By WENDY CONNETT
Nov. 19, 2021
Being financially secure before you reach 30 may seem out of reach for many people in their 20s, but it's possible. Working toward financial security need not be an exercise in self-deprivation, though many people assume it to be. Attaining this goal even has some immediate benefits given that financial insecurity can be a serious source of stress.
- Knowing how much you spend can keep spending in check.
- Live within your means, don’t use credit to fund a lifestyle, and set short-term achievable financial goals.
- Become financially literate and save what you can for retirement.
- Take calculated risks, such as moving to a city with more job opportunities or taking on a new job that pays less but has more upside potential.
- Invest in yourself by continually upgrading your skills and knowledge.
- Strike a balance—working toward financial security doesn’t mean you need to deprive yourself.
The following are 10 steps to consider to achieve financial security before you turn 30.
1. Track Your Spending
Knowing how much you spend and on what keeps your spending in check. A free budgeting app can help you do this.
You might discover that ordering in food several times a week costs more than $300 a month, or recurring charges for streaming services and subscriptions you never use are a waste of your hard-earned money. If you can afford to spend hundreds a month on ordering in—great. If not, you’ve just discovered an easy way to save money in addition to canceling those streaming services you forgot you had.
2. Live Within Your Means
Keep your standard of living below what your earnings can accommodate. As you advance in your career and gain more experience, your pay should increase. But rather than using this excess income to buy new toys and live a more luxurious lifestyle, the best move is to put the money toward reducing debt or adding to savings. If the cost of your lifestyle lags behind your income growth, you will always have excess cash flow that can be put toward financial goals or an unexpected financial emergency.
3. Don't Borrow to Finance a Lifestyle
Borrowed money should be used when your gain will outrun your borrowing costs. This might mean investing in yourself—for your education, to start a business, or to buy a house. In these cases, borrowing can provide the leverage you need to reach your financial goals faster.
On the other hand, using credit for a lifestyle you can't afford is a losing proposition when it comes to building wealth. And the added interest expense of borrowing further increases the cost of the lifestyle.
4. Set Short-Term Goals
Life holds many uncertainties, such as an economic crisis or the loss of a job, and much can change between when you are in your 20s and, say, 40 years later when you may retire. As such, the prospect of planning far into the future can seem daunting.
Rather than setting long-term goals, set a series of small short-term goals that are both measurable and precise—for example, paying off credit card debt within a year or contributing to a retirement plan with a set contribution each month. If you set goals, you'll have a better chance of achieving them than you would if you merely said you wanted to pay down debt, but failed to set a timetable. Even the process of writing down some goals can help you to achieve them.
Important: As you achieve short-term goals, set new ones. The constant setting and achieving short-term goals will help you reach longer-term goals, such as having a solid nest egg when you retire.
5. Become Financially Literate
Making money is one thing, but saving it and making it grow is another. Financial management and investing are lifelong endeavors. Taking the time and effort to become knowledgeable in the areas of personal finance and investing will pay off throughout your life. Making sound financial and investment decisions is important for achieving your financial goals.
6. Save What You Can for Retirement
When you're in your 20s, retirement likely seems a lifetime away, and planning for it may be the last thing on your mind. If you can take a few steps now to start saving, compounding will work in your favor. Even a small amount saved early in your life can make a big difference in your future. Building a retirement nest egg becomes more difficult the longer you wait.
Try setting up automatic monthly contributions to a retirement plan, such as an employer-sponsored retirement plan if you have access to one, or an after-tax savings vehicle like an IRA, ISA or TFSA. You can increase your contributions when your income rises or when you've achieved more of your short-term goals.
Tip: If you implement the pay yourself first ideal, you won't have to worry about how much you're contributing. The most important thing is to develop the habit of saving.
7. Don't Leave Money on the Table
If you work for a company that offers a retirement plan, make sure to contribute at least up to the maximum of what your employer will match, otherwise you are leaving money on the table. In addition, you can deduct your contributions in the year you make them, which lowers your taxable income for the year.1
If you don't work for a company that offers a retirment plan, contributing to another savings vehicle will result in tax savings too because you can also deduct contributions.2
8. Take Calculated Risks
Taking calculated risks when you are young can be a prudent decision in the long run. You might make mistakes along the way, but when you are young, you have more time to recover from them.
Examples of calculated risks include:
- Moving to a new city with more job opportunities
- Going back to school for additional training
- Taking a new job at a different company for less pay but more upside potential
- Investing in high risk/high return stocks
As people get older, some may assume more responsibilities such as paying down a mortgage or saving for a child's education. It's easier to take risks when you have fewer responsibilities.
9. Invest in Yourself
Look at yourself as a financial asset. Investing in yourself will pay off in the future. Your skills, knowledge, and experience are the biggest assets you have. Increase your value by continually upgrading your skills and knowledge and by making smart career choices.
Though this investment often starts with going to college or a trade school, keeping skills up to date and learning new ones that are in high demand can help make you a more attractive and higher-paid part of the workforce. Investing in yourself should continue over the course of your lifetime.
10. Find the Right Balance
Striking a proper balance between your life today and the future is also important. Financially, we can't live as if today is our last day. We have to decide between what we spend today versus what we spend in the future. For example, set a short-term goal to save for a trip to a destination you've always wanted to see instead of using a credit card to finance it. Finding the correct balance is an important step toward achieving financial security.
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
- Internal Revenue Service. "401(k) Plan Overview." Accessed Oct. 2, 2021.
- Internal Revenue Service. "IRA Deduction Limits." Accessed Oct. 2, 2021.