You may feel like you are still a kid, you may even have the same waist size (or smaller) you had in high school, but you are now an adult, and itâ€™s time to take control of your finances. The decisions you made in your twentiesÂ will affect whether you are digging yourself of out a hole in your thirties, or getting further ahead. Either way, I will share a few areas you will want to address as soon as possible.
Goal number one really needs to be to pay off consumer debt (non-mortgage debt). Theoretically, mortgage, cars or student loans eventually get paid off by making the normal payments. What Iâ€™m talking about are credit cards and the sky-high interest credit card companies charge when the statement balance isnâ€™t paid, in full, each month. With some companies charging annual percentage rates upwards of 30%, not paying your entire statement balance each month could mean you will be paying for that purchase you canâ€™t even remember making for years. In the end, that purchase will end up costing huge multiples of its original price.
This kind of debt will eventually eat into your lifestyle, and really keep you from reaching your longer-term goals like being financially independent. If you are lucky enough to have avoided this trap, or got you debt under control in your 20s, pat yourself on the back and move onto your next financial challenge.
Yes 30 may be the new 20, but get serious about saving for retirement now. Regardless of your actual age, or the age you admit to being, retirement will come up fast. Most people are surprised when they learn how much they need to put away in order to keep their current standard of living in retirement. With the help of an independent fiduciary Certified Financial Plannerâ„˘, figure out when you want to retire, how much you will need to make that a reality, and how you will get there. Take full advantage of company matching and various tax deductions that may be available to you when saving for retirement. Â This is basically free money. Saving for retirement in your 20s and 30s may not sound like fun. I know. Iâ€™m right there with you. On the other hand, if you wait until your 40s, or 50s, trying to catch up will be downright painful, or worse. It may be impossible.
As you begin to accumulate wealth, make sure someone is watching your investments and that those investments are suitable for your time frames and financial goals. Copying what your parents, or smart/rich/successful friend, are doing may not be right for what your personal situation needs. Make sure you are working with a fiduciary advisor who you feel can help improve your situation. This should be someone you trust, and most important of all, who you feel has your best interest at heart. The cost of working with a professional is way cheaper than the stress doing it yourself may cause, or the future pain allowing yourself to procrastinate will bring to you.
Protect what you canâ€™t afford to lose: Â At least in California, you must have auto insurance, so most people have it. I hope. Most other types of insurance technically are options. If you are accumulating assets, make sure they are protected. More importantly, be certain you and your family are covered. In a perfect world nothing would happen, and Iâ€™d bet most people on disability would much prefer that they were healthy and that they could joke that having that disability insurance was a â€śbad investmentâ€ť.Â On the other hand, people who are disabled and arenâ€™t covered, most likely really wish they had cut back in a few areas, and made sure they we covered. The pain and suffering of losing a house, car and health, all at the same time, has got to be worse than reducing the number of lattes or dinners out per month.
With this in mind, routinely put money into an emergency fund and other non-retirement accounts.Â Â What happens if you get laid off? Unemployment will barely cover rent in most big cities. Regardless of whether you are single, or coupled, protect yourself. Many of todayâ€™s life insurance policies come with living benefits that can protect you in case one or a number of maladies should arise. Also, you may be able to use cash value life insurance to partially fund your retirement. One company calls its cash value policy with living benefits, â€śLife Insurance you donâ€™t have to die to use.â€ť
Lastly, put some thought into estate planning. Many of you may be unwed but living with a partner. Should something happen to either of you, the living partner will most likely will be treated as a roommate, without the right to your property, as far as the federal government is concerned.