My friend asked me, “what are general financial goals that adults in their mid-20’s should be focusing on, or does this depend on a case by case basis?”
Of course, everyone’s situation is different. But here are three general financial goals that us young adults should be striving toward:
1. Building an Emergency Fund
If you lost your job today, how long would your emergency fund or savings account last you (assuming you don’t drastically change your lifestyle)? Your goal should be to have enough money to last you 3-6 months! You can reach that target amount pretty quickly by paying yourself first.
2. Saving for retirement
Although there is no “right” age to start saving for retirement, most finance experts agree that the earlier you start, the better. How much should you be saving? As much as you can! There is no magic number to aspire to since everyone’s income and lifestyle is different. If you don’t know where to begin, maxing out your 401k ($17,500 for 2013) or IRA ($5,500 for 2013) would be a good place to start.
This step should be taken only after you’re done building your emergency fund and you’re already saving for retirement regularly. Investing is risky (you could always lose money!) so make sure you’re in good financial shape before taking this step.
I personally like investing in real estate. I have an investment property that has been working out really well for me. The rental income I get from my tenants covers my mortgage so I earn a little extra money each month. Plus, the property has gone up in value so if I were to sell it, I’d have a nice profit. But investing in real estate is all about timing (buying when houses are cheap and when interest rates are low). Plus, it takes A LOT of work upfront – buying the property, fixing it up, finding tenants, etc. So if it’s not the right time or if investing in real estate is not your cup of tea then the next best thing (in my opinion!) would be to open up an investment account and start investing in the stock market. An investment account is kind of like a retirement account (IRA, 401k), except you don’t get any tax benefits. The benefit you DO get is your money will probably grow a lot more and a lot faster than just keeping it in a savings account.
For those of you who are ready for this step, I will cover how to start investing soon. So stay tuned. In the meantime, here is an article that will help you get mentally prepared.
Here is a blog post that serves as a great supplement to this topic!