20 Financial Milestones You Want to Reach in Your 20′s

by RJ

in Self Improvement

MilestoneThe journey from your first paycheck to the time you reach thirty, is the most important time of your life for accumulating wealth. Wouldn’t it be great if there were defined financial milestones, to make sure you’re on the right path?

From my experience, there are. I have noticed 20 different milestones those who are on the right track accomplish financially by the time they’re 30, that you can learn from.

# 1 – Finance a dream vacation…in cash

There’s no better feeling of setting a goal, working hard towards that goal, and finally, enjoying that goal to the fullest.

Pick one dream vacation, research how much it costs, set a date, and automate your savings towards that goal.

# 2 – Pay off your student loans

After paying for a dream vacation in cash, paying off your student loans might not sound like a sexy milestone, but it’s just as important.

Debt restricts your freedom. The more freedom you have, the better life is.

# 3 – Automate paying your credit card bill in full

This financial milestone takes  2 minutes to accomplish but it’s one of the most important. Not only do you avoid interest and late fees, you hold yourself accountable to spending less than you have.

# 4 – Get rid of all bad debt

I’m a believer that all debt is bad debt. Yet, I realize this is unrealistic for some.

A good way to see what bad debt and good debt is is by asking yourself if the underlying asset appreciates or depreciates in value. If the asset appreciates, like a house, than categorize it as good debt. If the asset depreciates, like a car, etc… then it’s bad debt.

The goal is to have all bad debt paid off by the time you’re 30.

# 5 – Build an adequate emergency fund

An emergency fund works just like a parachute. Nobody looks forward to using it but they are sure glad it’s there.

By the time you’re 30, build an emergency fund that covers a minimum six months of expenses. A time will come when you’re sure glad it’s there.

# 6 – Make your first, and last, investment mistake

Investment mistakes are just like that guy or girl in high school that the entire school dated. You need to do it, just to get it out of your system.

It’s not a bad thing to make those mistakes when you’re young and have little money, than when you’re older have a family to support.

Hopefully, it will take only a few weeks to realize that beating the market year in and year out is impossible. The best strategy for getting rich is increasing your potential to earn more money. Don’t worry so much about beating the market by 1 or 2%.

# 7 – Develop a statement of cash flows

Imagine a business trying to operate without knowing how much money is coming in and out every month. As you know, successful businesses don’t operate this way.

Apply the same concept to your personal finances. Know how much money is coming in and out every month. (Hint: This is a lot easier than you think.)

# 8 & 9 Max out a Roth IRA & Contribute to your 401(k)

Let’s say you start contributing $5,000 combined to your Roth 401(k) and Roth IRA every year from the age of 22 until 30. All in all, you will have invested $40,000 over 8 years. At 60 years old, without any additional contributions and assuming a 10% return, you would have $1,097,505.

Now, say you get a late start and you invest $5,000 into your Roth 401(k) and Roth IRA from the ages of 30 to 60. All in all, you will have invested $150,000 over 30 years. Assuming you earn 10% a year, you would only have $904,717.

Start investing as early as you can!

# 10 – Get a degree or certification that increases your earning power

By going after educational opportunities that enhance you’re earning power at a young age, you give yourself more time to leverage your education. For example, it’s better to get an MBA (only if it actually increases your earning power) in your 20’s then it is your 30’s because it will increase your earning power for a longer period of time.

Plus, you’re not too removed from a school atmosphere in your 20’s. You’re used to sitting in a class room for a few hours, taking notes, dealing with group projects, and taking tests. This is a huge advantage.

# 11 – Take a career risk

Your 20’s is a perfect time to take a career risk. Generally, you’re only supporting yourself. If you had to move, you don’t have lots of stuff. If you don’t take the big risk to join that start up or start your own business now, you never will. Experts like Sun Document Filings can help you get started.

# 12 – Negotiate something

Negotiating is addicting. Once you have done it once, you can’t stop. Plus, you will start to notice opportunities to negotiate that you never thought were possible.

Inside of one week, I remember calling up my cable company and negotiating down my bill. A few days later, I was in Dick’s Sporting Goods store buying a fire pit, when all of a sudden I blurted out, “Will you accept $60 for it.” It worked. In just a few seconds, I saved $20.

