Your 20s are the time to build your career, figure out what you want out of life, and get your finances in order. This last point is especially important, because the sooner you get on top of your finances, the more security you will get for life. With that in mind, here are four financial milestones you should aim to achieve by the time of your 30th birthday.
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1. Build an emergency fund
When you are young it is easy to walk around thinking that you are safe from financial emergencies. But as you take on more responsibility, whether it’s in the form of buying a house, owning a car, or other such steps, you’ll quickly learn that you need the money to save. to cover unforeseen expenses. This is where your emergency fund comes in.
Ideally, this fund should have enough money to pay for three to six months of essential living expenses, so if you’re nearing 30 and not close to that, start cutting back. until your savings appear healthier. . You can also consider getting yourself a side job in addition to your regular job to generate additional income that you can keep in the bank.
2. Start building up a retirement nest egg
If you’re not even 30 yet, or just reached that stage, you might not feel pressured to start saving for retirement. But saving money at a young age could help you build up some serious wealth as you get older.
Example: Saving $ 200 per month over 40 years will give you a nest egg of $ 479,000 if you invest that money with an average annual return of 7% during that time period (which is more than doable with an investment strategy focused on actions). But if you wait 10 years to start saving that same amount each month, you’ll end up with just $ 227,000 instead. Therefore, if you haven’t started funding an IRA or 401 (k), make a point of contributing some amount in either type of account before the age of 30.
3. Build a strong credit score
The higher your credit score, the easier it will be for you to borrow affordable money when you need it, be it in the form of a mortgage, car loan, or mortgage. a personal loan. The good news? There are things you can do to increase your score, the most important of which is to pay all of your bills on time and in full on a consistent basis. Your payment history is the most important factor that goes into calculating your credit score, so meeting your financial obligations in this regard is crucial.
You can also improve your credit score by making it a point to not carry too much debt at once. Another important factor that goes into establishing your score is your credit usage, or the amount of available credit you are using at a time. A credit utilization rate of more than 30% could put your credit rating at risk. Therefore, if your total line of credit is $ 10,000, make sure you never have a balance greater than $ 3,000.
Finally, avoid applying for too many new loans or credit cards at once. Spacing these apps could help keep your score in more favorable territory.
The stronger you are financially by the age of 30, the greater your chances of staying on that path for life. Achieve these milestones within 30 years and you really have something to celebrate when that big anniversary arrives.