Retirement (MP) When you’re in your 20s, you feel invincible and live carefree. It’s not easy keeping an eye on the future when it looks like you have all the time in the world. So you spend money excessively, never considering the financial consequences to your future self.
A few key decisions you make in your 20s — from what you study to how much you save, to what kind of car you drive and where you live — can drastically improve your chances reaching retirement with $1 million. If you’re young right now — advice found in this column can considerably improve your financial future. But for those past their twenties; have you ever wondered, if you could go back and give your 23-year-old self advice about money – What would it be?
Your future self speaks to you in your 20s
10. Choose the right career
“Please, think about it and choose a career that will pay you well. In the future you’re going to owe a lot of student debt and that cheesy major you chose only qualifies you for a $24,000 a year job. I’m here struggling to pay rent, eating cheese and crackers because you made a career out of being an asshole.”
You should choose a major that provides a career that is growing in today’s job market. It’s a sad day when you have $90,000 student loan and a job that pays $24,000 per year. Do the math don’t be slave to debt until you’re old and grey. Choose a career out of “Top 30 Jobs of 2020,” hopefully one that pays well!
9. Stay away from the big city
“Dummy, you should find a job near home where cost-of-living expenses are affordable. You’re about to move to the city where everything is high. You’re going to make a lot money but expenses will suck you dry. You won’t be able to save a dime.” Please don’t do it!”
Straight out of college, you maybe tempted to move to a big city, and get that dream job. But this would be a big financial mistake. Large municipalities come with big rents and high costs of living. You won’t be able to save a penny for retirement. A few months’ of rent-free living expenses at home with Mom and Dad can save you a bundle towards your retirement account. And, if the thought of sleeping in your childhood bedroom is too much to bear, consider renting a cheap place with roommates.
8. Don’t buy a house too soon
“Buy a house that’s affordable. We’re going to lose that big house anyway and wished we would have brought something smaller. Trying to keep up with the Jones’s cost us our dream home and made us file for bankruptcy!”
It’s OK to carry some debt but, you need not overextend yourself. Generally speaking, lenders believe that a mortgage shouldn’t eat up more than 28% of an individuals’ gross income. Overall debt, including car loans, student debt, and credit cards, shouldn’t exceed 40% of gross income.; In the middle of paying student loans and credit card debt, do you really want another long-term debt in your monthly budget? Big money mistake!
7. Don’t spend excessively
“Listen to me, dummy. Don’t eat out every night or spend so too much on travel and entertainment. We’ll have plenty of time for that. Let our money make money for a while, and then we’ll have plenty to spend later.”
Great fortunes are often not realized one dollar at time. It may not seem like a big deal when you pick up that Cinnamon Dolce Latte, buy a new suit, or eat dinner out but, every little dollar adds up. Just $32 per week spent dining out costs you $1,664 per year. Money we waste could go towards an extra mortgage payment or a some extra car payments or your retirement investment account. Another thing you don’t want to do in your 20s is live on credit cards – big money mistake! Credit not use wisely forces you to live paycheck to paycheck.
6. Don’t go overboard on student loans
“Please, I’m begging you don’t take out so many student loans. We can get by without them. Trust me the day is coming when Sallie Mae is going to hound us like a demon from hell.
A wise sage once said find something you love – pursue it. But, he probably wasn’t talking a career and if he was his advice stank. Today, the average college tuition is $38,000 a year. This means you’ll probably owe a load of student loan debt when you graduate. Be careful paying back sucks! Trust me, your mid-50s self will thank you for not taking on more debt, because he’ll need all the resources he can manage to deal with his divorce.
5. Set financial goals
“Listen up Knucklehead, I’m telling you to plan for your future now. I’m sitting in the mess you’ve made for me. I’ve cleaned up for years because you lived paycheck to paycheck, without a care for our future. Ge’ez you’re an idiot!”
An old sage once said, “People who fail to plan — plan to fail.” The very act of identifying and setting financial goals for yourself when you’re yound sets a clear view of where you’re going. Setting financial goals allows you to measure when you’re going to reach that one million dollar retirement. So set up a five-year goals, 10-year goals, up to 30 years. Diversify your retirement investments between stock, bonds and other index funds as well as keep a small amount in cash equivalents such as money market funds.
4. Don’t buy a new car
“Oh My God. We already had this discussion about “Keeping up with the Jones’s.” You don’t need a new car right now. Wait and trust me all the new cars you ever wanted are coming our way.”
Just out of college — you don’t need a new car (Period). You definitely don’t need a new car note. What you need is a reliable vehicle with great gas mileage. But if you must have a car — read our “Before You Commit to the Dealers Auto Loan Guide.”
3. You have to start budgeting
“Start budgeting now and will save us more money and heartache in the future. Believe me.”
One of the most common financial mistakes you make in your 20s is not setting and keeping to a monthly budget. Budgeting may not sound exciting, but it is the number one, quickest way to stretch a salary and save money. Don’t do it, and you’re like a Blind man without a seeing eye dog, navigating life with your hands.
2. Contribute to your retirement now
“One day you’re going to wish you started saving for retirement early. That day is today. I’m your future self and I tell you life sucks. I’m sitting on a $58,000 retirement fund because you wanted to have it all at age 25. While our neighbors are sitting on nice financial nest egg. We’re still living on credit cards to get by. Please, change before it’s to late for us!”
You need to understand that the longer you wait to start saving for retirement, the more you’ll need to stash away later on. While someone in his 20s can get away with investing just 10% of his income in his 401(k), someone in his 30s will have to set aside at least 12-15% in order to fund a comfortable retirement. Thanks to the power of compound interest you can play catch up with the right formula!
For example, Alisa is age 22, she earns $3,000 a month and decides to save 10% ($300) of her pre-tax salary in her company’s 401(k) plan. Alisa then puts that money into an index fund that we’ll assume earns 6% a year — even if she never gets a single raise or promotion — she will have saved $753,849 by age 65. Now, say she waits to start saving until she’s managed to work her way up and feels more financially stable. Even if she doubles her savings to $600 a month, by the time she’s 65, she will have saved only $317,843. This is what I mean by You have to start early. Now image if Alisa had earned 7%. (Do your own compound interest calculation here.)
1. Pay yourself first
“The number 1 advice I have for you, is to pay yourself first. Before anyone else gets a thing put money away for our future.”
You’ll never get ahead if you don’t learned to save first and pay everyone else later. That means saving for your retirement investments first and then what’s left over you pay to creditors. This the number one fundamental principle that differentiates the rich from the middle class and poor. The rich always pay themselves first. When you receive a paycheck and pay first to a debtor — you’re acting as a slave to money. Your money should always be working for you and not the other way around.