Get into the habit of negotiating as many purchases as possible. Once you start, you will be surprised how much money you were throwing away.

# 13 – Earn your first side grand

It took me a lot longer than I thought to earn my first side grand, about 18 months to be exact. However, once I was able to $1,000 on the side, the next $1,000 was easy.

Diversifying your income is a habit you want to start a young age. The more streams of income you have, the less likely you are to lose everything all at once.

# 14 – Start a sub-savings account for an upcoming financial goal

What big expenses do you have coming up? Once you hit 30, do you plan to buy a house, a nice car, or an expensive vacation?

For whatever your goals are, start a sub savings account for that goal. If your bank doesn’t allow you to do this, join one that does, like ING Direct.

# 15 – Set a target retirement date

It’s not as if you need to pick out an exact date. It’s more important to have a general idea of when you want to retire. It’s understandable that this date will change over time, but without a target date, it’s hard to formulate a true investment plan.

For example, someone planning to retire young, at 50, needs a completely different investment plan than someone planning to work until they’re 65.

A good rule of thumb is that someone planning to retire at 65 needs to save 10% of their income. For every year earlier they set their target date, they should save 1% more of their income.

# 16 – Monitor your credit

If you’re waiting until you apply for a mortgage to start managing your credit, you’re costing yourself a lot of money. Take time in your 20’s to get a basic understanding of how credit scoring works. Personally, a good credit score has saved me thousands a year and can do the same for you.

A good start is to download my free eBook, The Gen Y Guide to Managing Your Credit.

# 17 – Say no to a financial salesman

A friend asked if he should get a whole life insurance policy. Someone he met through the local chamber was trying to sell him one.

After a few questions, I found out he had no Roth IRA, barely contributed to his 401(k), and even had some credit card debt. After finding this out, of course my answer to his question was no.

The first time you’re approached by someone trying to sell you something, is a mini financial milestone in itself. Salesmen usually don’t go after prospects with little money. However, the first time you say no, is a breakthrough. You’re saying to yourself that you can take matters into your hands or go through someone you trust, if you do need help.

# 18 – Give just enough to make it hurt

I wish with the first dollar I made, I donated 10% of it.  Because now giving up that much of my income is unrealistic.

For now, which I think is a good rule of thumb to follow if you have never donated before, I’m giving just enough to make it hurt. I imagine life after 30 is going to get a lot more expensive. If I don’t get into the habit of giving now, I likely never will.

2 Financial Milestones for the Over Achiever

# 19 – Invest $1 for every $1 you spend

This is a personal goal of mine, but one that many others can benefit from also.

I’m not good at spending money on myself. There is nice stuff that I want, and that I have that money for, but I feel guilty buying it.

While reading financial advice from the legendary Sir John Templeton, I saw his rule was to invest $1 for every $1 he spent. He could buy whatever he wanted, as long as he invested just as much.

Once I started doing this, I felt like a weight was lifted from my shoulders. I no longer felt guilty for shopping at the nice grocery store. I didn’t feel guilty treating my wife to a nice dinner. The catch was, every time I spent, I had to also invest. (My rule is to invest $.50 for every dollar I spend. Eventually getting to a $1 to $1 ratio.)

# 20 – Start a 529 College Savings Plan

One of the most underutilized tax advantaged accounts is the 529 College Savings Plan. If only people knew how flexible they were, a lot more would use them to save.

Did you know that you can use a 529 plan to attend an international school? Or, did you know that you can use a 529 Plan to help save for the cooking or art class you have always wanted to take? Last, did you know that the transfer restrictions are very lenient for 529 Plans? For example, you can start a 529 Plan even before having kids, and then transfer it to your child once they are born, without any tax consequences?

If you get off to a good start and have your retirement savings under control, look into a 529 College Savings Plan for additional tax advantaged investing.

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If you thought I missed anything important, please let me know in the comments.

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Photo by: R I O M A N S O

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{ 30 comments… read them below or add one }

Chris ParsonsNo Gravatar December 10, 2010 at 9:59 am

I’m 26 and have accomplished most of these.

