The 5 financial health goals for your 20’s help you develop a solid financial foundation — like starting a budget and making it a habit to save. Life does happen, so if you haven’t hit those milestones yet, don’t be too hard on yourself. Every step you take today is still a step in the right direction.
Life can take many paths, but typically by your 30’s you’ve established a career path and considered long-term life goals, like starting a family, planning a travel bucket list, or launching a business. No matter what path you take, these are 5 financial health goals for this decade:
1. Maintain Your Budget
You’re likely making more money in your 30’s than when you started your career in your 20’s. Review and modify your budget to ensure your spending and savings plans still meet your short- and long-term goals. If you merge your finances with your significant other, check out these tips for budgeting as a team. Check your budget for lifestyle creep. As your income increase, your discretionary spending can creep up. Identify your money values and spending priorities, to avoid frittering away salary increases. Add a line item in your budget for discretionary expenses to keep lifestyle creep under control. Most important, make sure your regular savings amounts increase as your income increases. Saving 10% of your take-home pay is a good goal.
2. Attack Your Debt
Debt is a fact of life for many in their 20’s, particularly student loan debt. If you haven’t already, it’s time to get serious about debt reduction so you can focus on building your nest egg or meet other financial savings goals. SESLOC offers two free resources to help you develop a plan to manage your debt. SESLOC’s in-house Money Coaches can help you review your budget and make a plan — schedule a phone call to get started. Our partners at GreenPath Financial Wellness provide one-on-one support from certified financial counselors who can help you with the basics and assist with complex situations like managing debt and student loans. Click here to request a free financial counseling session from our partners at GreenPath Financial Wellness, or call 877-377-3399.
3. Enhance Your Emergency Plan
Your first Safety-Net savings goal is to save three months of essential living expenses that you can only touch when life throws you a curveball. You can dip into the fund to fix your car, pay medical bills, travel for a funeral, or cover living expenses after a job loss, but consider it a loan to yourself. Make it a priority to replenish the fund as soon as you’re able. Your next goal is to save six month’s worth of living expenses. From there, it’s important to assess your lifestyle to ensure you can adequately respond to an emergency. For example, if you’re a homeowner or planning on buying a home, you need to factor in emergency repairs into your fund.
Your emergency savings is just one part of your financial plan. In addition, your plan should include adequate health, disability, and life insurance coverage, as well as vehicle, homeowners, and pet insurance where applicable. As you develop assets or start a family, it’s also wise to start estate planning. Wills and trusts are estate planning tools that ensure your assets are distributed according to your wishes without a long and costly probate process.
4. Maintain a Strong Credit Score
The most important factors influencing your credit score include paying your bills on time and total debt. Set up auto payments to ensure on-time payments and keep your credit utilization below 30% to maintain a strong credit score. A good credit score affects the rate and terms you may qualify for when you need a loan; this saves you money and speeds up the loan process. If you’re saving for homeownership, a strong score is important for purchasing a home.
But just how closely do you need to monitor your score? It’s important to monitor your credit report for accuracy, but don’t get too caught up in your score. If you have access to an on-demand credit score from your financial institution or another service, this score is for educational purposes and acts as a “credit health check.” Understand that lenders choose from among several scoring models available, and the one your lender uses for your next loan may be different.
5. Increase Retirement Contributions
Your first retirement milestone is to launch your retirement accounts, but your next goal is to assess your unique situation and retirement goals to plan accordingly. A financial advisor can provide guidance and strategies. Generally, it’s recommended to contribute at least 15% of your gross income to your retirement accounts. If you enrolled in your employer’s 401(k) (or equivalent), try to increase your contributions with every cost of living increase or raise. The Internal Revenue Service (IRS) sets a limit for 401(k) contributions each year, and for 2021, it’s $19,500 for those under age 50 (employer match doesn’t count toward this total). You can also increase your IRA contributions each year. The maximum amount you can contribute is also set by the IRS, and for 2021 it’s $6,000 for those under age 50.
So use this checklist to periodically review your financial health strategies and goals.