Financially Stable by Age 30 How To

How to be Financially Stable by Age 30

When it comes to money, nobody knows what they’re doing – at least not in their 20’s. Don’t worry – it’s not just you. Most individuals have no clue how to even begin planning for their financial future. But it’s time to start. With a little work, you could stop living paycheck to paycheck and subsisting on ramen by the time you hit 30. Here are six ways to help you move toward financial stability:

1) Pay off Your Debts

Astronomical student loan debts are one of the reasons our generation is having such a hard time getting any kind of financial traction. They’re downright brutal. But getting those in order will save you a lot of money in the long run.

If your student debts are low interest, worry about any high interest loans first. Auto or credit card debts are common snares for 20-somethings. They have high interest rates, so the longer you put off paying those, the worse it’ll be. Any loan with an interest rate over 7%, are the debts you should tackle first.

Bite the bullet and map out a plan for eliminating your debts over the next five years or so, so you can actually start saving for the future. The future – ugh…so ominous.

2) Budget and Spend Within Your Means

Go through your most recent bank statement and categorize all your expenses. Pick out what you can cut back on (did you really need that 3 a.m. Chinese food delivery)? Now comes the hard part: sticking to a monthly budget. Know what you’ll earn and how much you can spend on what and when. Keep track of every penny spent and keep your eye on the prize.

Spending well within your means is the first step towards having extra cash to save like a real grown-up! This personal budget planning spreadsheet is a particularly useful resource.

3) Set Short-Term Goals

This sounds like something vague you’d slap on a vision board or the like, but it’s an incredibly important habit to practice. Setting goals (and writing them down) truly does keep you on track.

Set career goals for yourself:

  • Where do I want to be in a year? Five years? Ten years?
  • How do I plan to get there?
  • How can I hone my skills and assets to make myself more valuable to employers?

Set financial goals:

  • I want to pay off my debt within two years.
  • I want to have a certain amount of money in my savings account by this time next year.
  • I want to be making a salary within a certain range by the time I’m 30.

Set personal goals:

  • I want to finish grad school with no debt.
  • I want to buy a house at 30.
  • I want to be able to start a family in the next ten years.

Whatever your goals, map out a plan to get there and you’ll most likely find yourself achieving them quicker than you expected.

4) Create an Emergency Fund

Rather than draining your savings account (which is a thing you should now have and be actively and consistently contributing to) when somebody rear-ends your car, you should start an emergency fund. Create an emergency account and regularly add money.

When you’re just starting out, it’s always a good idea to have about 3-6 months worth of your income stashed away for a rainy day is . There will be rainy days, and let’s be honest…you currently might not have auto or health insurance. Purchasing insurance is definitely a goal to consider if you want to be a true grown-up.

5) Start Saving for Retirement Now

Nothing says a quarter-life crisis like facing your own mortality! The absolute last thing on your mind is retirement. I recommend that you start putting away at least 5-10% of your earnings into a 401(k) or a Roth IRA.

If your employer matches contributions on a 401(k) plan, go with the maximum amount they’ll match, because that’s just free money, man.

Even if you still have debt, try to regularly contribute to the following:

  • Debt repayments
  • Emergency fund
  • Savings account
  • Retirement fund

It may seem like you’re getting nowhere fast, but that’s normal. As you start making more money, you’ll be able to add more money into each of the aforementioned categories until the debts are finally gone, your emergency fund is where it needs to be, and you’re able to set more long-term goals for your savings and retirement funds.

6) Grow Up

Now is the time in your life to give yourself a good hard kick. If you’re out of school, or will be soon, then it’s time to buckle down and be an adult. Jumping into a life without the structure of parental guidance or the education system can leave you feeling disoriented. However, you know it’s time to become financially independent, as well as financially stable.

Financial stability means planning for the future like a responsible human being, and not blowing all your money on a night out with your friends. Figuring out where you stand financially and where you’d like to be isn’t easy, but it has to be done.

Take a deep breath and set aside a day to do some planning. You’ve got this – you’re a grown-up now, even if you don’t quite feel like it. By the time you’re 30, you’ll feel like a financial ninja master. By 40, you’ll be a full-on money samurai. By retirement, you’ll be rolling in all the money you have worked so hard to save.

Alternatives for Retirement Without a 401k Plan

Planning for Retirement Without a 401k Plan

Even if your employer doesn’t offer a 401k program, you can still plan for retirement through other savings options. Like many industries, the financial environment continues to grow and expand its products.

