While the pursuit of financial independence is a lifelong journey, it can be made much easier if you take the right steps early on.
Even though many people in their 20s aren't even thinking of savings, investment or retirement, the first full decade of your life as a working adult is surprisingly important to becoming financially successful later on.
Here are four of the financial moves you should make before you turn 30 to put yourself in the best possible position going forward.
Open a Roth IRA
When it comes to saving for retirement, few tools are as useful as a Roth IRA. Earnings from a Roth IRA are tax-free, meaning that you can get all of the benefits of investing money for your future without the added complexity and expense of taxes on the income.
Annual contributions to your Roth IRA are capped at $6,000, but you'll have no trouble building up a considerable tax-free nest egg if you begin maxing out the yearly contribution in your 20s and continue to do so until you retire.
Pay Down Your Student Loans as Much as Possible
If you're a working professional of any kind, there's a good chance that you went to college and took on a significant amount of debt to do so.
While it can be tempting to make only the minimum required payments on your students loans, it's a good idea to try and retire as much of that debt as possible while you're still in your early working years.
Even if you're only paying 10 or 15 percent over the required payments, a good financial move is putting in a little extra now, which can help you save money on interest down the line. Eliminating student debt early can also put you in a better position to take on a mortgage when you're ready to buy your first house.
Once you’ve paid off your student loans, the earlier workers can start saving, the better off they’ll be in the long run as the chart below details the advantages of saving at an early age:
Source: Business Insider
Invest in a 401(k)
Investing in a 401(k) plan is a critical financial move to becoming financially independent when you retire. Not only do 401(k)s allow you to set aside money for later in life, but there's also a good chance that your employer will match your contributions up to a certain limit.
Using such a matching program, you can build equity in your 401(k) faster than any other investment vehicle, since the principal in your account is not limited to the money you yourself put in.
Unfortunately, as your can see from the graph below, less than 35% of workers take advantage of the tax savings and employer match incentives that 401(k) plans offer.
Develop a Second Income Stream
If you want to set yourself up for the maximum possible level of financial success and make the right financial move, it's a good idea to try to establish multiple streams of income over the course of your working life.
Whether it's moonlighting as a freelancer, driving for a ridesharing company or investing in a property for rental income, you should try to develop at least one source of income beyond your regular job before you turn 30.
With a second income stream, you can put more money into savings and investments or pay off your debts more quickly. Having an additional income on the side will also make you less financially vulnerable in the event you ever lose your job.
By taking these four basic steps before you turn 30, you can get your financial life off to a great start. Becoming financially independent will take a long time and a great deal of effort, but making these moves early on will help to give you a leg up as you enter your peak earning years.
To help young professional maximize their investment options at an early age, consulting with a financial advisor, like Matt Logan, can help steer workers toward a savings and investment strategy to help achieve financial independence for every client.
Matt Logan has vast financial experience to help every client maneuver through the challenging investment market. If you’re in need of better financial planning or looking for better investment strategies to help your financial planning, Matt Logan has proven financial techniques geared to fit any financial situation. Don’t hesitate to reach out to Matt Logan to see how he can help you achieve your financial goals. Give a call today: 336-540-9700.