Will You Hit These 7 Financial Goals (Before Turning 30)?
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In our twenties, we face a huge amount of life choices…
We’re also expected to get a grasp of our financial situation.
But what does this mean? What are we supposed to be DOING? Why did no one give us a checklist!?
This didn’t seem fair…so I teamed up with 6 other bloggers to create a master checklist. Tick these off and you’re well on your way to future financial success.
Here are the 7 financial goals you should tick off before turning 30:
- Goal 1: Reduce financial stress by living in surplus
- Goal 2: Easily save more by paying yourself first
- Goal 3: Get rich slowly…start investing
- Goal 4: Retire decades earlier through frugal living
- Goal 5: Access a free pay rise via your pension
- Goal 6: Grasp the power of compound interest
- Goal 7: Bonus goal (vital in 2018)
Goal 1: Reduce financial stress by living in surplus
An unhealthy obsession with salaries exists in the UK. We use them to benchmark our own success and that of others, yet in reality what matters is how much you keep not how much you make.
Since 40% of footballers go bankrupt despite literally earning millions, clearly positive financial habits are far superior to income levels.
Of these positive financial habits, the most important of all is living in surplus.
Meaning spend less than you earn. Simple in theory.
Obsess on driving your monthly expenses as low as possible (rent/socialising/phone) whilst seeking ways to grow your income until you reach a surplus.
It’s not as exciting as dreaming of a lottery win or betting big on Bitcoin but as often in life it’s the unexciting, regular habits we make that result in the big long-term benefits.
Goal 2: Easily save more by paying yourself first
Paying yourself first means putting a wedge of cash aside BEFORE you pay bills or start spending on day-to-day expenses.
In practice, this is working out a budget, figuring out how much you can save and then automating this amount by direct debit from your day-to-day spending account into another separate account or directly into investments.
The reason financial planning like this works is rather than trying to save ‘what’s left’ at the end of the month (often 0!), you make your saving on the first day leaving you with a clear bank balance so you know you exactly what you have left for the month.
So how much should you save?
Financial bloggers typically suggest 10% but higher amounts compound and make a huge difference.
Save 10% and math suggests it’ll take 51 years to retire…
Save 35% and you could retire in 25 years….60% and you’ll need to work just 12.5 years before retirement.
Does money goals like that sound exciting or am I just becoming a finance nerd?!
It all starts with paying yourself first…
Goal 3: Get rich slowly…start investing
It’s easy to get lost in dizzying house prices and assume our generation has it harder than ever.
Yet we do have a HUGE advantage over the baby boomers…
The barriers to investing have never been this low.
Our parent’s generation was hit with mega fees, a lack of choice AND a complete lack of low-cost index funds which prohibiting most of the population from successfully investing.
Now in 2018 anyone can click a button and invest in all kinds of investments.
Many miss out due to a lack of understanding the investment risk (in index funds only over the short-term do you find the random volatility).
Another huge benefit we have is a generous £20,000 ISA allowance. This means any investment gains made from within an ISA do not incur capital gains tax! A huge boost for financial goals!
Even if you have £10 to start with, simply setting up accounts gets you into the habit of knowing exactly where to put your cash once it arrives. Setting you up nicely for the future.
Ideally, automate this as in the pay yourself first financial goal.
Goal 4: Retire decades earlier through frugal living
Frugality is associated with being tight and I’m ashamed to admit I too believed this until I read: Your Money Or Your Life introducing me to the idea that frugality is about calculating how many hours it took me to earn the money to pay for an expense and then calculating whether I received fulfillment in proportion the ‘hours of life energy’ I spent to purchase it.
For most consumables such as work lunches (which I could bring in) or expensive phone contracts, the answer was usually no.
Whereas spending money on experiences such as backpacking, hiking or with time friends could be easily justified.
Is the thing you are buying worth what you’re giving up to have it?
So what does this have to do with retirement?
In 1998 three professors came together and published a hugely influential paper called The Trinity Study resulting in some pretty nifty math anyone can use to work out how much they’d need to invest before retirement is possible.
Simply multiply your annual spending by 25. So spend £12,000 a year and you need to invest £300,000 in order to live off the interest…
Spend just £5,000 more a year (total = £18,000) and watch the retirement figure grow to a whopping…wait for it! £450,000!
Nothing else comes close to showing the impact frugality can have on your life.
Goal 5: Get a free pay rise through your pension
Since the governments waking up to the pension crisis. Employers in the UK are now enforced to create employee pension plans with minimum matched contributions.
This offers HUGE financial benefits to UK employees and comes strongly recommended.
Essentially employers match up what you put into your pension. Put in 3% and your employer will also give you 3%. A nice 3% pay rise!
Any chance to increase your savings rate should be jumped on and this offers one of the easiest ways.
Goal 6: Grasp the power of compound interest
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it - Einstein Click To Tweet
Einstein loved it so should you!
As pointed out in several popular personal finance books (How To Own The World & Why Wasn’t I Taught This at School?) compound interest can both be your best friend and your worst enemy. Best explained in the tale of the two investors:
Jack began investing £500 a month at aged twenty for ten years (a total of £60,000). Aged thirty he stopped and never invested again.
Thirty-five years later at a return of 10.99% (the average return of the FTSE All Share), he ended up with £5,136,211 (yes 5 million!).
Compare this to Billy who began investing again £500 a month but 10 years later aged 30. Yet instead of stopping after 10 years he continues for 35 years (total of £210,000).
With the same rate of return at retirement age, Billy ends up with £2.5 million. Respectable but also 51% less than Jack, despite investing 250% more.
This is because Jack started 10 years earlier so his investments had the chance to compound over time.
As we’ll explore in the bonus goal below, the power of compounding expands further into self-education.
Goal 7: Bonus Goal (vital in 2018)
History tells us to fail to adapt leads to a failure to succeed.
In 2018 we’re witnessing a huge technological shift with new ideas and technologies coming together to create previously unimaginable shifts in the way we live and work.
Opportunities will always be present for those who learn and change with the times.
You may also find doors to salary increases open as new ideas link with old ones giving you a greater clarity on the world around you.
Upskilling yourself – the greatest return on investment you’ll find.
What really matters?
In our twenties, we often put arbitrary money goals on our shoulders. Commonly this is: buy a house, earn X or get X job title. Yet you’ll find none of these in the checklist above.
Because learning to live in surplus, paying ourselves first, investing, living frugally and upskilling ourselves creates positive financial habits that extend beyond achieving any short-term goal.
Ensuring when we arrive at our chosen destination, we do so in a positive financial position.
Whilst, in reality, these goals can be hit at any age, the earlier we make life decisions, the greater ripple it will make throughout the rest of our life. So I encourage you to tick as many off as early as possible.
How many of the financial goals have or did you hit before 30? Let me know in the comments below!