#1 – my honeymoon to Cancun was paid in cash. Of course, it was from the $8k I received for buying a house… but cash none the less.

#2 – I’m about $1k away and will have my wife’s student loan paid off in full in 2011.

#4 – Depends on definition of “bad debt”, but will have a positive net worth in the next few months.

#11 – No career risks yet – more focused on side businesses.

#13 – On my way. Will happen in 2011.

#19 – I wish. My goal for 2011 is to be above 15% investing to spending

#20 – No kids yet.

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Briana @ GBRNo Gravatar December 10, 2010 at 1:26 pm

These are great goals! I’m in progress at only 20:

#1: Planning our honeymoon. Thinking about Puerto Rico or the Dominican Republic. Going to do some research for it; already started saving

#4: In progress. Going to take longer than a year if I don’t diversify my income, but I’m hoping since I will diversify, I’ll be debt free by the end of 2011 :)

#5: In progress. Going to take a while, so I’m hoping in the mean time, no emergencies come up. Goal: $10k

#8: Starting my contribution in the beginning of the year

#10: Got the Empire Building Kit, the 23 business books from the 72 hour sale, and signed up for a few classes for some CEUs. Looking to increase some great skills

#11: Looking to be able to work from home. Wish me luck!

#13: In progress!

#14: SmartyPig

#15: 50 [30 more years]

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Bret @ Hope to ProsperNo Gravatar December 14, 2010 at 11:53 am

My number one financial goal in my twenties was to buy a house. I know that goal isn’t for everyone, but I’m sure glad I did it. If I hadn’t started saving when I was 21, I would probably still be renting. Instead, I am five or six years away from paying off my mortgage.

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EvanNo Gravatar December 14, 2010 at 8:27 pm

FANTASTIC LIST! 29 here and I am working through them right now. I have completed:
1 3 5 6 710 11 12 13 14 15 16 (i disagree with 17)

and opening a 529 tonight!

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RJNo Gravatar December 15, 2010 at 11:10 am

@Evan – Awesome. I shot for the stars on this one. It’s not like you have to complete everything on this list. You’re off to a great start.

@Bret – Paying off your mortgage that early in life is amazing. It takes tremendous discipline but it can be worth it. Congrats.

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MeganNo Gravatar December 15, 2010 at 11:14 am

I have a friend who works in the financial aid office of a local private college and she told me that 529s are great, but if they’re in the child’s name they can limit the amount of government funding that child gets to go to college. I thought that was really interesting.

It’s better, she suggested, to put the plan in the name of a grandmother or aunt. I don’t know if it will still be true by the time Gen Y has kids, but it’s something to think about.

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RJNo Gravatar December 15, 2010 at 11:26 am

@Megan – That is true. A go to resource for me for college savings is savingforcollege.com.

Here’s a great article about the impact on 529′s and financial aid – http://www.savingforcollege.com/articles/five-things-to-know-about-529s-and-financial-aid

Hope that can help answer your questions.

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MercedesNo Gravatar December 15, 2010 at 11:26 am

According to this list I’ve been doing pretty well! And at 27 I thought I was still somewhat behind! I’ve even started the 529 and I’ve got no plans for children until my 30′s. (Thanks to Upromise, it’s EASY!)

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Dana @ Budget DietitianNo Gravatar December 15, 2010 at 12:33 pm

RJ, this is my first time to your blog.

I couldn’t agree with you more that all debt is bad debt. We are paying off a crazy amount of debt then I have two years to meet the rest of your goals! :)

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FionaNo Gravatar December 15, 2010 at 5:07 pm

#2 – Had them paid off by the time I finished university
#3 – I don’t automate it, but I pay off my credit card in full everymonth
#4 – I have no debt
#5 – Don’t have an emergency fund yet – I have a savings account that will be my house deposit – until then, I can dip into that for emergencies.
#10 – Done

#8 & #9 & #20 – Don’t appy to me – US only I believe?

I really want to do #11 (career risk) and am working on #13 (earning first side grand).
#19 sounds interesting, I should think of doing that in the future – might curb my spending even more.

