Reaching your twenty is an exciting milestone for most as you have officially entered adulthood. With this milestone comes new responsibilities and worries that we never imagined when our teenage selves dreamed of turning 21. We envisioned our college graduation, moved into our first apartment, and started our new careers. That vision didn't include dealing with student loan debt, taking on a low-paying entry-level job, or confronting the fact that despite 4 years of college, you are still unsure about how the world of personal finance actually works.
It's easy to ditch everything because you're a 20 year old and you have plenty of time to catch up. The reality is that every decade plays an important role in our future financial health. Take the time now to learn more about your money and follow the movements of money outlined below to embark on a path of lifelong financial success and eventual freedom.
Moving money in your 20s:
Learn how to budget
Creating a budget doesn't have to be too complicated or time consuming. This is actually the first step in taking control of your finances as you know where your money is going every month. The good news is that there are plenty of apps and tools online that can make the process a breeze. Imagine a system like Mint that connects to your accounts and automatically categorizes your expenses for you. The right budgeting tool is simply what you will stick to for the long term.
to pay off a debt
Debt isn't all bad. This could be why you were able to earn your degree, and a mortgage may one day help you buy a home. It can also quickly outlast your life if you are not careful. Now is the perfect time before life gets any more hectic as the family pledges to tackle loans or credit card balances so you can stay out of debt by your 30s.
Build a pillow of money
The financial downturn caused by the pandemic has reminded the whole world of the importance of an emergency fund. We don't know what life is going to throw at us, and a pillow can help you navigate the uncertain times. While it's not just about having a secret stash of cash to deal with the bad news in life (medical bills, car repairs, layoffs), it can also be about having the money to grab an exciting opportunity . Savings give you the freedom and security to deal with whatever life brings you – good or bad.
Your credit score can determine so much of your life. That small number can play a big role in the house you buy, the car you drive, and even the job you do as an employer (especially in the financial world) will make your money go away. It's important that you review your credit report and score (also available through Mint), learn how it is calculated, and work on improving it.
Moving money in your 30s:
Invest for retirement
After you've spent your 20s laying the groundwork for your financial life, it is time to make sure you tackle the big goals like saving and investing for retirement too. I usually recommend customers save 10% to 15% of their annual income for retirement. This may seem like an insurmountable goal, but starting small by even saving 1% to 3% of your salary can make a big difference in the future. Also, make sure you take advantage of any appropriate contributions that your employer may make into your retirement plan. For example, if they offer to match posts up to 6%, I would endeavor to contribute at least 6%.
Buy your first home
Buying your first home is a primary goal for many, but it also seems to be getting tougher, especially if you live in a big city. The most important steps you can take are improving your credit score, paying off high-yield debt, and saving aggressively for a down payment. When you save 20%, you can qualify for the best loan terms and interest rate. However, home loans are still available even if you cannot save that much. Just be realistic about your budget and what you can afford. Don't let a lender or real estate agent determine which payment fits your budget.
Rest assured under these must-have insurance policies
You have built up your savings and your family over the past few years. It is now crucial that you have the correct insurance coverage to protect your assets and loved ones. Life and disability insurance are high on the list. Life insurance doesn't have to be expensive or complex. Get a quote for a period of several years and protect your partner and children in the crucial years when they are dependent on you. Disability insurance protects your income if you get sick or injured and cannot work. Your earning potential is one of your greatest assets during this time and you should protect it. This coverage can be offered through your employer, or you can request a quote for an individual policy.
Invest in self-care and wellbeing
Mental health is part of self-sufficiency and wealth. Most people don't talk about how financial stress and worry affects their overall health. When you can take care of yourself at all levels, you will feel healthier, richer, and happier. But it is not easy. It takes work, effort, awareness, and awareness to learn how to separate the value in your bank or financial account from your self-worth and worth as a person. If you are feeling emotional about your money, investments, or the stock market, learn how to process them and take care of yourself by hiring licensed professionals and experts to help you.
Moving Money In Your 40s:
Revisit your college savings goal
As your kids get older and prepare to make their own journey into adulthood, paying college is likely a major goal on your list. Consider starting a 529 plan (if you haven't already) to save on their education. 529 plans offer tax breaks when it comes to saving up for college. There are many resources online that can help you understand and choose the right plan for you. Visit https://www.savingforcollege.com. This is also a great time to make sure you are talking about money with your children. Give them the benefit of some financial education you may not have had.
Get aggressive about retirement planning
Your 40s probably mark high earning years. You want to use your higher income to maximize your retirement savings, especially if you weren't able to save that much in your 20s and 30s. Check your retirement plan again to get the numbers so you know exactly what you need to save to meet your goal.
Build more wealth
You are in the middle of life and you are probably feeling younger than you are. You're wondering how the hell that big 4-0 came up on your birthday cake. We usually associate 20 with freedom, but I think we got it wrong. There is something incredibly liberating about the wisdom and confidence that comes with getting older. You have proven yourself. People see you as an adult. Your children are getting older and your finances are more balanced. Now is the time to take it to the next level. Look for opportunities to build additional wealth. This can mean using your entrepreneurial side to start the business you have dreamed of or buying real estate to increase passive income. Now is also a good time to find a trusted financial advisor to assist you with your next steps and help you plan the best ways to build your wealth.
Visit your insurance coverage again
Insurance was vital before, but it is time to check your coverage and make sure you are protected, especially if you decide to start a business or buy additional real estate. A financial advisor can also help you analyze your coverage needs and find the policies that are right for you.
Look at the estate planning
Estate planning (wills, trusts, power of attorney) is not the most fun / exciting topic. It's about imagining you're gone and making a plan for the loved ones you leave behind. It is also often overlooked by adults in their younger years. It's easy to assume that estate planning is something the rich have to do. It really comes down to whether you want to decide how your savings are managed or whether you want a court to rule. It is also important for parents with underage children to choose a legal guardian and have those awkward conversations with their family members about who would take care of the children in the worst case. It is also a good time to visit this topic with your aging parents and make sure they have the right documents and plans.
Whether you're in your twenties, thirties, or forties, postponing planning your finances can be easy, especially in the middle of a pandemic. Most of us are busy and it is easy to say that in the future there will be time to work towards a goal. Make a commitment to set aside an hour each week or even month to have a money date and review your finances. Don't let a milestone birthday (30, 40) reach you and regret not being further ahead. Follow these movements of money now to take control of your financial future.