Congratulations! A big chunk of life is now behind you. You made it through grade school, high school and college or tech school. Or maybe you skipped that last leg and like Bill Gates, are already disrupting the marketplace with your innovations. Now the next phase awaits you…building a sound financial foundation so you can realize your life’s dreams without the stress of money problems.
There are several critically important financial things to do before you turn 30. Paying attention to these details now will yield financial fruits in the future.
- Ration Your Credit Card Use
One of the most important financial things to do when you are in your 20’s has to do with credit cards. Having a credit card requires serious discipline. Many young people come out of college with significant student loan debt. This combined with entry-level salaries can create a situation of monthly cash shortfalls making the credit card extremely tempting. At this stage in life, your credit card should only be for the purpose of establishing a credit history. Get one with a low credit limit and use it sparingly. Always pay off the balance, on time. If you already have credit card debt, make it a priority to get rid of it as soon as possible.
A budget may be a tedious undertaking, but finding yourself broke at the end of each month is not very exciting. There are many digital apps that can help you set up a budget. However, the process is quite simple. What is your net income? What are your fixed expenses? How much is your total debt? What are your goals, i.e. graduate school, marriage, opening a business, retiring at 30, etc. How much money is it going to take to realize these goals? Use apps that track your expenditures. This way you will know where your out-of-pocket money is going. It may come as a shock to see some of the wasteful things you are doing with your money. Among all the financial things to do, budgeting and gaining control over your cash flow are the two most important lanes to financial freedom.
Next up on the financial things to do list is saving money. Save as much as you can, regardless of your income. To save even a small amount of money each week will help you on your way to a healthy financial future. It is like building muscles…you start with the small weights and work up. Take whatever is leftover at the end of each month and put it into savings. Obviously, if you have a good salary, then you should try to meet the industry standard, which is roughly 10 to 20 percent of your gross income. If you can manage it, some financial experts suggest saving 25% of your gross income so that by the time you are 30, you will have a year’s salary available to you as an emergency fund. Train yourself to live within the parameters of your income. If you receive a raise, or new job or take on a side gig, put that new income into your savings accounts.
- Retirement Savings
Yes, you are just in your 20’s, but time flies! Investing in your retirement now, must be among your top financial things to do as soon as possible. Take advantage of your employer’s 401(k) plan and maximize the investment there. If you don’t have a 401(k), open an IRA and contribute the maximum allowed each year.
You are healthy, young and will live forever, or at least that is the attitude. And, hopefully also the truth. Nevertheless, another financial thing to do now before you turn 30 is to take out a life insurance policy. At this age, your life insurance premium will be very affordable and you will be protected, as well as your future family.
- Start Investing
Once you have everything else under control: no credit card debt, bills are being paid, money is going into savings and retirement, then you should start investing. Seek out the assistance of a qualified investment adviser who will work with you to set up an investment portfolio that matches your financial state and life goals.
- Avoid Becoming House Poor
Now that you are on your own and have some steady income, it can be tempting to throw away a lot of money into creating the most awesome pad. Before you sign that rental lease, be sure that you can actually afford the monthly rental payments, plus the monthly expenses that come along with it. The advice is that you should not spend more than 30% of your gross income on housing. If all your money is going into rent and utilities, you will have nothing left for paying bills, buying groceries or investing in yourself. Better to make do with what is affordable for now, and save for your dream pad of the future.
Doing these financial things now while you are still in your 20’s will empower you to be financially secure for the rest of your life. In this way, you will be able to disrupt the narrative of a young generation that is struggling and lacking in financial sophistication.