Job, luxury, travel, and enjoying life, is something every twenty-something of us have ever dreamt about.
The twenties is the perfect time to make mistakes, especially financial ones. Getting credit cards, spending more than you can afford to repay, taking loans to travel or making unnecessary purchases are some of the mistakes we all have done at least once in our lives.
Though you’re not expected to be a finance guru in your 20s, but the bad financial decisions you make might take years of your life to rectify the situation. The worst part would be a heavy burden of debt on your shoulders when you turn 30.
Here is a list of top financial goals to achieve before turning 30, to help you continue having fun in your 30s – with more financial freedom.
1: Get a credit score above 800
For anyone who’s not aware, your credit score is a calculation of how responsible you are in paying back the money you owe to lenders. This could be your credit card bill, any loan. A credit score is what banks see whenever you apply for any financial products like loan or credit card.
In India, the credit score ranges from 300 to 900. The close your credit score is to 900, the higher chance of approval of your loan application with less interest rate. Most banks offer best interest rates to people having more than 760 credit score.
The credit score is especially useful if you want to get a loan, apply for high-end credit cards or anything else you would ever want to do in life. The best part about all of this is that getting a good credit score is fairly easy and entirely free. You can follow some simple steps below to build a good credit score over time.
One: Always pay your credit card bills in full by the due date
Two: Keep your credit active as long as you can because the longer you keep them, the higher the score will be
Three: It does help to have multiple types of credit. You can have multiple credit cards, a consumer loan or anything else you could afford to pay back.
Four: Do this consistently as long as you can
Just by following these simple advice, always paying on time and never carrying a balance, it’s easy to achieve at least 800 credit score within a few years.
2: Get rid of loans
Let’s be honest, being in loan sucks. The ideal situation to be loan free is not taking a loan in the first place, but this might not be practical in real life.
You need money to fulfil your dreams and goals, and it’s obvious to get a loan for that. Paying off those loans might not always be possible in the early twenties as this is when your career is starting.
First, I would suggest staying away from high-interest loans like personal loan wherever possible; personal loan has 12-15% interest rates. If you need to make a purchase, then go with a consumer loan which is a lot cheaper. Opt for an EMI card like Bajaj Finserv Card that doesn’t even charge any interest on purchases. You can use these cards for both online and offline purchases.
Second, if you have multiple loans, try to pay off the highest interest rate loan first. For instance, if you have a car loan at 9% interest and a personal loan at 13% interest, always try to close the personal loan as early as possible. This will not only save a lot of money in terms of interest paid but also will help you to meet other goals in life.
3: Invest one and half years of expenses
You might get a ton of advice that by the age of 30 you should save a specific amount of your salary. In a way, I agree with it, but I think there’s a small fault in this line of thinking. In your 20s as you’re starting with your career, the salary will fluctuate a lot. So instead what I suggest is, by the age of 30, you should aim to have one and a half year of your expenses saved and invested somewhere. That means if you spend Rs. 20,000 in a month, you should have at least Rs. 3,60,000 saved.
Keeping this money in a savings account won’t make much sense because this is going to be a long term saving. Instead, you should consider having this money either in an FD or invested somewhere less risky. I would suggest investing the money in a liquid fund which gives more return than savings accounts with very low risk. You can invest in liquid funds using free apps like Groww, ET Money or PhonePe. The best part is you can withdraw the money from the liquid funds anytime you want to.
By investing just eighteen months of your expenses, you can take more risk in your career, and be sure that even in the worst-case scenario you’re going to have your expenses covered for quite a long time.
4: Create a second income source
By the age of thirty, I highly recommend that you create a second source of income in addition to your main job. Having a second income source always gives you peace of mind and financial freedom to take more risk and advance in your career. You might have heard of the saying, “Every millionaire has seven income sources”, while that might not be possible for everyone, but building a second source of income is quite possible.
This usually starts with making money from your day job and invest a portion of that into something else that makes you more money. In terms of what you could start with depends on what you’re good at doing, how much time you have for that and is it worth your time.
Now I’ve friends who work at IT jobs on weekdays and as real estate agents on weekends. They make a decent income by doing this.
Creating a second source of income in your 20s is going to put you so much further ahead and will give you so much more flexibility and diversity in terms of what you could do in the future with your time.
5: Save 25% income towards retirement
I learnt this late, but I highly recommend to save and invest at least 25% of your income towards your retirement.
I’m 26, and I started investing 25% of my monthly income in a liquid fund just a year back. I’ve saved a decent amount in one year that might cover my expenses for a couple of years considering my spending won’t be much after retirement. I’m talking only about my monthly expense, excluding the medical expenses, insurance payments or any loan repayments. On a side note, I do have a separate SIP for medical expenses as well.
Saving and investing 25% of your income takes skill, You need to be disciplined in spending and dedicated in tracking expenses. There are hundreds of apps available for Android and iOS to track expenses. You can track your total monthly expenses, see where you’re spending the most and get a holistic view of your finances.
These are the top 5 financial milestones I suggest everyone should aim to achieve in their 20s. All of these might not be applicable for everyone but could serve as a guide of what you should be working towards in your 20s so that by the time you’re 30 you’ll be in a steady path towards financial freedom.