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Most of us merely guess when answering the question, "How much money should I have saved by 30?"
The problem is, it's difficult to account for personal factors such as health, life expectancy or retirement lifestyle in the future. It also might seem daunting to determine for people who don't understand how compound investment returns and tax-advantaged retirement savings accounts can help even small savings grow significantly over time.
One way to answer the question -- how much money should I have saved by 30 -- is to set short-term savings goals, such as a percentage of your income that you can consistently save each month, and long-term savings milestones, such as assets you'll have amassed by each decade of your life.
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The most important goal: Good financial habits
Robert Johnson, president and CEO of The American College of Financial Services in Bryn Mawr, Pennsylvania, says that the most important goal to have achieved by age 30 is to have developed a plan for paying down debt and saving for retirement and be devoting a meaningful portion of income, such as 10 percent, to saving for retirement.
Your savings accumulation by age 30 depends on your career path and how much you continue to invest in building your future earning power.
"For instance, if you are 30 years old and are currently training to become a medical doctor, it is likely that you haven't saved anything and, in fact, have taken on a great deal of debt. But, that is appropriate given that you are increasing your future earning power," Johnson says.
Emergency funds and paying down debt
How much money you should have saved by age 30 depends on many factors, says financial coach and planner Ryan Frailich, founder of Deliberate Finances, a fee-only financial planning firm based in New Orleans.
The cost of living in your location impacts this figure, as does whether you're married or single, your debt load, your long-term earning potential, your family obligations and many other variables, he says.
But one goal he recommends that everyone meet by age 30 is having an emergency fund with three months' worth of expenses "so that when, not if, life throws you an unexpected twist, you're prepared," Frailich says.
Make sure you're getting the most out of your emergency fund by keeping it in a savings account that earns interest. Start by looking for a high-rate savings account.
A better way to look at things for someone burdened by student loan debt might be how much they've increased their net worth since they've started working, says Justin Chidester, a fee-only financial planner at Wealth Mode Financial Planning in Logan, Utah. Someone who has reduced their debt by one year's salary by age 30 is on a good financial trajectory, he says.
Savings goals by decade
In general, Chidester says the best way to think about how much to save by various ages is as a percentage of your annual income.
"If you're 30, you've most likely had at least six years of full-time working experience. If you've been saving 10 percent toward retirement like most experts generally recommend you do at a minimum -- this could include your own contributions combined with employer contributions -- then you should have somewhere close to 60 percent of your current annual income saved up by that point," Chidester says.
Some of this money might be in an emergency fund rather than a retirement fund, but "most likely, after six years, you wouldn't be below the amount of savings you've put in -- you will have more than that with a modest return," he says.
No magic savings number
Jamie Hopkins, professor at The American College of Financial Services, says that there's no magic savings number you should try to reach by a certain age.
"Instead, you need to develop a savings plan that meets your specific needs and situation," Hopkins says. At age 30, the most important thing is to have debt under control, which means not carrying large credit card balances or missing payments, having a student loan repayment plan in place, and not buying a house that is beyond your means.
Getting started young is also a key factor. Hopkins points out that someone who has 40 years to save for retirement can safely save about 7 to 9 percent of their annual income, while someone who has 30 years to save for retirement needs to dedicate more like 15 to 16 percent of their income to savings.
Catching up if you're behind
"If you are behind on your savings goals, don't get discouraged," says financial planner Matt Hylland of Hylland Capital Management in Virginia Beach, Virginia. "No matter the amount in your retirement accounts, at age 30 there is still plenty of time to get caught up."
He offers these suggestions:
- Contribute enough to get the full company match in your 401(k) or equivalent retirement account. Don't pass up this source of free money if it's available to you.
- If you have extra money after contributing to your workplace retirement account, contribute to an individual retirement account. You can save an added $5,500 per year in a tax-advantaged account this way.
- Set up automatic annual increases to your workplace retirement contributions to help combat lifestyle inflation as you receive raises.
Hylland points out that even small savings when you're young can have a big impact, so it's worth contributing whatever you can now.
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