early. For short-term goals, you can consider paying off one credit card or buying yourself a new gadget. Developing a strategy which incorporates how much money you need to set aside every week or month to accomplish these objectives will help keep your motivation up along the way.
5. Have a Budget
According to the survey we cited at the beginning of this article, more than half of American adults don’t have a budget and don’t bother tracking their expenses. Whatever your goals for the future may be, establishing a monthly spending plan puts you one step closer to accomplishing them. Lack of proper financial planning can easily lead you to overspend or underprepare for the future.
Budgeting enables you to spend less than you earn and set money aside in the process. You need to start by tracking your expenses, figuring out if and where you can make cuts, and designating a certain sum of money every month to cover your living costs. For more details on how to make this practice work for you, take a look here.
6. Have an Emergency Fund
Life holds many uncertainties, so building an emergency fund has become a necessity in today’s economy. You never know when something unexpected may happen – you get laid off, your car breaks down, you need to cover a medical expense. If you don’t have any cash set aside for rainy days you’ll be forced to use credit when emergencies occur, accumulating debt and damaging your credit score.
Ideally, your emergency fund should include 6 months’ worth of living expenses. If you’re starting from scratch, aim to put together at least 2-3 months’ worth of your salary (or a minimum of $1,000). Budget for savings and automate them. It will be considerably easier to stay on track.
7. Contribute to a Retirement Account
If you think that your twenties are way too early to start saving for retirement, you’re neglecting the importance of compound interest. Pay into your 401(k) up to company match. If your employer doesn’t match your 401(k) contributions, it’s still advisable to set up automatic monthly contributions to your account.
If you don’t have access to an employer-sponsored retirement plan at work, set up a deductible contribution to an IRA (Individual Retirement Account). Now is the perfect time to start thinking long-term, so broaden your investment horizon.
8. Repay Debt
If you’ve been reckless in your early twenties, you should strive to eliminate bad debt before you enter your thirties. This includes paying off credit cards, auto loans, or any other kind of high-interest debt you’ve accumulated so far.
When it comes to student loans, interest rates are generally low, so you can postpone dealing with them until you have your more dangerous types of debt under control. If student loans are your only debt, pay them off on schedule.
Ideally, millennials should be fiscally independent of their parents by the time they hit 30, settled well into a career and able to support themselves financially. Managing money isn’t something you can learn overnight. However, once you reach the milestones listed above you’ll be well on the path to financial success.