July 8, 2019
By the time you graduate from high school or college and are starting your adult life, you should have learned some basic financial concepts—opening a bank account, paying bills, having a budget, learning how credit works, understanding how to pay taxes, balancing a checking account, etc. These are the basic financial skills you need just to survive in the real world.
Beyond that, however, what needs to be done in order to achieve real financial freedom and retire exactly how you want to? Below are financial milestones you should reach in each decade of your life to ensure you are setting your future self up for success.
Reach These Milestones by Age 30
You’ve graduated, you land your first job, and you are ready to take on the world. If you are like most young adults, however, you’ll also find that getting your personal finances in order is more complicated than you thought it would be. Here are some of the lessons to master and milestones to work towards before you reach 30.
- Create and stick to a budget. If you don’t make and follow a budget, you are setting yourself up for financial disaster. Budgeting means putting your money to work for you and gives you the confidence to know that you’ll be able to pay your bills on time. Be sure to prioritize saving a little each month for an emergency fund. You should work to save at least 3 to 6 months’ worth of expenses as preparation for the unexpected.
- Pay down student loans. College graduates report that student loan payments are one of the biggest sources of financial stress in their lives. In fact, Forbes reports that there are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt in the U.S. alone! Student loan payments can make it difficult to afford housing and can also prevent you from qualifying for a loan or saving money to buy a house. Paying down your student loans early is one of the best things you can do to set yourself up for long-term financial health.
- Get your own health insurance. If you’ve been covered by your parents’ health insurance, it’s time to get your own policy. Unless you work for yourself or a small business, this should be part of your employment benefits package.
- Improve your financial literacy. Have you found that you still have a lot to learn about credit scores, retirement plans, loans, and investing? Thankfully, there are a lot of great online resources available for beginners and experts in all of these topics.
- Start Investing. Invest early and invest often! That should be your mantra. Even if you don’t have much money during this decade of your life, starting with small amounts is the key to success. Investing in real estate for $500, opening up a high yield savings account, and becoming more familiar with the stock market are all things you need to take advantage of while you still have time on your side to grow your money.
- Savings Goal: Half of your annual salary. If you are making $50,000, then having around $25,000 saved should put you on track.
Reach These Milestones by Age 40
The decade from thirty to forty can bring some pretty major life changes. Getting married and starting a family introduces a whole new set of financial challenges. Here are some of the lessons to master and milestones to work towards before you reach 40.
- Buy a house. A home is not only a place to live but also an investment. Try to save more than 20% of the purchase price before buying a home. You’ll get a lower interest rate on your mortgage, avoid paying mortgage insurance, and still have money left over for closing costs.
- Make retirement savings a priority. You should definitely have retirement accounts open right now. But during this time, you should check back in and make it your priority. Make sure you are putting a large chunk of your income towards your retirement savings and take advantage of any employer match. The money you invest today has the greatest opportunity to earn compound interest and increase your wealth for the rest of your working years.
- Get life insurance. Now that you have a family, it’s important to add life insurance to your portfolio. Life insurance will help to provide for your funeral expenses as well as lost future earnings in the event of your death.
- Build a more diverse investment portfolio. In your thirties, you should definitely have your 401(k), IRA, or other investment accounts opened and working for you. Now it’s time to develop an investment portfolio that provides for the future financial needs of your family. For example, you should look into college savings accounts for your children in addition to traditional stocks, bonds, and mutual funds.
- Savings Goal: By 40, you should aim to have twice your annual salary saved. If you are making $90,000, then having around $180,000 saved should put you on track.
Reach These Milestones by Age 50
Now that you are in your forties, you are reaching your peak earning years. Use this time to make sure you are in the best position possible to enjoy this time. Here are some of the lessons to master and milestones to work towards before you reach 50.
- Schedule annual visits with a financial planner. If you have not been meeting with a financial planner on a regular basis, now is the time to start scheduling annual meetings. Your financial planner will help you define your short-term, medium-term, and long-term financial goals and develop a plan to get you there.
- Make a will. Now that you have a family and assets, you want to be assured that both are taken care of according to your wishes after your death. If you have minor children, you will want to name their legal guardian and set up a trust to support them.
- Add even more alternative investments into your portfolio. By this time, you should have around 4 times your annual income saved for retirement. This is also a good time to up your alternative investments, such as real estate, into your portfolio. DiversyFund provides a platform for alternative investments such as real estate investment trusts (REITs).
- Savings Goal: By 50, you should aim to have four times your annual salary saved. If you are making $120,000, then having around $480,000 saved should put you on track.
Reach These Milestones by Age 60
As you get closer to retirement, you should start making final preparations for this next phase in your life. Here are some of the lessons to master and milestones to work towards before you reach 60.
- Pay off any outstanding debt. In order to make the most of your retirement income, you should go ahead and pay off as much outstanding debt as possible. You don’t want to waste your retirement income on debt payments.
- Maximize your retirement savings. Make sure you are investing the maximum amount into your retirement account every year. You should make serious gains in your retirement account with the interest that has been compounding for the past 20-30 years.
- Reduce the level of risk in your investment portfolio. As you get closer to retirement, you want to move your portfolio away from riskier stocks into investments like income mutual funds, bonds, and real estate. This shift will help protect the wealth you’ve worked so hard to build over your lifetime.
- Savings Goal: By 60, you should aim to have six times your annual salary saved. If you are making $125,000, then having around $750,000 saved should put you on track.
By retirement age (67), one should aim to have eight times their annual salary saved. If you are making $125,000, then having around $1,000,000 saved should put you on track.
Every individual and situation is different. There are so many factors such as medical costs, debt, life expectancy, and retirement lifestyle that all play into the amount needed during retirement. AARP writes that for a retiree to generate $40,000/year after stopping work, he or she will need savings of about $1.18 million to support a 30-year retirement (calculated using average returns of 6 percent and inflation at 2.5 percent).
People who start saving for retirement at age 22 may only need to allocate 10% of their annual salary to retirement. The older you are when you start saving for retirement, the greater the percentage of your salary will need to be devoted to retirement. The timeline may also depend on the age at which you plan to retire. That being said, there is no one-size-fits-all approach to financial planning, but the above are some good milestones to hit to ensure you are on the right track!