10 Money Milestones to Hit Before Age 30 [Part 1]
I hate to generalize and say if you’re reading this, you need to accomplish each one of these milestones before you turn 30 or you’re doomed. Because I’m not in the business of fearmongering. However, as a financial coach I will be the one to light a fire under you to give you the best possible opportunity for success. I’m going to give you simple, actionable steps you can start implementing TODAY to get on the path to financial independence. And to make it even simpler, I’ve broken it down into two parts so check back next week for the next five milestones!
- Establish an Emergency Fund (EF)
If you don’t yet have a designated emergency fund, start one today. Ideally, your target should be at least 3 – 6 months of living expenses set aside in a Money Market account or a High Yield Savings Account (HYSA), NOT invested in the stock market. This money is only to be touched for emergencies; you lose your job, you need to replace the water heater, unexpected medical bills, etc. I want to note that you can have multiple smaller emergency funds, literally separate accounts, or one account where you designate dollars for the unexpected. In my case, I prefer to have one HYSA that’s a little more than 3 months of living expenses and it’s used both for unexpected larger expenses and as a backstop should my husband or I lose our jobs. Anytime we dip into it, we immediately shift the necessary excess cash flow to fill it back up.
- Automate Savings to Buckets 2 & 3
This one is too simple not to do, but first, let me briefly describe the “buckets of money” for those of you who are new.
As you can see, the buckets are just a framework for giving your income a purpose tied to your short, mid, and long-term goals. If you’re still working on filling up bucket 1, then you should start automated savings to that bucket as well and once it’s full, shift that cash flow to buckets 2 and 3. And if you don’t have savings accounts opened in buckets 2 and 3, open them TODAY, it’s free to do!
Whether your accounts are at Vanguard, Fidelity, or any other custodian you can go online to set up automated contributions. Start with something as simple as $100/week going directly into an index fund.
For Bucket 3 (typically your retirement accounts), set up automatic payroll deduction with your HR department and have those funds invested directly into an appropriate Target Date fund.
- Execute a Debt Repayment Plan (if applicable)
If you have any type of debt – student loans, car, credit card, etc; have a repayment plan in place. The two most popular strategies are: Debt Snowball and Debt Avalanche. The Debt Snowball method uses excess funds to pay off debt with the highest interest rate first, while the Debt Avalanche method involves paying off the smallest debts first. Your situation will dictate which method (or a combination of both methods) is most appropriate. Dave Ramsey is a well-known debt payoff expert with a great article on explaining these two methods. Higher interest rate debts are more likely to benefit from an accelerated payoff, and you may determine that your low-interest debts are fine on their original payoff timeline.
- Understand your Credit Score
Understanding your credit score is much simpler than most of us think and there are a few simple habits that can help you improve your credit. Paying your bills on time, reviewing your credit utilization ratio, and paying off debts are just a few. You should also check your credit report every year. You can pull your credit report from each of the 3 credit bureaus – Transunion, Equifax, and Experian – annually for free without hurting your credit score. BONUS: keep your credit reports with each agency on a freeze. When your credit report needs to be pulled, for example when you’re buying a house or starting a new job, simply temporarily lift the freezes. This is an important practice in identity theft protection!
- Secure Appropriate Insurance Coverage
Insurance is one we often overlook until it’s too late. Securing adequate life, disability, and health coverage is an important step in organizing your finances. Depending on your needs it can be costly, but typically not as expensive as we think and still better than being underinsured if something unexpected arises. It’s important to understand what insurance benefits your employer offers, calculate what coverage is appropriate for you and your family, and enroll in the applicable plans. If necessary, you may need to purchase supplemental insurance, particularly life and disability. My motto is to prepare for the worst and hope for the best.
I’ll post Part 2 next week with five more money milestones to hit before you turn 30, so stay tuned!