11 Financial Milestones To Achieve In Your Late 20s
Breaking into the financial world may seem like a daunting task. There is so much to know. With the ever-changing economy, the plethora of money advice from this Finance Guru, and that #1 Bestselling Personal Finance Book, many 20-something year old’s feel lost with no clear sense of direction on where to even start.
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Firstly, stop reading those headlines saying the younger generations “will never retire, will never own a home, and are the most lost generation when it comes to personal finance to date.” It’s not entirely our fault. In the 15 + years that we are in school, we are never taught to talk or even think about money. Then you are forced into University by every adult in your life and offered a credit card right on your campus doorstep without being primed with the knowledge of how to use it. You graduate with a ton of student debt from a degree you never wanted in the first place, working at an unfulfilling job you don’t like to pay for the $100,000+ University degree that is too general to get your foot in the door in your actual field.
Sound like you? Don’t worry. That’s like most people. The good news is you’re reading this right now, which means you at least care enough about your future to seek help.
Without a direction, many just try not to think about money at all because it’s too complicated. In truth, the “out of sight, out of mind” mentality can be crippling to your financial future. In reality, you don’t need to know a lot about money to get started.
If you’re looking to take control of your financial well-being, here is exactly where you need to start. Here are 11 Money Milestones to achieve in your 20’s to get you started on your journey to financial freedom, to stop living pay-check to pay-check and actually have money to do the things you want to do.
And if you’re pulling your hair out because you’re well in your 30’s and haven’t started, don’t worry because it’s never too late to start.
1. Know your numbers
In any aspect of life, it is important to know what you know and what you don’t know before making a change. You can’t start a fitness journey doing 2-hour workouts, 7 days a week if you haven’t exercised since that mandatory gym class you took 15 years ago your first semester of High School back in grade 9. You have to first figure out where you are to know what changes you need to make to get to where you want to be.
Okay great, but what exactly are these numbers?
How much you make. What is your income? Not the pretty number on the paper, but your wages after taxes, how much money do you actually take home? Write that number down on a piece of paper. This will help you determine how much money you have to play around with.
How much debt do you have? How much do you owe? Do you have student debt? High-interest credit cards? A car loan? Personal loans? Whatever it is, tally up how much debt you have. Now, this number may be scary especially if you practice that “out of sight” mentality. Regardless, it is important to look at your current financial situation for what it is. Stare it straight in the face.
Know the cost of your necessities. How much money do you need for living expenses? Things you need day-to-day or on a monthly basis. This is your rent or mortgage, travel expenses (gas/car lease/insurance/bus ticket), utility bills, phone bills, and groceries. I’m not talking about your Netflix subscription, the bare minimum you need to support yourself.
As an average, your living expenses (necessities) should be about 60% of your income. It’s okay if it’s not right now, but you can look at your finances from a macro lens to see where you can cut down.
2. Create a monthly budget
With all your numbers written out, it’s time to create a monthly budget. Track your spending for 30 days to see where your money is actually going.
Are you spending more than you make? Seek out where you are spending too much and try to curb some of those habits.
Popular culprits are subscriptions you don’t need, buying lunch every day at work rather than bringing your own, buying coffee every day, buying sale items you otherwise would not purchase had they not been on sale. The list is endless. Figure out what you are spending money on that you really don’t need to be. Sometimes this means living below your mean for a while. If you’re making $3,000 a month you should not be spending $2,800 just to survive. Work on ironing out where you can cut to ensure you have money left over to save for an emergency, and money to start tackling your debt.
See Why Buying Coffee Makes You Poor
Once you have a set monthly budget and you’ve cut down expenses where you can, follow this budget for about 3 months to ensure you can keep up with it, and modify if necessary. Being smart with your finances is more about building life-long habits than a quick fix.
3. Automate your payments
I know I’ve spent a lot of time talking about forgetting this “out of sight, out of mind” practice, but here is where you can actually put it to work. Now that you know where your money needs to go, you don’t need to be focusing on it all day long. You’re a busy Boss Lady (or Boss Man) you have plenty of hustling to do that don’t involve taking out a calculator, pen, and paper every time you get paid. So automate it.
Automate your accounts so your bills get paid as soon as the money hits your account. Put phone bill and other utilities on your credit card so they are paid right away (here’s where you can throw in your Netflix subscription too). Let the gift of automation become your best friend. Have pre-authorized transfers to your savings account to set aside money for emergencies as an Emergency Savings Fund (ESF- more on that later), or money for rent. You want to make it so whatever is left in your chequing account is money you have for daily expenses like groceries, gas for your car, and entertainment.
4. Establish a secondary source of income.
Sometimes cutting back on expenses is just not possible. I get it, it was the same for me. Out of University, I worked at a minimum wage job, I was already living at home so I wasn’t paying rent or buying groceries, all I was paying for was my high-interest credit cards, and my student loan debt and I still found myself scraping for cash. It was time to create a second source of income.
You could babysit or tutor in your spare time. In this digital age, there are tons of online jobs you can do for extra cash. It could be as simple as doing online surveys that pay cash for your opinion, being a virtual assistant, transcribing, writing a book, teaching an online course, or even starting a profitable online blog. If you can create a second stream of income doing something that you actually enjoy, it won’t feel like extra work. The point is, you want to make sure that should anything happen to the job you already have, you still have some money coming in.
5. Build an emergency savings fund
An Emergency Savings Account is technically just a regular savings account but it can be so much more. According to CNBC, most adults are a $1,000 emergency away from serious debt. Think about that. I’d go as far as to say most people don’t have enough to cover a $500 emergency (and I’m not talking about a credit card).
