5 Personal Finance Milestones To Achieve Before Turning 30

Turning thirty is a big deal. It signifies your maturity in making important decisions in life, career breakthroughs, and of course, for most people in their late twenties, it serves as a sort of looming, unofficial deadline on when you should get adulting down pat.

The first step in achieving all this is learning how to manage your money. Because the way you manage your money in your twenties can affect your finances decades later.

Here are 5 financial milestones you can put on your to-do list before hitting the big 3-0.

1. Establish a budget

Of course, if you want to achieve your financial goals, setting a budget is one of the first things you should do. Budgeting helps you to create a roadmap of your financial goals, and it also maps out your spending plan.

There are many ways one can plan a budget. However, the 50/30/20 budgeting method allows for both debt repayment and investments. It’s simple. Basically, all you need to do is to divide up your after-tax income into 50% on needs, 30% on wants, and 20% to savings.

50% on needs

Essential costs such as housing, food, utilities, and things that are necessary for your survival including minimum debt payments. It does not include “extras” such as Netflix or Starbucks or dining out.

30% on wants

Other personal expenses or everything else that you might want such as a new handbag, vacations, tickets to a sporting event, etc.

20% to savings

This includes your emergency fund, investments, and any debt payments above the minimum.

Life should be enjoyed and not be buckling under a pile of debt. Stick to your budget and it might just save you from future troubles.

2. Have an emergency fund

Life is unpredictable just like how COVID-19 is unpredictable. Never would you think that you would be in this historical moment where a pandemic brought the world to its knees.

Hence, having an emergency fund allows you to cover your expenses for the short-term. For instance, if your car breaks down, or worse, you lose your job due to a financial crisis brought about by a pandemic, an emergency fund can prevent you from slipping into debt.

Where do I start?

1. Track your monthly income and expenses - This will allow you to see the bigger picture of where your money is going.
2. Set your emergency savings goals - It should cover 3-6 months’ worth of realistic living expenses.
3. Make sure it is easy-to-access cash - It should be accessible such as in an online savings account.
4. Stick to your plan - This may be the hardest part of all, but remember why you are doing it. If your goals are realistic, sticking to the plan would be easier.
5. Don’t touch it - Do not dip into it for any other spending unless it is an emergency. If not, it would defeat its purpose.

3. Pay off high-interest debt

High-interest debt can have a ripple effect on your financial life because the interest increases substantially every month.

One of the most common high-interest debts is credit card debt. What makes it so easy to overlook is that you only need to pay the minimum amount each month. This can lead to the debt growing to the point where most of your monthly payments can just cover the interest payment. So, in order to start paying off your debt, you need to pay more than just the minimum payment.

What if you have multiple debts? In your twenties, you may already have taken on credit card debt, a car loan and still struggling to pay off that student loan. Where do you start?

You can opt to use the avalanche method. It is a debt elimination strategy to pay off your debts from the account with the highest interest rate to the lowest.

It might take a while before you see anything happens. However, taking baby steps to tackle each debt will help you get out of debt faster.

4. Get protected with insurance

“I’m young and in the pink of health! Why should I get insurance?”

It is tempting to think that. Unfortunately, no one is immune to things going wrong in their life.

Having personal accidents and medical coverage from your employer should not be an excuse to not get your own insurance coverage. Many employers’ policies are limited in what they cover, and you will lose that coverage if you lose your job or happen to be in between jobs. And because of your illness, you may not be able to get coverage on your own.

Depending on your lifestyle and family commitments, you should pick the policy that best suits your needs. Here are the types of policies you should consider based on your needs:

• Life insurance: Offers you financial support to your loved ones if you are unable to generate an income anymore due to death or total and permanent disability.
• Hospitalisation and surgical coverage: Pays for the cost of your hospitalisation including treatments and surgery costs.
• Personal accident insurance: Covers the cost of treatments due to personal accidents and pays out a lump sum upon disability or death due to an accident.
• Income protection insurance: Provides you with financial support if you find yourself unable to work due to an illness.
• Critical illness cover: Pays out a lump sum payment if you were to be diagnosed with a specific type of critical illness, such as cancer.

5. Start investing

If you intend to reach financial independence at an early age, one way would be to start investing! If you put your money to work early in life, you will see the magic of compounding returns and the crazy outcome it can give you. So, where do I start?

You can start by putting aside an amount of money every month to invest. Try beginner-friendly investments like Exchange Traded Funds (ETFs) and unit trusts.

Most importantly, you have time on your side to plan ahead. Just imagine, if you can put aside even RM200 a month in your twenties when you start working, how much can you save and invest before you reach 30 years old?

Find it difficult to wrap your head around all the numbers? You can use the Maybank Financial Goal Simulator to start making a plan to help you ace your financial milestones before you reach your big 3-0.