Not bad, I’m 25, so still have a few more years yet!
I want to be a couple of years into a mortgage by the time I hit 30, that’s my ultimate goal.

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LifeAndMyFinancesNo Gravatar December 15, 2010 at 6:42 pm

Loved the post! My wife and I are 22 and 25, respectively, and many of our goals are on this list! We will most likely pay off our debt by April, 2011, and we’re already investing in our our 401(k)s!

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RuNo Gravatar December 15, 2010 at 6:52 pm

It’s my 21st birthday on the 17th, and I’ve already done one of these, yay! I saved up close to £3000 in 2009 and used it to go to Tokyo, Portland and then Hawaii over the summer. It felt very free to be able to do that and have no debt when I got back.

Student loans in the UK are different to those in the USA- ours are provided by a government agency and you only have to pay them back once you earn over a certain amount (£15k, rising to £21k when they raise the fees in a couple of years), so I don’t have to worry about them until I get a good job.

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BrettNo Gravatar December 15, 2010 at 7:06 pm

Hey RJ,
Great list! I have done about half of these–working on the side income and the starting my own business part. Looking forward to following your blog from now on!

Brett

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RJNo Gravatar December 16, 2010 at 8:25 am

Thanks to everyone to visiting Gen Y Wealth. More importantly, thanks for all the kind words.

It’s great to see so many members people in their 20′s, getting off to such a great start financially.

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me in millionsNo Gravatar December 16, 2010 at 9:12 am

What a great list. I think I’m going to post my response on my blog in the next few days. Thanks for sharing!

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N.W.JourneyNo Gravatar December 16, 2010 at 6:35 pm

This a wonderful list! It’s a little late for me, but definitely one that I will pass on to others.

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Ash @ PayForSchoolNo Gravatar December 16, 2010 at 7:24 pm

This is a great post! I’m only 20 but I’m on my way to a few of these and hopefully onto more when my business(es) pick up. I’m going to bookmark this and print it out and post it on my bulletin board so I can check them off and keep focused on them.

Thanks again!

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EricNo Gravatar December 17, 2010 at 12:34 am

Nice post! I was sent here from JD @ GRS and Trent @ TSD.

It’s nice to hear advice for 20 somethings in the personal finance realm. I’m turning 23 next month and I’m definitely trying to stay on the right track. I don’t have any debt: won full scholarship to UCLA, paid for my Acura in cash by working through school, and have always had CC bills on auto full pay (780 FICO). I’ve also managed to save a year of expenses in the past year through my job.

But what I’m most excited about is landing a new job starting after New Year’s in which my salary is finally able to support all of my goals. I’m planning on maxing out my 401K and Roth IRA while saving slowly towards a home down payment and wedding.

Your list gave me some inspiration to save up for a dream vacation. I don’t know if I’ll have the time but it’s another goal!

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Debbie MNo Gravatar December 17, 2010 at 10:38 am

I disagree with #17. I started out contributing an amount that _didn’t_ hurt. Then with each raise, I would add a bit more to my contributions. Now I’m up to contributing 12% of my income.

These are some pretty good goals. Here are some others to consider:
* Save enough that you can pay cash for your next car. If you are making payments now, then hang on to your car when it is paid off and put the same amount (or a high percentage) into a savings account. You can use some to keep your current car in good condition and the rest for your next car. Each month you can wait, you will be able to afford a more expensive car.

* Learn how to do something that you’re currently paying someone to do. Examples could include: making pizza, cutting your hair, or changing your oil. This can save you money of course. And you can also get better service–it will be personalized and you will care more than some stranger and thus maybe do a better job.

And I’d change #1 from dream vacation to dream goal. Travel is one of those things that can seem out of reach, but really isn’t. But getting a few expensive tools for a beloved hobby or a set of lessons can be just as life-altering.

