Are you a millennial approaching the next milestone birthday? Your 30th birthday is a great time to reflect on what you have achieved so far in your life, and to set goals for the next decade and beyond.
Financially, it is also an important time to lay the groundwork for the future. Millennials can save considerable amounts of financial burden just by planning for the future and taking simple concrete actions to meet those goals.
Below are five examples of "Millennial Musts"– if you haven't already done these things, do so before the big three-oh.
1. Pay Down Bad Debt – If you still owe on your student loans, have excessive credit card debt, or have other high-interest debt from spending, it is time to take control now. Otherwise, as you enter your higher-earning years, you are likely to adjust your spending even further upward and accrue too much high-interest or long-term debt for your own financial good.
Your credit score may suffer – and if you don't know what your credit score is, add that to the list of things that you need to do. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
Acquiring proper spending habits now will keep you from overspending when your obligations increase (adding a spouse, kids, a home, and other debts). Note that a home is not bad debt since it builds equity – unless you buy too large a home, which leads back into the topic of proper spending habits.
2. Set Up an Emergency Fund – Most financial experts suggest having an emergency fund of three-to-nine-months' worth of living expenses in a bank account or similarly liquid investment. It takes time to build up a proper emergency fund, so it is important to contribute even small amounts as early as possible. "Your emergency savings, whatever you're able to stash away – that's the buffer between you and high interest rate debt," says Bankrate.com Chief Financial Analyst Greg McBride.
Assuming you have improved your spending habits to pay down bad debt, keep the momentum going by adding to your emergency fund on a monthly basis. "Set money aside with every paycheck," advises McBride. "Have a direct deposit from your paycheck into a dedicated savings account. Even when unplanned expenses come along and wipe that out, that's proof that it's working. And you're only one paycheck away from starting to replenish that." You can consider increasing your spending once the emergency fund is created – or you can keep spending low and start saving for other items, such as a down payment on a home.
3. Build Up Your Retirement Accounts – It is extremely important to contribute to tax-deferred retirement accounts early and often to get the greatest benefit from compounding interest. If you don't believe us, run some scenarios using the free online MoneyTips Retirement Planner. For reference, the average annualized return of the S&P 500 over the last thirty years is a bit over 11%.
Even putting away a small amount matters. Using the return value above, every $1 you contribute yields over $27 in thirty years.
If you are in an employer-matching program, try to max out your contribution. Employer matches are essentially free money, so it is foolish to pass up that opportunity.
4. Start a College Savings Plan – Your state's 529 savings plan is a great means of setting up an educational fund for your kids. You set up the fund with after-tax dollars, and the earnings grow tax-free as long as the funds are eventually used for qualified educational purposes.
529 plans are also relatively flexible – you can change the beneficiary within your family, and even use it for your own educational costs later in life.
5. Consider Life Insurance – You are entering the one point in life where life insurance makes the most sense. It is still relatively affordable, and you probably will have a family that would be in difficult shape if your income were lost.
There may be other must-do's on your list before you hit age 30, but do not let these financial ones slip past you. These goals are a lot tougher to reach when you set them for age 40.
Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.