STARTING OUT


Eight Things to Do Before Turning 30

Erin Burt

Getting your financial life in order may seem overwhelming, but doing nothing is the biggest mistake. This Kiplinger.com classic from 2005 details the basic steps to get any young adult off on the right foot.



When we first developed the idea for this column, the concept was to offer some basic how-to advice to 20- and 30-somethings about getting off on the right financial foot.

Since then we've covered a lot of ground -- from not getting burned by a bad roommate to buying your first house to squeezing more out of your paycheck. But we've never set out a step-by-step guide to get young adults going, until now.

You know how it is: You have so many things you think you need to do that you simply freeze up. You don't know where to start. Well, the biggest mistake is doing nothing, so below are eight steps everyone should try to accomplish before turning 30.

We realize everyone's situation is different so don't worry about tackling these items in order. And if you can't finish every item before you hit the dark side of 30, no sweat. This is just a simple list you can print out and put on your refrigerator as a reminder of things you should attempt in the coming years, or use it as a gauge to measure how well you've done so far.

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1. Identify your goals. Decide what you want and where you want to be in the future. Think about short-term goals (five years or less), such as going to grad school, buying a new car or planning a wedding. Then look at medium-term goals, such as buying a house, starting a business or having children. And finally, think about your long-term goals, such as retirement or owning a vacation home.

You must identify what you want before you can map out a strategy on how to get there. Start by setting up a budget. (Trust us, it's a good thing.) Then learn how to save for different time frames.

2. Start an emergency fund. One of the smartest moves you can make is to have cash on hand to cover three to six months of living expenses. The idea is to have enough money available so you won't have to rack up credit card debt or sell investments in case of a financial emergency, such as a job loss, unexpected medical bills or even last-minute airfare for a funeral. Your money should be safe and accessible, so you'll want to store it in a bank money-market account. (Shop for the best rates.) Saving up your emergency fund will take time, but if you set aside a fixed amount each month to the account, it adds up quickly. Learn more about building your stash.

3. Pay off credit cards. If you already have a credit card -- and you tend to carry a balance -- set a goal to wipe out your debt while you're still in your 20s. The average college senior graduates with nearly $2,200 in credit card debt, according to Nellie Mae. At 18% interest, that would take 19 years to pay off if you paid only the minimum, and it would cost you almost $3,000 in interest. To pay it off in five years, though, you'd only need $55 a month. Up it to $100 and you'll be rid of your debt in just over 2 years. See what it'll take to pay off your balance before you turn 30. Then, commit to use your credit card only for expenses you can afford to pay off each month.

4. Start investing. Complete steps 2 and 3 before even thinking about investing. Yes, the sooner you start putting your money in stocks and mutual funds the better, but what good is earning -- if you're lucky -- 10% if you're racking up 18% a month in interest charges?

The only exception would be your employer's retirement plan. If you have a 401(k) or similar plan at work, start contributing as much as you can afford as soon as possible. If your employer offers a matching contribution, try to set aside enough to capture this free money.

If you have a job, but no retirement benefits, consider opening a Roth IRA and setting up a payroll deduction or automatic transfer from your bank. If you don't see the money, then you won't spend it elsewhere.

Your golden years may seem like a long way away, but the sooner you start investing for retirement the less painful it will be. Say a 25-year-old socks away $158 a month in an account earning an average 10% annually. By the time she turns 65, she'll have $1 million saved. If she waits until she turns 30 to start investing, she'd only have $600,000. (See how quickly your savings can add up.)

For advice on dipping your toe into the investment pool, and ideas of other places to put your money, see How to Invest for $500 or Less.

5. Establish credit. For millions of young people just starting out in their financial lives, getting approved for a credit card, auto loan, mortgage or other line of credit can pose a challenge. Generally, you can't get credit until you have a history of repaying credit. Better to establish and build a credit report for yourself now before you need to borrow money.

If you're still in college, consider getting your first credit card now while lenders are still handing them out like candy. (Limit yourself to just one, shop for the best rates and get in the habit of paying off your balance every month.) After graduation, approval may not come so easily. If that opportunity has passed, a secured credit card is another easy way to build your credit. You make a deposit with a lender, such as your bank, and that money serves as your credit limit. The lender virtually takes on zero risk and you can't tell the difference between a secured card and a regular card on your credit history. Learn five more ways to build a stellar credit report.

6. Set up a strategy to pay off student loans. Two-thirds of college students graduate in debt, and the average federal student loan debt among graduating seniors is more than $19,000, according to the U.S. Department of Education. You're going to need a plan to pay it off. With the standard repayment option, you make a fixed payment each month and have up to ten years to repay the loan. But if your entry-level salary doesn't go far enough to make ends meet, you might consider other repayment options that extend your loan period or base your payments on your income.

7. Take calculated risks. "Most successful people got to where they are because they took a few risks to strive for their dreams," says Robin Ryan, career counselor and author of What to Do With the Rest of Your Life. If you shy away from risk, you may be limiting your rewards. This goes for several aspects of your life, including career planning and investing.

The key to successful risk taking is knowing your risk tolerance. Evaluate the potential consequences of your actions and make sure you can live with the worst-case scenario. In your 20s, you have more time to try new things and overcome mistakes than you might later in life when you have more responsibilities and less time to reach your goal. But you'll need to "implement a solid action plan to achieve the results you want," says Ryan. And make sure you have a solid emergency fund on standby.

8. Travel. Okay, so this one isn't really financial, but, hey, sometimes you just need to get away -- to see something new and experience the adventures you'll be telling people about for the rest of your life. And taking the time to travel when you're young and single is much easier than when you've got a couple of cranky kids in tow.

First of all, if you have the opportunity to study abroad a semester in college, take it. Or, if traveling out of the country is too expensive, consider the National Student Exchange program, which allows students to study at another university in the U.S. for a semester (see a list of participating schools).

Once you're out of school, you're no longer tied to vacationing during the summer months or spring break. Travel during the off-season to score the best bargains, avoid crowds and soak up local events overlooked by most tourists. See Timed Travel for tips and ideas. Then, check out our list of the 25 best travel Web sites to shop around for the best airfare, hotels, cruises and package deals. If money is particularly tight, consider staying at youth hostels or camping out. And travel with a friend -- you'll not only have someone to share your adventure with, but you can split the cost of lodging, gas and taxi cabs.




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