Thursday, February 29, 2024

Steps to Financial Security Before Age 30

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When the world is shifting around you and the economy is rapidly changing, it’s more important than ever to stay financially secure. Good financial health can help you remain calm in tough times. Therefore, it’s essential to start taking steps to financial security by the time you reach age 30.

Getting financially stable in your 20s can seem like an impossible task, but following a few general guidelines can help you achieve financial security as you move into adulthood. From creating a budget to building an emergency fund, let’s review the steps you should start taking prior to turning 30 to give you financial stability.

Create a Budget

Creating a budget — and sticking to it — is one of the most important steps that you can take in achieving financial stability. To make sure that you’re living within your means, you’ll need to get to know your income, expenses, and debt. Having a good understanding of this will help you plan your purchases and track your progress.

Building a budget doesn’t need to be overwhelming. Take it step-by-step and start by tracking your income and then your expenses. You could also use a budgeting app like Mint to automatically track your spending and categorize it into “Fixed”, “Variable”, or “Discretionary” categories. Additionally, you can set up an automatic transfer between your checking and savings accounts to help you stay on top of paying yourself first and budgeting.

Creating Solid Financial Habits

Creating strong financial habits is next up on the journey to financial security by age 30. Irresponsible spending and failure to save can cause unnecessary stress and debt for most. That’s why forming good habits is essential to maintaining financial security.

Being able to control your spending and having the discipline to save is key. If buying an item requires more than a few days of contemplation, it’s a major indicator that you can’t afford it and shouldn’t buy it. You can also use the 50/30/20 rule to help guide your spending. This rule suggests that you should spend 50% of your income on necessities (rent, utilities, food, etc.), 30% on leisure activities (dinners out, vacations, etc.), and 20% towards savings and debt payments.

Start Saving Immediately

The earlier you start saving, the more comfortable you’ll be financially by age 30 (and beyond!). To make saving easier and more hands-off, opt into your employer’s 401(k) plan if it’s available. Otherwise, if your employer doesn’t offer a retirement plan, set up a Roth IRA or traditional IRA to put away some of your income each month.

If your employer’s 401(k) matches your contributions, take full advantage of it. This means that you’re getting free money from your employer as an incentive to save for retirement.

Which Accounts Should I Establish?

Establishing different types of bank accounts should also be included in your checklist for financial security. Having several accounts will help you stay organized, on top of your budget, and keep specific financial goals in mind.

Here’s a quick overview of the accounts you should consider setting up:

• Checking account – This is a key building block in your financial foundation. A checking account allows you to easily pay monthly bills, buy necessities, and access the funds you need.

• Savings account – Along with a checking account, setting up a savings account is an essential part of maintaining financial security. This way, you can save for emergency expenses and long-term goals.

• Retirement accounts – Preparing for retirement long-term will help you enjoy your golden years in financial comfort. Establish an IRA or 401(k) to help make that retirement goal a viable one.

Change Your Standard of Living

Increasing your salary can be one way to make sure you stay financially secure by age 30, however, it’s not the only one. Changing your standard of living can make a huge difference in making sure you are ready for the future without relying on a big salary jump.

By committing to simple changes in the way you live, you will be able to save a lot over the years. Think about cutting out any unnecessary expenses and reducing your use of dining out, entertainment, or luxury items. These small adjustments, over time, will contribute to significant cost savings and a better financial outlook.

Create an Emergency Fund

Unexpected expenses can occur at any stage in life! Whether it’s a medical bill or a suddenly needed car repair, having an emergency fund is essential for financial security. An emergency fund should contain enough money for three to six months of expenses to get you through unexpected instances. If you have debt, you should start with having at least $1,000 saved up in the bank.

Not relying on credit cards — or borrowing from friends or family — during times of emergency is one of the most important steps you can take towards financial security in your 20s. Additionally, contributing to your emergency fund prior to your 30th birthday gives you peace of mind when you enter a new decade.

Invest Wisely

Once your emergency fund is set up and you’ve maxed out your retirement account contributions, you can start to think more strategically about investing. With this in mind, you must factor in your risk tolerance and how much of your finances you’re willing to put towards investments.

Investing can be both intimidating and rewarding. To make the journey smoother and more successful, take your time to do your own research, assess your financial goals, and get to know the various investment options. You should also use your budgeting plan to come up with a comfortable amount of money that you can dedicate to investments.

Whether you’re investing in stocks and mutual funds, an exchange traded fund, or even real estate, you must always do your homework before investing, and lower your risk through diversifying your portfolio.

Above all, you need to remember the importance of consistency and have patience. Being able to withstand market fluctuations and still adhere to your overall investing plan — even during tough times — is key to achieving your financial goals by age 30.

Creating financial security before turning 30 isn’t as complicated or stressful as you may think. By following the above steps, you’ll be able to maintain a steady path on the journey to mastering your finances sooner than you think.

Start by budgeting, living within your means, establishing accounts and contributing to both retirement and emergency funds. Then, you can investigate new investment opportunities to maximize your savings.

By taking simple steps and staying consistent on your journey throughout your 20s, you’ll be in a much better position as you enter your next big milestone.

Financial security is a process, and one with great benefits when you reach your 30th birthday and beyond!

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