Not all strategies for financial planning are created equal, and the “right” approach to managing your money will actually change as you go through life. Your goals and priorities will shift as you get older, and it’s important to plan appropriately. Focus on a few key tasks appropriate to your stage of life and you are likely to find yourself ahead of the game. Here are some simple, key strategies for managing your finances in your 20s, 30s, and 40s.
In Your 20s
1. Start an emergency fund.
Set up an automatic deduction of $25 from every paycheck and deposit it in a separate account. This way you can gradually build a cushion for unexpected expenses. You’re less likely to fall into debt if you have money tucked away for emergency car repairs, for example. It might seem like a lot of money at first, but it’s just a small lifestyle shift each month. Consider cutting back on a latte or cocktail each week to meet your monthly goal.
2. Establish your personal credit.
Building a strong credit history is important if you want to rent an apartment or get a mortgage. For many people, the first opportunity to build good credit comes from taking out (and repaying) undergraduate student loans. If you make that payment on time each month, you’ll contribute positively to your credit score and history. If you don’t, it can have a material impact on your score. If there’s any chance you may be late on payments, set up ACH transfers between accounts so you’re sure you make those payments on time every month.
3. Refinance costly student debt.
With ever-increasing tuition costs, many people take out private loans and/or federal unsubsidized and PLUS loans when they decide to pursue grad school. As a result, it’s increasingly common to have at least one high-interest student loan, and sometimes several. But you’re not necessarily stuck with high rates forever. Many people don’t realize it’s possible to refinance federal as well as private student loans1 — saving a significant amount of money on interest in the process. At SoFi, for example, our average borrower saves almost $12,000 when refinancing their loans with us.
In Your 30s
1. Get a great deal on a mortgage.
For many 30-somethings still paying off student loan debt, home buying can feel like an impossible venture. Luckily, there are new mortgage options designed specifically for early career professionals. SoFi offers a mortgage that allows qualified buyers to put less than 20 percent down and uses a non-traditional underwriting approach with flexible debt-to-income limits, so that they can get more financing than they would otherwise.
2. Save for retirement.
If you haven’t started participating in your company’s 401(k) plan, do it now! The sooner you start, the more you can save. You can sock away up to $18,000 for 2015, and the money you contribute is tax-deferred.
3. Pay down personal debt.
Financial decisions you made in your 20s need not haunt you indefinitely. Get out from under the burden of high-interest credit card debt now so you can breathe easier. Instead of opting for a balance transfer to a lower-interest card, consider using a low-interest-rate personal loan to refinance that debt — saving money and quashing the temptation to spend.
In Your 40s
1. Refinance your mortgage.
If you have a mortgage, your credit score may have improved since you took it out. It could be a good time to shop for a better deal and refinance. Today’s modern refinancing options are more convenient and user-friendly than ever before.
2. Amp up your retirement savings.
If you’re not contributing the maximum amount to your 401(k) plan, now is a good time to get serious about saving. If you’re married, make sure you’re both contributing as much as you can each month, and maxing out your contributions by the end of the year.
3. Save for your children’s education.
Opening a 529 plan to pay for college and making monthly contributions can help your savings grow quickly. There’s a big payoff to tucking away money early: These are tax-deferred investments, and the distributions you take to pay for your children’s college will be free of federal taxes. Save enough and your children may never have to take out student loans.
1Understand that when you refinance federal loans, you forfeit certain flexible repayment options and other benefits. If you expect to incur financial hardship that would affect your ability to repay, you should consider federal consolidation loan options.
Christina Kramlich is a member of the DailyWorth Connect program. Read more about the program here.