The way things happen these days, it often seems like there is always something that swipes your money on a monthly basis. Whether it’s an Identification Card renewal, a flat tire, a broken computer, most people would run up serious credit debt just to cover themselves and this should not be the case. An Emergency Savings Fund is just that; a tuck-away fund that you build up and do not access unless it is ABSOLUTELY NECESSARY. Keep this separate from your regular savings account and if you can, hold it a completely different bank than the one you use day-to-day so you’re not tempted to quickly transfer money to your chequing account if you want to go for a night out with your friends.
This account should be enough to cover your basic necessities (as outlined above) for at least 6 months. If you’re really going for it, I’d recommend enough to cover you for a year should you lose your job. Part of being smart with money is planning for the unforeseeable future. Take your time to build this fund aggressively before even starting to tackle your debt as you can always make payment plans with loaners but you need enough to keep you afloat until you find another means of employment.
6. Create a debt repayment plan, and automate it
So you have your ESAF saved up and you’re ready to start making a dent on your loans. Before anything, start off by paying the minimum on all of your loans. You are trying to get your finances on track, the last thing you want to do is fall behind and create even more problems for yourself. A good place to start is with any existing high interest credit card debt.
7. Learn to use a credit card
One of the major misconceptions I hear every day regarding credit cards is that it is basically cash. I completely understand you use it like cash but it isn’t quite cash. It’s better to think of a credit card as a small, convenient, personal loan. It’s just like any other car loan, mortgage, phone plan, credit that you can use for purchases in a way that you cannot easily use your mortgage to put gas in your car.
Credit cards are great for convenience and they do offer great rewards, such as cash-back, points to redeem for gift cards and such, travel perks, and some forms of baggage, and purchase insurance. Depending on how sophisticated the perks are, they may also have fees attached. It’s best to start off with a simple credit card that will earn you rewards points or cash-back with no fees. Just be sure to remember, a credit card is the bank’s money. They are loaning you money with the expectation that you will be paying it back. For most credit cards, you have a 31 cycle, a 21-day grace period and of course fees.
8. Know your credit score and how to improve it
Your credit score is a comprehensive money habit history ledger all lenders use to gauge whether you would be a good candidate for a loan. This history is used to apply for a credit card, a mortgage, car loan, some renting properties and more. For this reason, knowing this number and the various items that can impact it are quintessential. This score can range between 300; being very poor, and 900; being exceptional.
On average, most people tend to have a score between 650 and 800 which is by all accounts a good score. Anything below may make it difficult to qualify for a lot of life’s luxuries. If you don’t already know what you score is, then call your credit bureau for a report. You are entitled to an annual free report in most places like credit bureaus of Canada; Consumer Equifax Canada and Trans Union and platforms like Credit Karma that can give you updated credit history reports. It is a good idea to check it annually for discrepancies just be sure not to check it too often as it may negatively impact your score.
If you find your score isn’t as good as you had hoped, it is always possible to build your credit score by knowing what impacts it. You can negatively impact your score by missing a bill payment, having too many credit products, closing a credit card, opening too many credit products at the same time, maxing out your credit products and more. Positive impacts can be paying your bills on time, being sure to use no more than 30% of your credit, and more. I recommend seeking assistance from the credit bureaus for more in-depth information about how to improve your individual score.
9. Familiarize yourself with money terms
As I mentioned before, personal finance for a lot of people can be daunting especially when there are so many finance words that you may not understand. Know the basics, you’ve got to start somewhere. Nowadays, there are so many channels to learn from that will make you cozy with money jargon in no time.
10. Find a mentor or a friend/group
Sometimes there is only so much knowledge you can absorb from a book and you need someone to bounce ideas off or ask questions to. If you haven’t already, find someone you are comfortable speaking with about money. It can be a friend or a parent, a teacher, or even an online community. YouTube and Reddit are great places to immerse yourself in, just be sure to do your research as well since anyone can be a commenter. Even myself, make sure to research any advice I am giving since I am not a financial advisor, I am simply someone who knows a lot about and am interested in personal finance. But my knowledge about personal finance is limited to my environment, Ontario, so depending on where you live there may be inaccuracies in my advice.
Since the beginning of time, money has been a taboo topic and it truly shouldn’t be. This is exactly what has inspired decades of financial illiteracy. Simply make finance a topic of conversation rather than one to avoid. And try to listen more than you speak since you can really learn a lot from people’s experiences good or bad.
For me, two of my uncles are my go-to finance guru’s; one who specializes in Economics and one who is an Professional Investor. In addition, here are some of the resources I use to expand my knowledge.
Graham Stephen on YouTube
Canadian Youtube Chanel, Project Life Mastery
Phil Town’s Rule 1 Investing on YouTube
The Financial Diet on YouTube
Sub Reddit r/PersonalFinanceCanada , r/FinancialPlanning
11. Create a retirement savings plan
Last but certainly not least, you should have a plan for your retirement. Sorry to be the bearer of bad news, but you won’t be young forever. Living on the edge, where your finances are concerned won’t be as cool in your 50s. Your money is never going to be worth as much as it is today so you should put some of it aside, invest it and give it the time to earn some sweet compound interest; the point where your money starts to earn you money.
Starting off younger gives your money more time to grow on itself. Even if you’re not contributing much, $100 a month can become $1 M by the time you’re ready to retire. You don’t even have to know a lot about investing; TFSA’s or RRSPs to get started. Personally, I love using WealthSimple since it makes it so easy to invest, simply link a bank account and have funds automatically transferred to this account. Their simple interphase and application make it easy to track your growth on the fly. Best of all, it’s free to get started and their investment fees pretty much outmatch everyone else out there. Create a plan, and yes, automate it, so you can grow your money on autopilot.
