The millennial generation is taking longer to finish schooling, decide on a career and leave mom and dad’s place. The average age of marriage is at an all-time high — 27 for women and 29 for men. Today, it is undeniably true that 30 is the new 20.
And while some of those delays may be beneficial — the higher age of marriage translates into a lower divorce rate — other delays could have detrimental, long-term financial consequences.
We understand that you are supposed to live your life to its fullest while you’re in your early 20s. But of course, you do not want to be a sitting duck when you reach 30s, or 40s. So, while you want to live a fun life (i.e. party Friday, and weekend getaways), you also have to prepare for your future, and your financial freedom and stability is the cornerstone of that bright future.
Yes, money can’t buy us happiness, but financial freedom and stability is necessary if you want to live a stable and secure life. You won’t stay healthy forever or always, nor your loved ones. You have to prepare for unexpected events in your life. So, to begin our list of the must-dos before you turn 30 in terms of your personal economy or finance, let’s start at this:
Build your emergency fund today.
The possibilities of unexpected costs grow up as we age. So, saving for the rainy days is essential. And as your financial responsibilities increase, it could become more difficult to put away the money you’d need to get by for three to six months (a typical emergency fund amount). Preparing for a rainy day has to be done while the sun’s out, and your 20s is just that time. An emergency fund, as mentioned, typically amounts to three to six times your monthly salary. Of course, you may want to go beyond that depending on your calculated risks in life in the future. Say, you intend to remain single for the rest of your life, you might be needing a decent emergency fund. But if you intend to marry and have kids, well, you’ll be needing a bigger emergency fund of course.
Learn the magic of compounding interest
Time is a powerful thing. It is also a valuable resource. So, when it comes to compounding interest, time is the secret ingredient. Here’s an example: If a 25-year-old saves P3,000 a year for 10 years in a retirement account, the P30,000 investment will grow to P472,000 by age 65. If a 35-year-old saves P3,000 a year for 30 years (a full 20 years longer), the P90,000 investment will only be worth P 367,000 at age 65. The moral? Your money’s ability to make money babies increases exponentially if you let compounding interest start doing its thing while you’re still in your 20s.
Contact a local financial advisor today to learn more about investing in your future.
Contribute to a retirement fund
Based on what you just read about compounding interest, it’s a no-brainer that now is the time to start saving for retirement. If your company offers a retirement plan, there’s free money on the table, ready to be put toward your retirement each and every month. If your company doesn’t offer retirement options or if you haven’t yet settled into your career, well you better find a way to invest in your retirement fund.
Contact a local financial advisor today to learn more about investing in your future.
Check your credit report
If you don’t already know where your credit report stands, now is the time to make yourself aware. If your score is lower than you realized or if you discover any inconsistencies or problems, you have a head start on sorting it all out.
Consider getting life insurance
If, like us, you defied the marriage-age average and said “I do” before you hit 30, life insurance is something worth looking into. When you’re young and healthy, the costs are incredibly low. And should anything happen to you, your spouse will be grateful for the sure financial footing going forward. Make sure you get enough to cover any outstanding debt (including mortgages), funeral expenses and enough to help your spouse get back on his or her feet.
Ditch the luxurious lifestyle (including Kardashian friends)
The Social Mirror Theory states that people are not capable of anchoring their self-concept and self-perception without taking into account others’ viewpoints. This holds true to how we spend our money. If your friends are spending like it is en vogue throughout their 20s, then you are more likely to pull out your wallet once you cross over into being a big girl in your 30s.
Pay down your debt systematically
Use your 20s to create healthy financial habits when it comes to paying off debt. The two most popular strategies for tackling debt are the “high-interest” approach and the “smallest balance” approach.
With the high-interest approach, you pay your bills with the highest interest rate first. The rationale behind this strategy is to get the most financially draining bill out of the way first.
With the smallest-balance approach, you pay your bills with the smallest balance first, relieving yourself of its psychological impact. There is an immediate sense of accomplishment and progress when one bill is completely accounted for.
One method is no better than the other and as you get older, your preferences may change. So stay open to using both approaches.
Splurge on a meaningful experience.
Money is just not only meant to be saved, but enjoyed. Make sure that you identify something that you love to do, and then do it without guilt. The memories that you create will be well worth the money spent.
For example: You are a fan of Madonna, but Madonna’s concert ticket in Manila costs 15000 pesos. That’s a lot of money! Madonna is also having her concert in Hong Kong, and you are a fan of Disney and really love to go to Disneyland. Then, you found out Madonna’s concert ticket in Hong Kong costs a lot cheaper than in Manila to the extent that your 15,000 can be spent going to Hong Kong, visiting Disneyland, and at the same time, watching Madonna’s concert.
Maximise your budget for leisure that you won’t feel the guilt afterwards. Hit as many birds with one stone, they say.
