10 Money Milestones to Hit Before Age 30 [Part 2]
Welcome back! If you missed part one of the 10 Money Milestones to Hit Before 30, check it out here. If you already have, let’s dive into part two!
- Simple Estate Plan documents.
Everyone needs a Last Will and Testament, Financial Power of Attorney, and Healthcare Power of Attorney. Most people wait until a life-changing event happens to establish these. Don’t be one of those people!
- Last Will and Testament: expresses your wishes as to how your property is to be distributed after death and who will carry out those wishes.
- Financial Power of Attorney: grants someone of your choosing to act on behalf of you in financial matters should you become incapacitated.
- Healthcare Power of Attorney: grants someone of your choosing to make decisions about your health care should you become incapacitated
- Know your Net Worth.
Net Worth is simply your assets (property, cash, investments, etc.) minus liabilities (debt). In accounting, you may see this reported on a Statement of Financial Position or Balance Sheet. Knowing your net worth gives you a snapshot of your financial health and helps you identify areas you’re doing well in and areas you could improve upon.
- Understand your Income Taxes.
You don’t need to be a CPA to understand the basics of your paystub and tax return. But taking the time to understand them can help you maximize your income and minimize your taxes. Here a few of the most common terms we get asked about that are helpful to know:
- Adjusted Gross Income (AGI): is your total gross income minus deductions to calculate your taxable income.
- Modified Adjusted Gross Income (MAGI): is your AGI with certain deductions “added back.” Note that not everyone has these deductions so it’s possible that your AGI and MAGI would be the same. Some examples of deductions that get added back to calculate MAGI are, student loan interest, half of self-employment tax and IRA contributions.
- FICA: you may see this deduction on your paystub and it refers to the Federal Insurance Contributions Act. These are the combined taxes withheld for Social Security and Medicare.
- Federal Income Tax Brackets: we have a progressive tax system; meaning your income is taxed in chunks. Each chunk of your income falls into a bracket and is taxed at that rate. Your effective tax rate is the actual percentage of taxes you pay on all your taxable income and is calculated across the brackets that your income falls into.
- Learn how to build multiple income streams.
This is an important step in achieving financial freedom. By this I mean, giving yourself the option of working, or not having to work. Income streams can be built in a variety of ways. The primary ones we see are from being an employee, having a career that offers both salary and incentive compensation (bonuses, commissions, stock options, etc.), operating a business, investment income, and real estate. I enjoy helping my clients turn a hobby or interest into an income stream. As the saying goes – if you enjoy your work, you’ll never work a day in your life.
- Have a positive money mindset.
I saved this for last as it’s the most important milestone, in my opinion. Your mindset is everything, it can make or break you. As a personal trainer, I used to tell my clients that hitting a number on the scale or having 6-pack abs wouldn’t mean a thing if they weren’t happy in their relationship with their body, food, and themselves. Having tangible goals are a great and necessary part of the process. But achieving that ‘thing’ wouldn’t give them the happiness they seek. Training and proper nutrition are tools not to be abused or thought of as a magic fix.
Your relationships with money and your lifestyle are no different. Achieving financial freedom or becoming debt-free won’t magically make you happy. They’d be great accomplishments for sure and we need targets like those on our roadmap. But if you’re in a negative or abusive mindset, you’ll find a way to put yourself back into that hole. Recognize that financial planning is simply a tool to help you achieve all the things on your vision board, but you have to do the work in building sustainable and positive habits. The real wins during this process are learning to be kind to yourself, how to pivot when life happens, setting yourself up for success, and enjoying the journey.
Thanks for coming back for part two!