New wrinkles. Pressure to procreate. And what have you checked off your bucket list lately?
Turning 30 can be stressful, even before thinking about personal financial goals and how to achieve them.
Adults 34 and younger grade themselves worse than any other age group in their personal finance knowledge, with 48% giving themselves a C or lower, according to a survey by the National Foundation for Credit Counseling. Financial planners say that needs to change. Millennials have a lot to do to get their house in order.
“I think every birthday you check your credit score and your weight, and one should be going up, and one should be coming down,” says Jean Chatzky, 48, a personal finance expert whose Money School webinars launched last month. “People around 30 are under more pressures than any prior generation,” she says, citing “tremendous” student loan debt, “stagnant” wages, the burst housing bubble and the burden of retirement and health care costs moving increasingly from employers to individuals.
In fact, the average net worth of those under 40 in 2010 was 7% below that of people in the same age range in 1983, the Urban Institute reported in March.
“Thirty today isn’t what 30 was a few decades ago. It could mean single and 30, or married with children,” says Megan Rindskopf, 26, a certified financial planner with ClearView Wealth Management in Charlotte. “I think the biggest issue for people in this age range is knowing how best to deal with competing priorities. A lot of people are living paycheck to paycheck. This is kind of the age where you feel you need to grow up.”
WHAT FINANCIAL GOALS SHOULD MILLENNIALS SET?
A good benchmark is to have one year’s salary saved in retirement accounts, such as a 401(k), by age 30, says David Weliver, 32, who created the financial advice websiteMoney Under 30 after recovering from his own problems with debt. Weliver calls the goal “income-based, so it’s not comparing a kindergarten teacher and a Wall Street banker.”
Financial experts recommend saving 10% to 15% of every paycheck to retirement and savings accounts.
However, saving newbies shouldn’t start with 10%, some advise.
“It’s like going on a crash diet — if you go too high, it’s too painful and too likely to fail,” Chatzky says. “Once you manage to set aside 2% for three to six months, then notch it up another 2%. … I’ve never seen a budget where I can’t find some wiggle room.”
As you save money, here are steps to take:
1. Meet obligations. Pay your rent and minimum loan amounts on time to avoid charges and fees.
2. Build an emergency fund. If you have nothing, start with $500-$1,500 to avoid overdrafting your checking account, says Weliver, then grow that buffer into a savings worth three to six months’ salary, to support you in case you lose your job.
3. Pay into 401(k) up to company match. If you don’t do this, “you’re missing out on free money,” Rindskopf says. If your company doesn’t match your 401(k) contributions, Weliver still recommends donating 3- to 5%.
4. Pay off credit card debt. “The biggest payoff is going to come from two things — capturing any matching [401(k)] dollars and paying back credit card debt,” because it is high interest, says Chatzky.
5. Increase savings. Once you’ve paid off debt, built an emergency fund and started saving for retirement, “look at shorter term goals and figure out how much you’ll need in two to five years,” such as paying for a wedding, car or down payment on a house, Weliver says. “You don’t want to put everything in retirement if you don’t have enough to pay for the things you’ll need.”
6. Buy life insurance. “I absolutely recommend it if you’re starting a family or if you have a spouse who depends on you to pay the bills,” says Rindskopf. “Do a little research before you jump in and buy a policy.”
7. Increase 401(k) contributions to 10%, even if it’s beyond company match, Weliver says.
8. Pay off student loans on schedule. Student loans are “tax-deductible and the interest rate is generally low,” says Chatzky.
9. Open tax-advantaged accounts. “If you’ve maxed out [other savings], but you still have money to put aside, look at other tax advantaged accounts you can open. If you have a child, look at the 529” to save for their college education, Chatzky says.
10. Invest. If you’ve done all of this, increased your retirement and your savings and still have money to spare, you may consider investing in taxable brokerage accounts.
THE GENERATION OF ADJUSTED EXPECTATIONS
Chatzky, a mother of two teens, 18 and 16, says many young adults will need to “choose a smaller lifestyle than earlier generations.”
“It’s very demoralizing to think that the next generation won’t have a shot at doing as well as their parents did,” she says.
Weliver agrees that his generation has a different standard of living.
“We need to lower our expectations,” he says. “Retirement age may be 70. … That just may be the reality of our generation.”
With 32% of those 18-34 saying they put nothing toward retirement, according to the National Foundation for Credit Counseling, even a later retirement date requires getting serious about personal finances as soon as possible.
“When you turn 30, it’s a really good time to make a five-year plan for your finances. Your 20s are notoriously uncertain — you may be moving, in and out of relationships and different jobs — so it’s hard to stick to a five-year plan because things change so quickly,” Weliver says. “By the time you’re 30, things may slow down a bit and there may be a natural progression in terms of savings and salary.”
Follow Anne Godlasky on Twitter @annieisi
How to get your financial house in order by age 30