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13 Ways to Set Yourself Up For Financial Freedom in Your 20s and 30s

·11 min read

The best time to start planning for your future is as early as possible. For many people, this happens to be in your 20s and 30s, when you have to make and learn from important financial decisions. These decisions could include deciding your career path or getting your first credit card.

But how do you know which money moves are the right ones to make?

The specifics of each person’s financial situation are different, but the overall path to success is often the same. These 13 tips can help you set yourself up for financial freedom in the future by focusing on the actions you can take today.

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1. Cut your budget

Budgeting is an essential part of everyday financial security. It involves knowing how much money you have coming in (your income) and how much money you have going out (your spending). When you have this information, it’s easier to spot areas where you can cut back on spending and save money.

To get started, list out all your sources of income and your monthly expenses. Consider which expenses are necessary and which are unnecessary. Then decide how much money you want to save and make the appropriate adjustments to your budget, which may include reducing your spending in certain categories.

For additional help, there are budgeting apps that can help track your spending and find creative ways to reduce expenses, like canceling unwanted subscriptions or setting budget goals.

2. Set specific savings goals

Part of preparing now for your financial future is learning how to save money effectively. This includes setting specific savings goals and then using the right tools to reach those goals. For example, if you want to save up for a car, what steps do you need to get there? The same applies to saving for a house or a vacation.

Setting a budget helps you know how much you need to save. Then you can set money aside each month in a high-yield savings account. These are typically the best savings accounts because they often earn more interest than a traditional bank account. You’ll be well on your way to achieving your goals if you commit to adding to your savings account each month and don’t draw from these dedicated funds.

3. Build an emergency fund

Having an emergency fund helps protect you from unexpected and unforeseen financial circumstances in life. You can’t know if your car will need repairs or if you will have to visit the emergency room. In these instances, having emergency savings could help prevent you from getting into debt because you didn’t have to take out a loan or run a high credit card balance to pay for the unexpected expense.

Creating an emergency fund could be included as one of your specific savings goals when you start budgeting. The size of your fund depends on how much money you think you might need. It could be a few hundred dollars to get by in the event of an isolated incident or thousands of dollars to get by for months if your basic expenses are higher. Keep in mind that the right amount for you could change as your financial needs increase or decrease.

4. Pay down or pay off student loan debt

If you want to quickly nip a huge financial stressor in the bud, do your best to pay down or pay off student loan debt while you’re in your 20s and 30s. This could possibly be one of the biggest money milestones to aim for by age 30 so you don’t have to worry about this debt for a large part of your life.

Apart from typical budgeting and savings strategies, refinancing your student loan could be helpful. Refinancing your student loan could lower your interest rate which could make your payments go further toward eliminating the loan completely. In addition to refinancing, you might be able to qualify for loan repayment assistance from an eligible employer or your state government.

5. Pay down or pay off high-interest debt

If you have high-interest debt from loans or credit cards, it’s smart to take the time now to focus on paying off those debts. Otherwise, your debts could easily snowball into greater amounts and cause financial hardship down the road.

If you’re dealing with multiple sources of debt and they each have their own interest rates, consider a debt consolidation loan to get all your debt in one place. This can make it easier to manage your debt payments, but the main reason to get this type of loan is to get a lower interest rate.

A balance transfer of debt works similarly. Your debt can all be gathered into one place and the best balance transfer cards provide introductory offers where you don’t have to pay interest on the transferred balance for a certain amount of time. This can give you breathing room to get your debt paid down without having to worry about accruing additional interest expense.

6. Improve your credit score

Building credit in your 20s and 30s can open up financial opportunities for the rest of your life. Having a good credit score could qualify you for better financial products, including credit cards and loans with lower interest rates.

If you want to build credit, apply for different financial products and use them responsibly. For example, using a credit card instead of a debit card to make everyday purchases can help establish your credit history. In addition, you could earn valuable rewards in the form of points, miles, or cash back with the best rewards credit cards. As long as you pay off your balance and don’t miss any payments, you could see your credit score increase.

7. Start your retirement fund

It’s recommended you start saving money when you’re young. This will help give you a better shot at saving enough to live comfortably once you retire. In fact, one of the world’s largest investment management companies, Vanguard, suggests that investing $4,500 per year from age 20 until the typical retirement age of 65 could result in over $1 million of savings.

Of course, each situation is different, but the goal is to start your retirement fund as early as possible. This could include setting up a 401(k) or an IRA and making frequent contributions to them. To help stay on track with your retirement funds, set specific goals to achieve along the way. Knowing how much to save by age 30, age 35, and so on can give you smaller targets to hit that contribute to your overall goal.

