Millennials should follow these crucial tips to get on the right financial path.
So you’ve graduated college and now you’ve started your career. How great does it feel to get those steady paychecks every two weeks? But are you putting that new money in the right places to set yourself up for a financially secure future?
Even in your 20s, it’s important to take a close look at your financial situation and start planning for the years ahead of you. You can do this by following the tips below. If you heed this advice, you’ll be able to give yourself so many options in life and will be able to take advantage of every opportunity that comes your way.
By Jon Dulin
#1: Save 15% of your income.
If possible, try to save more than this. But with student loans and possibly credit card debt, this could be tough. But do your best to save at least 15% of your income. This can be done in a variety of ways, like 10% saved in your 401k plan and 5% in a savings account. Just don’t get lost in the details. Focus on saving as much as you can.
Keep living like you are in college. I know you want nicer things now that you have a steady income, but the longer you wait to “upgrade” your life, the more financially set you will be. So try to keep living like you don’t have a lot of money. This will make it easier to save at least 15% of your income. Just make sure you find a healthy balance between enjoying today and setting yourself up for tomorrow.
#2: Pay off your debt.
I can’t stress enough how important it is to pay off your debt. When you owe other people money, it limits your choices in life. By getting rid of your debt, you open more doors for the choices you can make. And if you need a plan to pay off your debt fast, check out this post on the snowball method.
#3: Start investing now.
When it comes to investing, time is your best friend. I showed you how waiting just 10 years to start investing can cost you hundreds of thousands of dollars. Don’t make the mistake and think investing $25 a month is pointless. It will grow in time and you’ll be thankful you invested in your 20s.
#4: Get the most out of your career.
Step outside of your job description and take on new roles and responsibilities. Keep note of them all and how the company benefits. Then present this to your manager in hopes of earning a larger raise. Also put these on your resume. Having this information on your resume will help for your next job too.
Now that we have covered how to build wealth in your 20s, let’s talk goals. By the time you hit your 30s, you should have certain financial aspects of your life nailed down. Here is a list of financial goals for your 20s that you need to hit before you turn 30.
#1: Emergency fund with 6 to 9 months worth of living expenses.
You might think that you don’t need to save this much in an emergency fund, but should an emergency happen, you will be happy that you have this cushion. The reason is simple. When an emergency happens, like a broken down car, a lost job, etc. it is stressful. When you have ample savings, you take away some of the stress.
Think about it. What is more stressful, having a car that needs $2,500 worth of work and having no money to pay for it, or having a car that needs $2,500 worth of work and having $25,000 in savings? I’ll take the savings any day of the week.
#2: Saving of 15% of your income.
For some reading this, saving 15% of your income right away might not be possible. This isn’t the end of the world. All you have to do is make it a point to get your finances in order so that by the time you hit 30 years old, you are saving 15% of your income.
For example, let’s say you are only able to save 10%. Work to increase this by 1% every year and you will be saving 15% by the time you are 30.
Some of you might be interested in having a dollar goal here. But that isn’t possible for a variety of reasons. Where you live, how much you make, whether you were in school until 28 or you graduated at 22 all make a big difference. So aim for saving 15% of your salary.
#3: Zero credit card debt.
Paying off your credit cards should be a priority and by the time you are hitting 30 years old, you should have the debt wiped out. This should be made simpler by paying extra each month and using some of the money you are making through a side hustle.
#4: Significant progress on your student loans.
As with a retirement amount goal, having a number goal for your student loan debt it tough too. Again, everyone has a different amount of debt and income.
So your goal should be to have a significant amount of student loan debt wiped out. Try for 75% or more. Remember, the less debt you have, the more options and opportunities you will have.
#5: Investing extra money.
In addition to your retirement savings, you should have some money in the stock market in a taxable account. This would be used for long term goals like buying a house, a car, etc.
The amount you have isn’t as important as having an account and making it a habit to regularly put money into the account each month.
The easiest ways to get started investing are with Betterment and Acorns.
#6: A profitable side hustle.
Any extra money you can make on the side is going to help you tremendously throughout your life. Start off by using the options I listed, like Survey Junkie and Swagbucks for starters. Then be open to new ideas as well.
Just remember the most important part. Make sure you enjoy doing it. It will never feel like work and you will want to do it.
#7: Track your net worth.
Your net worth is telling you how you are doing financially. To calculate it, you simply take your assets and subtract your liabilities. The result is how much you are worth.
The goal is to have this number increase on a regular basis. How do you get it to increase? Pay off debt, save and invest. That’s it.
I like to calculate my net worth monthly, and you can see how to do so in this step by step guide. But you can also use Personal Capital as well. It will calculate your net worth for you and help you save money on investment fees and create a retirement plan for you, all for free. It’s a powerful tool and my wife and I swear by it. You can get started by clicking here.
#8: Have goals in life.
What do you want your career to look like? How do you see your future playing out? Don’t look at this as only an exercise to try to figure out what you want to do in retirement. Look at your entire life.
For example, when I was dating my wife and we were talking about marriage and starting a family, we both made it clear that we wanted to be there for the kids. We wanted to be able to attend their school events and their extra-curricular activities. We can’t do this if we are working at jobs until 8pm every night.
So we started to take action so that we would have this option. Will we be able to attend every event? Probably not. But we will be able to be there for as many as possible.
The point is, take the time and figure out what you want in life and start making plans for it. Your plans will change as you grow older and you get married and start a family. But by making goals now, you will set yourself up for your future years.
#9: Work on yourself.
In addition to having goals in life, make it a habit to improve yourself every day. This can be as simple as reading everyday or going for a walk. By making sure you are your best, you can enjoy life more and this opens the door for more possibilities in life.
So there is your outline for how to build wealth in your 20s. I realize it was a lot of information, so take it one section at a time. The important thing is that you work your way through it so that by the time you reach your 30s, you are in great financial shape.
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