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Alicia@The Investment DivaNo Gravatar December 18, 2010 at 7:44 pm

Thanks for a very thoughtful post. I have to agree with most of the milestones. I’ve posted my responses on my new blog. Some milestones had to be adapted to suit the different financial activities in my country (Australia) but I think most of the milestones mentioned here would suit Gen Y’s the world over.

http://investmentdiva.blogspot.com/2010/12/20-financial-milestones-you-want-to.html

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frugalscholarNo Gravatar December 20, 2010 at 10:35 am

Some quibbles: emergency fund should be higher on the list; sometimes (often?) it’s hard to define an investment “mistake.” Investment successes often change with time also. As it happened, for instance, it was good during the meltdown that my 529 plan was in cash. At this point, is it a “mistake”: that I didn’t move it to equities after March 2009 (or whatever the low point was)?

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RJNo Gravatar December 20, 2010 at 1:40 pm

@FrugalScholar – Actually, there is no order of importance. If there was, an emergency fund would be on top.

Also, to go a little more in depth on the investment mistake. The idea was to get the idea that you can beat the market out of your system.

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Pat S.No Gravatar December 23, 2010 at 10:45 am

An excellent list of goals. Being in my mid twenties, and beginning to study personal finance, I’m learning a great deal about the step by step nature of getting financially healthy.
http://www.compoundingreturns.blogspot.com

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AnnNo Gravatar December 29, 2010 at 10:30 am

I’m already donating enough to make if hurt – a lot – in the form of income tax and contributions to social
security. If Uncle Sam didn’t already take so much from my paycheck I’d be willing to donate more. As it is all I can afford to do is donate items to goodwill after spring cleaning.

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RainaNo Gravatar January 4, 2011 at 4:23 pm

I’m 23.
# 1 – I have enough cash to pay for a vacation but choose not to.
# 2 – I have no student loans.
# 3 – I always pay my credit card bill in full.
# 4 – I have no debt.
# 5 – I have enough cash saved to live comfortably for a couple of years.
# 6 – I just choose not to deal with the stock market at all.
# 7 – Done.
# 8 & 9 – I contribute as much to my 401k as my employer matches (3%).
# 10 – I have a couple of certifications and am working on my BS.
# 11 – I’ve got a pretty good job right now that I don’t want to “risk”.
# 12 – I negotiate all the time.
# 13 – I make a lot more than a grand on the side.
# 14 – I have several accounts but none have a specific “goal”.
# 15 – I hope to retire by the time I’m 50.
# 16 – I monitor my credit.
# 17 – I say no to salesmen all the time.
# 18 – I don’t donate much money, just a little here and there. I prefer to donate time.

2 Milestones for the Over Achiever
# 19 – I save $3 for every $1 I spend.
# 20 – I haven’t looked into a 529 College Plan.

Thanks, this list was fun.

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RustyNo Gravatar January 8, 2011 at 9:02 pm

This was a really good exercise for me to reflect on. I just made a post about it in my blog, actually. I’m not 100% with you on all of these, and it was good to see in the comments that they’re not in list of order of importance, but it’s good. I’m not sure if paying off my student loans is going to happen in my 20s though, just realistically. Especially since I’m going to go to grad school.

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MDNo Gravatar January 12, 2011 at 12:54 am

A solid list with something for everyone. I think that the 529 college savings plan is a good idea. Even if you don’t have kids. Heck even if you’re a virgin. My parents helped me a little bit in college and it went a long way. As you struggle to pay off your student debt you’ll definitely understand that importance of financial assistance in college. You also want your kids to have a better life than you.

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EmNo Gravatar May 11, 2011 at 11:49 pm

Good, concise list! The items sounded a bit out of reach, but with some thinking, I’ve actually completed alot of them at 25. I’m in medical school (250,000+ in student loans), so #2 isn’t exactly an option for me… But I’ve started treating my tuition loans exactly as income and saving them like I would during my career. Also, smart spending- completely encapsulated in this list. A great reminder of goals!
CHECK 1, 3, 4, 7, 10, 12, 13, 15, 16, 17!

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Basil SiddiquiNo Gravatar May 26, 2011 at 12:11 pm

Inspired me to make a list of my own http://musinglyinclined.com/2011/05/24/milestones/

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J.B.No Gravatar July 22, 2011 at 1:05 am

Good list. It’s never a good thing to have bad credit and it is always good to monitor your credit annually to make sure it is still in good standing and is accurate.

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