Keep in mind there’s really no reason to feel you’re the only one without such benefits. In a recent study from CNBC, only half of all U.S. workers were employed at a business or company offering a sponsored retirement plan.

So, in the spirit of looking at the glass half full, consider this an opportunity to take control of your finances and become money savvy at the same time.

Know Your Savings Options

There are a few common savings plans to explore if you’re an independent saver. They all share the benefit of being available to consumers who find they’ll be “going it alone.”

A Traditional IRA:

An IRA is an Individual Retirement Account which acts as an individual’s savings account and also offers tax breaks. Contribute the maximum amount of $6,000 per year and deduct money when you file your taxes. You only pay taxes on your contributed income when you use the IRA funds.

A Roth IRA:

A Roth IRA is another savings program available to individuals. The key difference between a Roth and traditional IRA is you postpone your tax savings with a Roth until after you retire and begin utilizing those funds.

What is attractive to many people is all money from your Roth IRA savings is free and clear.

A Basic Savings Account:

Yes, we all remember these from our earliest days of depositing extra money from babysitting or yard chores. Despite traditionally low interest rate benefits, there is the joy of seeing small amounts of money accrue and the relief of knowing you don’t have to tap into your other accounts, such as your IRA, if you encounter a financial emergency.

A basic savings account is also one of the best ways to get into the savings habit, since there’s never a minimum amount of money required to deposit.

Is it Best to Invest?

We see so many ads and commercials about how easy it is for any individual to invest and trade in the stock market, but since this is your money we’re talking about, we encourage a little bit of research.

Buying Stocks:

For close to 100 years, stocks have returned almost 10% on the investment dollar. Many individuals enjoy the process of seeing how their decisions play out and there is always guidance (not necessarily on which stocks to choose), but when it comes to making decisions which fit your financial personality.

However, this is a “long game” we’re talking about. Much like going to a casino, don’t spend if you can’t afford to lose. If you’re looking to get rich in a couple of years, the stock market might not be the smartest choice.

Invest in the Markets:

The “markets” go beyond the stock market. For more conservative investors or those not interested in the dramatics of the stock market, tax-managed mutual funds also offer an opportunity to sock away some cash.

A tax-managed mutual fund produces gains as soon as you sell. You do pay tax on the money, but you can also sell the fund at a time most financially beneficial to you.

Real Estate:

Due to the economy, the good news is there are still many properties being sold below market value, so it may be tempting to buy a property or two as rental units. Read about How to invest in real estate for beginners.

However, if people are paying you to live in your investment, it means you’re the landlord and absorb all the associated responsibility. If you’re very handy or can either pay or barter for a “handyman,” being a landlord can be a beneficial investment. Plus, there’s always the opportunity to buy a multi-family unit and live in one unit while collecting income and equity at the same time.

Work is a Four-Letter Word

You’re young and ambitious. You’re even well-versed in regards to the state of the economy and how the landscape of work is changing. Of course you’ll do everything you can to stash away money for retirement.

But the person you are today may not be the employee you are in a few years. It’s estimated 91 percent of Millennials (born between 1977 and 1997) may have as many as 20 jobs in their lifetime. Meanwhile, the Baby Boomer generation (born between 1946 and 1964) can expect, on average, 7 careers in a lifetime.

So let’s agree for now that the best real life benefits of a good job are the experience it provides and the money it puts in your pocket. If you see a pattern of taking jobs you enjoy over the sole financial gain, then maybe work isn’t something you grow to dislike. Here are two questions to ask in regards to prolonging your work life:

Do I Need to Work Longer?

How you answer this question will depend on your overall work history, savings contributions, etc. One statistic which may make the idea more attractive is five more years working full-time may allow you to contribute an additional $30,000 into a Roth IRA.

Will I Need to Work Full-Time?

As you progress through your early-to-mid working years, you may already see the option of working part-time – maybe you have skills and experiences allowing you to work from home.

Or perhaps you’ve experienced the benefits of “simple living” and want to spend more quality time with your loved ones. This mindset can also include living in a smaller house or taking on a job with a shorter commute and/or more flexible hours.

Being proactive and independent about your financial future is a way to craft how your retirement years will look. Plus, in the future (even if you do land a job with retirement benefits), you‘ll understand the perks may not last forever.

It’s always easy to benefit from a company-sponsored 401k program. However, there really isn’t any excuse to delay your own savings strategy. Being proactive will allow you to fully reap the benefits of your working years.

Dividend Growth Investing Strategy For A Better Retirement

Retire Better With A Dividend Growth Investing Strategy

The Challenges of Planning for Retirement

Planning for retirement is a daunting task.  There are many things to consider when thinking about retirement.

