credit & debt

6 Financial Milestones for Twentysomethings

Set yourself up for financial success by achieving these goals.

By G.E. Miller, Guest Columnist

Editor's note: Our regular Kip Tips columnist Cameron Huddleston, is taking a deserved vacation but has solicited the help of her favorite personal-finance bloggers to guide Kip Tip readers in her absence.

The twenties. At no other point in time in your life will you be better able to set yourself up for financial success than in your twenties. Or, failure for that matter.

But don't stress, you have enough on your plate: school, your first awkward years of a real job, investing, insurance, possibly marriage ... you see where this is going. Determining what to really focus on can be difficult when so much is thrown at you so quickly.

The following are six milestones that you should aim to hit in your twenties. In most cases, the sooner the better. And for those who already think they are hot stuff, I've highlighted ways that you can show you're a true pro and earn "bonus points" in each area.

1. Graduate and move on

Very few people actually know what they want to do at the point when they start their secondary education. And many dig themselves tens of thousands of dollars into debt trying to figure it out. Student debt recently passed credit card debt for the first time ever -- quite a sad statistic. And now that 60% of employers are completing a credit check as a reason to weed you out of the jobs you are applying for, it's more important than ever to keep debt under control.

If you don't know what you want to do for the rest of your life at age 22, it's okay. You are normal. I've seen employers hire people from all walks of life for more general occupations. And you can then learn on the job what your strong points are and what you want to do next. If going back to school is necessary at that point, go for it. If not, don't. But jumping from one degree to the next is not going to get you there.

Bonus Points if you pay off your student debt by age 30. It may seem ambitious, but if you can work while in school, apply for and receive scholarships and financial aid, graduate as quickly as possible and move on, it is a strong possibility.

2. Build a bulletproof network

One of the most important things that you can do for yourself from day one of entering the workforce is to build a strong network. This may seem like tired advice, but it is so true. In a cutthroat economy like we have had over the past few years, job security is anything but certain.

According to the U.S. Bureau of Labor Statistics, 75% of workers ages 23 to 27 stayed with an employer for fewer than two years, and 88% were with their employers for fewer than five years. And 68% of workers ages 28 to 32 were with a given employer for fewer than two years, and 84% fewer than five years.

Start a LinkedIn account and connect to anyone and everyone with whom you've had a positive, genuine business interaction. A network means nothing if you don't impress others with your work and generosity.

After you've built your network, don't be afraid to leverage it to increase your income by moving to more challenging role in or outside of your existing employer.

Bonus Points if you hit 500 LinkedIn connections with at least 50% of your connections are outside your existing employer.

3. Fund your emergency fund

Stuff happens in your twenties. You may decide that the Peace Corps is more rewarding than bootlicking to climb the corporate ladder. You may have kids. You may get laid off because you don't have seniority. Whatever happens, you want to be prepared.

At the start of the recession, my wife was laid off for four months -- completely unexpected. And we had a mortgage to pay. News flash: Unemployment benefits won't pay for most mortgages.

Luckily (or smartly), we had an emergency fund to cushion the income loss. It kept us from going into foreclosure or worse. Dave Ramsey recommends that you save the equivalent of six months’ of living expenses. Suze Orman recommends eight.

Bonus Points if you save a year's worth of living expenses in your emergency fund and put the funds into laddered CDs so you earn interest on them.

4. Start a Roth or traditional IRA and contribute

Starting is the hardest part. I ran a financial workshop with 30 twentysomethings at my workplace and when I asked the question, "How many of you have started investing outside of your 401(k)?" the room got painfully silent. Nobody raised a hand.

Like all things in life, making that initial leap is always the scariest. Starting an online brokerage account is the first step. And it can easily be done in fewer than 15 minutes.

There may not be any real advantage to investing in an IRA versus your employer's 401(k) (unless your employer makes matching contributions), but making a move on your own to invest is much more symbolic.

Another reason to open an IRA is that you'll have one ready to go in the event that you switch jobs -- and don't we all in our twenties? You can roll over a Roth 401(k) to a Roth IRA and a traditional 401(k) to a traditional IRA.

Bonus Points if you contribute the maximum ($5,000 for 2011) to your IRA. Opening an account and lightly dabbling in it is one thing, but if you never invest in it, then what is the point?

5. If you get married, do it humbly

The average wedding cost in the U.S. was more than $24,000 in 2010. That's a down-payment on a home or enough to pay off the student debt for many. My cheap wedding was just $2,500. And my wife and I didn't feel like we sacrificed anything.

Remember, the day is about you, but that doesn't mean you have to spend ridiculous sums to make it a special day. You just have to kill that pre-teen fantasy and go outside of the box a bit.

Bonus Points if you keep your total wedding costs to under $5,000.

6. Live above your means, buy below your means

What do I mean by this? When you first start earning a real income, it's enticing to jump right in and buy the best of everything, including the flashy new car and the house big enough for a family (when there's only one or two of you).

Resist. The. Urge.

You'll quickly learn that money cannot buy you happiness. To some extent, it can buy you experiences, which can aid in happiness. But the stuff won't lead to happiness.

Live it up. You're in your twenties, after all. But buying lots of expensive things is not a prerequisite to living it up. In fact, most times it often prevents it.

Bonus Points if you build a monthly budget through a budgeting spreadsheet or at a Web site, such as Mint.com.

I tackle these issues and more on 20somethingfinance.com and on Facebook and Twitter.

G.E. Miller is the author and founder of 20somethingfinance.com, a personal finance blog that focuses on financial issues that young professionals (and beyond) encounter. He aims to be debt free, including mortgage and student loans, by age 30 and obsesses over financial freedom. He enjoys wine, beer, his wife, walking his dog, and The A-Team.

Most Popular

2021 Child Tax Credit Calculator
Tax Breaks

2021 Child Tax Credit Calculator

See how much money you'll get in advance under the new child tax credit rules for 2021.
April 14, 2021
Monthly Payments of the 2021 Child Tax Credit Will Begin in July
Coronavirus and Your Money

Monthly Payments of the 2021 Child Tax Credit Will Begin in July

After doubts about whether it was up to the task, the IRS says it's on schedule to start sending monthly child tax credit payments this summer.
April 13, 2021
Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs
Coronavirus and Your Money

Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs

People have lots of questions about the new $3,000 or $3,600 child tax credit and the advance payments that the IRS will send to most families in 2021…
April 14, 2021

Recommended

Uh-Oh: My Kid Wants to Be a ‘Social Media Influencer’ … What Are the Legal Risks?
careers

Uh-Oh: My Kid Wants to Be a ‘Social Media Influencer’ … What Are the Legal Risks?

Teenagers and their parents need to know there are plenty of legal consequences for this new breed of marketers, according to attorney Christy L. Fole…
April 15, 2021
Social Security Earnings Tests: 5 Things You Must Know
social security

Social Security Earnings Tests: 5 Things You Must Know

If you’re still working and claim Social Security early, your benefits could be reduced, at least temporarily.
April 14, 2021
What You Need to Know about College 529 Savings Plans
529 Plans

What You Need to Know about College 529 Savings Plans

Do you know how much you’re able to contribute or what the funds could be used to pay for? How about how contributing affects your taxes? Check out th…
April 14, 2021
What NOT to Do with Your TSP: 8 Thrift Savings Plan Mistakes to Avoid
retirement planning

What NOT to Do with Your TSP: 8 Thrift Savings Plan Mistakes to Avoid

Many federal workers saving for retirement in TSPs get tripped up by these common pitfalls. To help maximize your own savings, make sure you steer cle…
April 14, 2021