Regardless of your age, there are essentially three primary financial goals at the core of all other financial goals: saving for retirement, saving for that inevitable rainy day and, of course, paying off any debt you're carrying. How we reach those goals, however, and which we focus on most at different times in our lives do change.
And while our abilities to meet these financial goals tend to improve as we advance in our careers and make more money, it’s possible to begin your work toward achieving them even when you’re fresh out of school and working at your first job.
Of course, if you’re in your 20s or 30s and already have substantial debt, especially credit card debt, it’s a good idea to focus on paying that debt off before trying to achieve any of these goals. It may seem insurmountable, but it can be done. You can check out this guide for paying off your debt as quickly as possible to get you started on the road to living debt free.
If you don’t have major debt, or perhaps just a little, check out these five important financial goals to achieve in your 20s and 30s that can help ensure your financial comfort in the future.
1. Establishing a 3-Month Emergency Fund
It may feel like every penny you’re making now is needed to cover things like rent, monthly bills, your student loan payments and a little needed entertainment every now and then. While that may be true, it’s important to set aside a full three months of income in a savings account as soon as you can. This money can be used to cover costly things like an unexpected auto repair, a health emergency or even keep you afloat in case you’re ever laid off or fired.
Setting aside money for an emergency fund isn’t as hard as it seems. You can start by establishing a monthly budget to determine just how much excess money you have. Are you spending $100 or more going out with friends? Try to cut that in half and put that money into a savings account. Clip coupons for your groceries. Cut back on how frequently you eat out. Take your lunch to work.
If there isn’t any leftover money in your budget, you can consider using your talents to earn extra income. A side hustle that takes up as few as five or 10 hours each week can let you bring in hundreds of extra dollars each month. Can you design web pages? Sell crafts on Etsy? Drive for a company like Uber? Consider your abilities and use them to ensure you don’t fall into a financial hole because of unseen circumstances.
2. Paying Off Your Student Loan Debt
If you have student loan debt, you’re certainly not alone. According to Student Loan Hero, the average college graduate in 2016 carried more than $37,000 in student loan debt. That amounts to more than $1.45 trillion in student loan debt among about 44 million borrowers.
Paying off this debt isn’t typically a quick process. It takes most people at least 10 years, and some even 20 to finally pay it all off. But it’s something you can focus on once you’ve created your emergency fund. As soon as you’ve reached your fund goal, you can use the money you were putting away in savings to begin paying more toward your student loan debt. (Make all your minimum student loan payments before then, of course.) It’s a good idea to first check with your loan servicer to ensure there’s no penalty for paying more toward your principal each month. You also can consider making multiple payments each month, which can help you save money on interest over the long term.
3. Improving Your Credit Score
If you’re paying your bills on time, chances are your credit score in your early 20s isn’t bad, it just isn’t exactly good either. That’s because you need credit accounts to have a strong credit score, so unless your parents gave you a credit card in high school or college to help you establish a credit history, you probably don’t have a lot to work with. That makes it doubly important for you to protect the accounts you do have by making your payments on time, keeping your credit card balances low (or paying them off each month if at all possible) and not taking on too much debt too soon.
Why does your credit score matter? If you ever plan to buy a home, it will help you get better terms on your mortgage, which can save you literally thousands of dollars over time. So, check your credit scores and reports regularly, stay on top of your bill payments and you should build a solid credit profile in due time.
4. Saving for Retirement
Retirement may seem far off in your 20s and 30s, but consider this: The person who saves for retirement in their 20s and stops saving at age 30 can easily end up with more savings than the person who doesn’t begin saving until 30 but puts money toward their retirement through age 65. If your employer offers a 401(k) plan, by all means take advantage of it. Put at least the amount your employer will match into your fund.
Also, once you’ve established that emergency fund we mentioned earlier, consider putting a portion of that money toward your retirement as well as paying more toward your student loans. An IRA will let you save up to $5,500 every year (based on current limits) toward your retirement, above and beyond what you contribute to your 401(k).
5. Credit Cards That Pay You Back
Once you’ve achieved a credit score that gives you access to some of the very best credit cards available on the market, consider selecting a card or two that earns cash back, travel rewards or some other reward in line with your personal lifestyle and spending patterns. These cards can end up saving you money on everyday purchases, and can even reduce the costs of your annual vacations or trips home to see family and friends.