How much should I save?  What should I invest in?  Will I run out of money?

Often times it can be so overwhelming that many people fail to even plan at all!

Or possibly since they know they should be saving something for retirement but don’t know how much, they will just begin putting aside some random amount invested in some random mutual or index funds without really figuring out the right approach to be taking.  These people are mostly just living with hope.  Hope that they are putting away enough so that one day they will be able to quit their jobs.  Hope that they are saving enough so that they won’t run out of money during their golden years.

Certainly this is better than doing nothing, but there is definitely a better way to go about reaching all of your retirement dreams.

The Problems with Traditional Retirement Advice

Traditional retirement advice often tells people to save some random amount of their annual income (5 or 10%) and invest it in a select group of mutual funds or index funds.  This advice is very general and not personalized like retirement planning should be.  This will most likely lead the hopeful retiree to either not save enough and run out of money during retirement or to not save enough and realize they have to work longer than they had planned.

Another often heard advice regarding retirement is the 4% rule.  The 4% rule allows that a retiree can withdrawal 4% from their retirement savings (adjusted for inflation after the first year) each year to cover living expenses.  The retiree will do this by pulling out any income earned from the investments and selling some investments to cover the difference.  The idea is that a 4% withdrawal rate is safe enough that the investor should/possibly will have enough money to last until they pass away.

Unfortunately, there is a few big problems with the 4% rule.

  1. The biggest problem is the fact that there is a possibility that you will run out of money while still living.  I’m not sure about you but the last thing I want to worry about in retirement is whether or not I am going to outlast my money.
  2. A second problem is that the 4% rule requires investors to sell off investments at inopportune times.  When the market is down and investments are undervalued is not a good time to be selling.
  3. Another problem with the 4% rule is that it requires you to draw down your assets.  Each passing year your nest egg will get smaller and smaller as you use it to cover your expenses.  At the end there will be little if anything left to pass on to your heirs or favorite charities.

Fortunately, there is a better strategy for planning for retirement.

Dividend Growth Investing and a Better Retirement

Dividend growth investing is a great strategy to use when planning for retirement.

Hopeful retirees should calculate the amount of income they believe they will need during their first years of retirement.  You can do this by tracking your expenses and projecting out which expenses you will have during retirement and estimating how much money you will need to cover those expenses.  Our retirement calculator uses a budget in today’s dollars and provides an inflation adjusted budget by year. Be sure to give yourself a buffer so that you don’t fall short when unexpected surprises pop up.

Once you have a fairly good estimate of how much annual income you will need in your first couple years of retirement, you can calculate a goal for how much of a nest egg you should aim to accumulate.  For example, let’s assume you estimate that you will need $45,000 in income during your first year of retirement.  Now if we can put together a dividend growth portfolio that is yielding 3.75%, you will need to have a nest egg off $1.2 million (1,200,000/.0375=45,000).  If your portfolio is yielding more, you will need a smaller nest egg.  If it yields less, you will need a larger nest egg.

This gives us a fairly reasonable goal of how big of a nest egg we want to try to accumulate in a dividend growth portfolio by the time we are ready to retire.

So if we decide that we need $1.2 million for retirement, we can figure out exactly how much we should be saving/investing each year from here until we plan to retire to reach this goal.

The investor will want to work towards this goal and if accomplished will have a solid foundation built for a great retirement.

A dividend growth retirement eliminates all of the problems with the traditional 4% withdrawal advice.  Specifically:

  1. Dividend growth investors will be living off of the dividend income received from the companies they own.  Therefore, they will not need to worry about running out of money because they are not selling their investments to offset expenses.  Instead their portfolio is earning an income (growing each year at a rate faster than inflation) which will be able to cover all of their expenses.
  2. Since the dividend growth retiree is not forced to sell any of their investments, they won’t be selling at the wrong times.  A dividend growth retiree won’t need to sell any of their investments unless one of their companies cuts or eliminates their dividend payments.  In that situation the retiree will want to react by selling off those shares and finding an alternative dividend growth company to own in its place.  Most of the time, dividend growth investors will be long term holders of their companies and won’t be selling.
  3. Since the dividend growth retiree does not need to sell off their nest egg to cover expenses, they will have a large amount of wealth in which they can pass on to their heirs or favorite charity organizations.  You’ve worked hard to accumulate that nest egg, do you really want to watch it all dwindle away and have nothing to leave behind when you pass?

dividend growth retirement plan can be a great investment strategy when it comes to securing your financial future.