Life after college can be an overwhelming and emotional process. We get our first “real” jobs after spending a few years racking up student loan debt, and then it’s on to possibly looking into buying a home and starting a family. By the time we’re nearing our mid- to late-20s, we wonder: Where has all the time gone? And my money?
Before you blow off your company’s 401(k) matching program and say, “Oh, I’ll have time for that later,” make sure to make actual time for these five key personal finance moves to do before you’re 30 that will help set you up for a more financially healthy future.
1. Tackle Your Credit Card Debt
Sure, getting food while you were in college was as simple as swiping a card. Maybe you were on a meal plan that was in part funded by your student loans, so every trip to the cafeteria or sandwich shop on campus didn’t involve a lot of budgeting or even a second thought. Now, as you’re likely beginning to accumulate credit card debt on top of your student loan debt, it can all feel a bit much.
You’ll want to set up a monthly budget of your income and expenses, reduce any unnecessary expenses, and get on track to paying more than the minimum balance on your credit cards each time the bill comes around — or better yet, paying the full balance. If you have multiple credit cards, aim for working on the card with the highest interest rate for the amount of debt, and chip away at it each month. Try a credit card payoff calculator online, which will help motivate you to pay more each month by letting you know how much interest you’ll save and how fewer months it’ll take to pay off your credit card. You could also try a balance transfer, but those typically come with their own fees and a limited introductory APR rate. If you are in a place to pay off a credit card bill within six months and want to save a little interest in the meantime, this might be a good option for you.
And remember, don’t ever put certain expenses on credit cards, such as your mortgage (if you have one) or student loans. Student loans are not dischargeable in bankruptcy, if you ever need to file for it, and having your mortgage tied to a credit card if you get into serious debt can put your home in jeopardy. Not to mention the interest rates on both!
2. Reduce Your Car Payments
It can be tempting after you get your first big job offer or promotion to run out and buy something to celebrate. Some people will use this opportunity (or graduating college with honors) as an excuse to get a nice, new car — along with nice, new car payments. While we’re not saying you need to run your car into the ground before you even think about buying a new one, do your research. Any credit inquiry, such as applying for a car loan, will be reflected on your credit score. While buying a new car is a good opportunity to also build your credit score, in addition to using credit cards smartly, you don’t want to have too many open lines of credit, which will lower your score.
If you currently own a car and are looking to lower your payments, you could try refinancing the loan, selling your car and buying something less expensive, or leasing a vehicle. Keep in mind that your monthly car insurance payments will likely reflect the type of car you drive and its overall price tag.
If you’re in the market to buy a new car, consider something with a monthly payment within your price range after you’ve compiled your budget, or, buy a reliable used car outright with cash savings. No monthly car payments equals less stress, and when you hit a really big financial goal — and are able to afford any major repairs — you can buy that dream car you’ve been eyeing.
3. Create an Emergency Savings Account
While savings accounts may seem old school, they’ve helped bail people out of emergencies for centuries. The rule of thumb here is to have a savings account that is at least 3 months’ worth of your current expenses, in case you get laid off or let go from your job, or you are involved in a car accident or have another reason you cannot work. Perhaps you are planning to start a family and your current company doesn’t offer much by way of maternity or paternity leave, so you might need a little extra stashed away to help your new life as a parent start out strong (a little less emergency, and more regular savings). Or, your nice car that you’ve bought needs a new engine. Anything can happen.
Starting with three months’ emergency savings by your first full year of employment after college and working your way to six months’ emergency savings by age 25 that you don’t touch (seriously, don’t touch it) will only help ease any potential financial burden you may face. Some experts say you should have a year’s worth of emergency savings — gulp — by the time you’re 30.
4. Pay Off Your Student Loans
This seems like a lofty goal, but really, it can be done! Most federal student loans have a payoff plan that can stretch 10 to 30 years, but no one wants to be paying off student loans into their 50s. Yes, it unfortunately does happen that way for many people, but with luck and a little planning, you can pay off your student loans before you turn the big 3-0.
Any extra you have from not racking up credit card debt or that money you’ve saved on a refinanced or less-expensive car, put it toward your student loans. Like with credit cards, paying an additional $50 to $100 on top of the minimum monthly payment can go a long way — years-long, in fact. While the interest rate on student loans is generally lower than that of credit cards, don’t be tempted to let your student loans fester and ignore them until you’re older. You’ll be glad you saved thousands of dollars in interest when you go to put a down payment on a home and you actually have the 20% recommended.
5. Budget for a Vacation
Wait, what? We’re not going to talk about retirement plans? Hold on a moment, we’ll get there. But after all of these not-so-fun things to make plans for and payments on, you want to still have a little fun while you’re young, right?
Vacations don’t have to be extravagant, but like emergency savings, they should come with at least a three-month plan to take them wisely. Before you think of flight and hotel costs, think of everything you really need to take a vacation and if you have it all: appropriate travel clothes, a passport, travel insurance, boarding costs for any pets, and so on. How much is the real cost?
Jotting down a list of dream places to visit and then everything you’d need to accomplish that goal will help you prepare financially for it more quickly. Don’t just throw credit cards at a vacation and call it a day (unless you’re building up rewards points and plan to pay off your bill in full). Use your tax refund, for example, to plan an annual gathering of friends where everyone chips in to rent a big cabin, cooks meals together to save money on eating out, and shares a rental vehicle or your own for sightseeing.
As you’re stashing away savings on budget group vacations or even staycations, think of all the more exotic or exclusive vacations you can have when you’re older. Planning for retirement just got better, right? An island getaway may be the perfect way to blow out the candles on your 30th birthday — and cheers to the next 30 years of saving and spending wisely until you reach your golden years.
Consult with a Bankruptcy Attorney
If you’ve tried all the above steps and are still facing mounds of credit card or medical debt and don’t know where to turn, you may want to consider bankruptcy. Speaking to a financial advisor also would be a good step, but a bankruptcy attorney will be able to evaluate your debt and see if bankruptcy would be right in your financial situation.
At National Bankruptcy Forum, we’re here to help. We have attorneys standing by 24/7 to listen to you and find out more about your financial goals and answer any questions you have. Contact us today for a free debt consultation.
Erik Clark is one of the leading bankruptcy attorneys in Southern California who has had the privilege of representing thousands of clients in chapter 7 and chapter 13 bankruptcy cases in the Los Angeles area. Erik has served as the past President of the National Consumer Bankruptcy Litigation Center (NCBLC) and the American Consumer Bankruptcy College (ACBC). His firm, Borowitz & Clark, is committed to using bankruptcy law as a tool for social justice and was one of the first consumer law firms to join the Law Firm Antiracism Alliance.