8. Learn how to invest

Learning how to invest money encompasses more than just your retirement fund. It involves savings accounts, stocks, bonds, mutual funds, real estate, and much more. Investing is designed to use your money to make more money. This is why a relatively small amount of savings each year could equal over a million dollars in retirement.

Keep in mind that all investments involve some risk. FDIC-insured bank accounts are typically low-risk because your money is insured by the federal government. But they also might not offer much earning potential. Stocks are often associated with more risk, but the earning potential is typically higher.

To learn more about investing, consider using apps to increase your knowledge. Many of the best investment apps don’t require prior investment experience or a lot of money to get started.

9. Buy life insurance

You might have the best health when you’re young, so why would you buy life insurance in your 30s? By buying life insurance young, you can lock in low-cost premiums, which are your monthly or annual payments. As you get older, the premiums are likely to increase since you’re typically more at risk for health problems.

In addition, it could make sense to get life insurance no matter your age if you’re married, have children, or have any other dependents who rely on you. A life insurance death benefit could cover your lost income and pay for end-of-life expenses if you were to unexpectedly pass away.

10. Get other insurance too

Different types of insurance can also be beneficial. Most states require a minimum amount of car insurance for your vehicle. But it likely makes sense to get additional insurance to make sure you’re financially covered in case of the unexpected. The best car insurance companies often provide multiple rates from different providers so you can choose the best option for your situation.

In addition, you might want to consider disability insurance as well. This type of insurance can provide you with income if you’re unable to work because of an illness or injury. Disabilities could include physical injuries, like fractures or sprains, but more common disabling events are medical illnesses, like arthritis, depression, or diabetes.

11. Start earning passive income or create a side hustle

If you don’t think you can hit your savings goals or simply want to pad your income, consider earning passive income or making extra cash with some of the best side hustles.

Passive income is typically a way to earn income without actively having to do much other than put the initial effort in. You have plenty of ways to earn passive income, including real estate investing or creating an online course.

Side hustles are gigs you do on the side, apart from your actual job. This could include starting your own blog, delivering food or groceries, or renting out your car when you’re not using it. If you have a niche you're interested in, consider how you can make money on Instagram.

12. Cultivate your career skills

One of the best ways to secure financial stability is to make sure you cultivate a valuable skill set from a young age. This could pay off in multiple ways, whether it means advancing within your chosen field or making more money with a side hustle.

Ways you can cultivate your career skills include reading books, learning from others, getting feedback, and trying new things or taking on new responsibilities. You are your most valuable asset, so be sure to put time and effort into improving yourself in different ways.

13. Don’t spend just to keep up with others

Part of budgeting and saving money is making sure you aren’t caught up in unnecessary spending because of social pressure. It’s one thing to buy clothes, a car, or a house because you need to and it makes sense financially. But it’s another thing to live beyond your means as a way to stay up to date socially.

If you focus on your savings goals now and make prudent financial decisions, you’re likely to see your choices pay off later on. This doesn’t mean you can’t spend money on entertainment or anything else that isn’t strictly necessary, just remember to stay within your budget while still enjoying life.

FAQs

How much money should you have saved in your 20s?

The best rule of thumb is to save as much money as you can in your 20s. It’s not always possible to save a lot at this age because of student loan debts and having just started a career, but saving something is better than nothing.

If you want a specific goal to aim for, it’s often recommended to have at least one year’s worth of your salary saved by the time you reach your 30s. So if your yearly salary is $50,000, you would want to have $50,000 in savings at age 30.

How much money should you have saved in your 30s?

At age 30, it’s recommended that you have one year’s worth of your salary saved up. This would be $50,000 if your yearly salary is $50,000. After you’ve saved that $50,000, Fidelity, a global financial services company, suggests saving 15% of your pre-tax income each year.

On a $50,000 annual salary, 15% would be $7,500 to save each year. Keep in mind that these savings could come from employer contributions as well as your own.

How do you become financially independent?

Becoming financially independent is a process that often involves many steps. Starting as early as possible, it’s helpful to budget, set aside money into savings accounts and other investments, and stay as clear of debt as possible. At the same time, it’s important to build your credit and cultivate skills that can help you advance in your career or pad your income with a side hustle.

Bottom line

As they say, it’s never too late to start saving. But the same goes for getting your finances in order from an early age. Your 20s and 30s are likely to be filled with big decisions that can affect your financial outlook for years to come, but it’s up to you whether the outlook is positive.

Remember that taking steps now to prepare yourself financially, whether it’s learning how to invest or setting and sticking to a budget, could help you achieve financial freedom in the future.

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This article 13 Ways to Set Yourself Up For Financial Freedom in Your 20s and 30s originally appeared on FinanceBuzz.