Being financially secure before you reach 30 may seem out of reach for many people in their 20s, but it's possible. Working toward financial security need not be an exercise in self-deprivation, though many people assume it to be. Attaining this goal even has some immediate benefits given that financial insecurity can be a serious source of stress. The following are 10 steps to consider to achieve financial security before you turn 30.
Key Takeaways
- Live within your means, don’t use credit to fund a lifestyle, and set short-term achievable financial goals.
- Become financially literate and save what you can for retirement.
- Take calculated risks, such as moving to a city with more job opportunities or taking on a new job that pays less but has more upside potential.
- Invest in yourself by continually upgrading your skills and knowledge.
- Strike a balance—working toward financial security doesn’t mean you need to deprive yourself.
1. Track Your Spending
Knowing how much you spend and on what keeps your spending in check. A free budgeting app like Mint can help you do this.
You might discover that ordering food several times a week costs more than $300 a month, or recurring charges for streaming services and subscriptions you never use are a waste of your hard-earned money.If you can afford to spend hundreds a month on ordering in—great. If not, you’ve just discovered an easy way to save money in addition to canceling those streaming services you forgot you had.
2. Live Within Your Means
Keep your standard of living below what your earnings can accommodate. As you advance in your career and gain more experience, your pay should increase. But rather than using this excess income to buy new toys and live a more luxurious lifestyle, the best move is to put the money toward reducing debt or adding to savings.
If the cost of your lifestyle lags behind your income growth, you will always have excess cash flow that can be put toward financial goals or an unexpected financial emergency.
3. Don't Borrow to Finance a Lifestyle
Borrowed money should be used when your gain will outrun your borrowing costs. This might mean investing in yourself, such as for your education, to start a business, or to buy a house. In these cases, borrowing can provide the leverage you need to reach your financial goals faster.
On the other hand, using credit for a lifestyle you can't afford is a losing proposition when it comes to building wealth. And the added interest expense of borrowing further increases the cost of the lifestyle.
4. Set Short-Term Goals
Life holds many uncertainties, such as an economic crisis or the loss of a job, and much can change as you move from your 20s to say, 40 years later when you may retire. As such, the prospect of planning far into the future can seem daunting.
Rather than setting long-term goals, set a series of small short-term goals that are both measurable and precise—for example, paying off credit card debt within a year or contributing to a retirement plan with a set contribution each month. If you set goals, you'll have a better chance of achieving them than you would if you merely said you wanted to pay down debt but failed to set a timetable. Even the process of writing down some goals can help you to achieve them.
As you achieve short-term goals, set new ones. The constant setting and achieving short-term goals will help you reach longer-term goals, such as having a solid nest egg when you retire.
5. Become Financially Literate
Making money is one thing, butsaving it and making it grow is another. Financial management and investing are lifelong endeavors.
Be sure to take the time and effort to become knowledgeable in the areas of personal finance and investing. You'll realize that this will pay off now and throughout your life. Making sound financial and investment decisions is important for achieving your financial goals.
6. Save What You Can for Retirement
When you're in your 20s, retirement likely seems a lifetime away. Planning for it may, as a result, be the last thing on your mind. If you can take a few steps now to start saving, compounding will work in your favor. Even a small amount saved early in your life can make a big difference in your future. Building a retirement nest egg becomes more difficult the longer you wait.
Try setting up automatic monthly contributions to a retirement plan, such as an employer-sponsored 401(k) if you have access to one, or an individual retirement account (IRA) if you don't. You can increase your contributions when your income rises or when you've achieved more of your short-term goals.
If you implement the pay yourself first ideal, you won't have to worry about how much you're contributing.The most important thing is to develop the habit of saving.
7. Don't Leave Money on the Table
If you work for a company that offers a 401(k), make sure to contribute at least up to the maximum of what your employer will match. If you don't, you are leaving money on the table. You can also deduct your contributions in the year you make them, which lowers your taxable income for the year. If you aren't offered a 401(k), contributing to a traditional IRA will also result in tax savings because you can also deduct contributions.
Another consideration is to set up a savings plan with your checking account. Many banks allow you to transfer money to a savings account each time you use your debit card. For instance, if you use your card for a $22.45 purchase, the bank rounds up the amount to the next dollar value by moving $0.55 to your savings account. It may seem small, but every penny adds up. You can, of course, make transfers to your savings account on your own, too.
8. Take Calculated Risks
Taking calculated risks when you are young can be a prudent decision in the long run. You might make mistakes along the way, but when you are young, you have more time to recover from them.
Examples of calculated risks include:
- Moving to a new city with more job opportunities
- Going back to school for additional training
- Taking a lower-paying job at a different company with more upside potential
- Investing in stocks that have a high risk/high return profile
As people get older, some may assume more responsibilities such as paying down a mortgage or saving for a child's education. It's easier to take risks when you have fewer responsibilities.
9. Invest in Yourself
Look at yourself as a financial asset. Investing in yourself will pay off in the future. Your skills, knowledge, and experience are the biggest assets you have. Increase your value by continually upgrading your skills and knowledge and by making smart career choices.
Though this investment often starts with going to college or a trade school, keeping your skills up to dateand learning new ones that are in high demand can help make you a more attractive and higher-paid part of the workforce. Investing in yourself should continue over your lifetime.
10. Find the Right Balance
Striking a proper balance between your life today and the future is also important.Financially, we can't live as if today is our last day. We have to decide between what we spend today versus what we spend in the future.
For example, set a short-term goal to save for a trip to a destination you've always wanted to see instead of using a credit card to finance it. Finding the correct balance is an important step toward achieving financial security.
What Does It Mean to Be Financially Secure?
Financial security is a broad term that can mean a lot of things to a lot of people. The general definition of financial security, though, is being able to live comfortably on your income while paying your monthly expenses and saving money for the future. Being financially secure also means that you have enough money set aside so you can continue living comfortably when you experience tough times. People who are financially secure don't live paycheck-to-paycheck, have an emergency or rainy day fund, retirement savings, and low or no debt.
What Financial Moves Should I Make to Be More Secure in My 50s?
Becoming financially secure in your 50s isn't an impossible feat, regardless of what you think. You just have to make some smart decisions and changes in your life to get there. Invest in yourself by starting an emergency fund, paying down all your debt, maximizing all of your retirement account limits, and boosting your retirement savings. Consider setting up a budget, which can help you control/track your spending and save you money. It may also be a good idea to get a financial advisor to guide and keep you on track.
How Many Americans Are Financially Secure?
About one in 10 or 11% of Americans say they're living a financially free life, according to a survey by Achieve. This group includes individuals who said they were living debt-free (54.2%), comfortable but not rich (50%), meeting their obligations with money left each month (49.3%), and those who aren't worrying about money (46.2%). The study also found that more than half of the people surveyed said they were optimistic about the future but were nowhere near financial freedom.
The Bottom Line
Attaining financial security can be a daunting task, but it isn't unachievable. It requires a great deal of discipline, setting goals, and making sure you stick to them. If you start early enough—say, in your 20s—and follow the steps listed above, you may become financially secure by the time you reach your 30s. If you're older, all isn't lost. You can still reach your financial goals as long as you have a plan and adhere to it. Getting advice from a financial professional can help you stay on track and reach financial freedom, regardless of your age.
