Where Should You Be Financially At 30?
I think many 20-somethings ask themselves continually where they should be financially by the time they reach 30 years of age. Most people focus on a single number – specifically, what should one’s net worth be by the time they’re 30? While this is a legitimate approach, net worth is something that’s difficult to project for someone in their 20s. There are a number of reasons why. First, the earning power for most people in their 20s is a fraction of his or her earning power later in life. As such, it’s very difficult to build net worth in your 20s. Also, many people are busy getting out of debt in their 20s from student loans and so forth, so their move in net worth is many times from the negative towards any level of positive level of net worth – a very worthwhile goal, but hoping for a net worth of $5,000 by 30 isn’t exactly a goal that most describe. With this said, I think our financial situation at 30 is more about other areas versus net worth. I’ll explain further…
The reality is that most of us are not going to have a high net worth at 30 unless you had a high salary at a young age coupled with a drastically low standard of living, inherited or were given money, or you started and sold a business in your 20s. Most of these examples are the exceptions rather than the rule so again, most of you reading won’t have a high net worth at 30 (or are 30+ and can vouch for these statements. So, what should we shoot for at 30 if a high net worth is out of the question for most of us?
Part 1 – A Sound Financial State
This is the first area to address: our general finances. By 30, you want a clean financial situation that has the potential to be a major tailwind in your life versus a headwind. What might this look like? Consider the following:
- Clear of any consumer debt and/or student loans – mortgage debt being the only debt you carry
- On your way to paying off your mortgage - this might still be a long ways off or you might have already made good progress, but regardless you have a game plan and are in the process of executing it
- A nice chunk of money in savings and investments – this might include an emergency fund, savings accounts and basic equities accounts – how much money? I think $100,000 at 30 is a good goal and very attainable. This does not include retirement accounts.
- Retirement accounts that have been funded for some time and are continuously being funded – In addition to the savings outlined above, you should hopefully have been funding a 401(k) or IRA or something of the sort for a few years now. This money is untouchable until retirement so it really doesn’t do much for you in the near future – still, somewhere in the range of $50,000 – $75,000 and up is a decent goal for 30.
To accomplish the above, you’ll need to be good with your money. You’ll need to make decent money and be great at saving money – this usually means living frugally. By combining a decently paying job with strict money management, you can easily accomplish all of the above during your 20s. Then again, it’s easier said than done, and I’d guess that the vast majority of 30-somethings were not anywhere near accomplishing all of the above.
Most people stop here with regards to financial goals. I consider the above to be the minimum at 30, and the next part to be the real differentiator in determining future financial success. Read on…
Part 2 – Business & Income
You can make great progress in your 20s laying the foundation for or implementing your own business or income stream. I firmly believe that the progress here will be the differentiating factor between financial security and financial prosperity in your life.
Now, launching your own business in your 20s in the traditional sense is very difficult. You probably don’t have the capital, the experience, the contacts, the skills, and so forth – therefore, I’m not necessarily advocating you jumping off the cliff and taking a stab at some business idea you think is cool. Instead, I encourage you to explore ways to build additional income streams while keeping your main job. This will allow you to earn extra income and maybe develop one of them into a full-fledged business down the road. This approach is super low risk and offers significant benefits to your financial life. This approach is what I constantly talk about here at this blog – usually I’m referring specifically to online income, but the concepts are general and can be applied to non-online income streams.
Furthermore, an area we often overlook is our business contacts and our network. The contacts you make in your 20s can be huge down the road with regards to launching your own business or finding additional opportunities in your career. Take the time to get to know people and reach out. It will pay dividends later.
What are your goals for 30? Where are you in reaching them? What are your thoughts on what I’ve outlined in this article? If you’re 30 years of age and up, what advice would you give to 20-somethings?
I look forward to your feedback.