Let's simplify and just assign A, B, and C grades for financial health in your 20s

Should you seek to have a $100,000 net worth before age 30?

Aug 04, 2024

Building a Strong Financial Foundation in Your 20s

The purpose of this newsletter is to help others (all ages) see the hidden side of personal finance that never seems to get talked about at home. Today, this is more tailored to those in their 20s, but many can benefit from thinking about the fundamental concepts here. We’ll have other focused articles for those in their 30s, 40s and 50s upcoming.

Growing up, what kind of conversations did you have about money? Did your parents educate you about finances? Did you worry about money growing up? Do you worry about money now? What is the purpose of money? How much should I be saving versus spending? At what age did you become financially responsible for yourself and do you have a financial safety net?

These are questions that often go unanswered as most families do not talk about money, often leading to confusion and resentment. As you navigate your twenties, it's crucial to consider these questions thoughtfully as you start to build your financial life. Please share or forward this with others (friends, young adults, kids, grandkids, nieces, nephews) or anyone else you think might benefit. Enjoy!

Consider taking one action today to create the life you want tomorrow!

Invest in Yourself and Plan for the Future

Investing in yourself is one of the most important steps you can take in your twenties. Whether through college, trade school, or an apprenticeship, acquiring the skills and training needed to excel in the workforce is crucial. Remember, learning doesn’t stop once you enter the job market; it’s a lifelong journey. Your earning potential is your greatest financial asset, so work hard and maintain a positive attitude to earn raises, promotions, and senior-level positions. Additionally, familiarize yourself with financial terms and options. Understanding your net worth, building credit, and planning for financial independence are key components of long-term financial health.

Start Saving Early and Wisely

Starting to save early is essential. Contribute to employer-sponsored retirement plans like 401(k)s and open a Roth IRA. Even small deposits can significantly benefit from compounding over time. Take full advantage of any employer match programs for 401(k) contributions, as this is essentially free money. Aim to save enough to at least get the full match from your employer, if not more. Paying down student loans, establishing financial independence from parents, and building a good credit history are also crucial goals to achieve before turning 30. Setting up automatic transfers to a high-yield savings account and creating a responsible budget will help you manage your income effectively.

Avoid Debt and Protect Your Financial Future

Finally, avoid consumer debt by living within your means and ensure you have adequate insurance coverage. This includes health, auto, renters, and potentially life insurance. Understanding your net worth—defined as the total value of your assets minus your liabilities—and aiming to reach at least $100,000 net worth by age 30 can set a strong foundation for your financial future. Remember, the first $100,000 net worth is often the hardest to save, but once you achieve it, compounding will work in your favor, helping you grow your wealth more easily. Balancing these financial goals with personal growth and happiness will lead to a fulfilling and prosperous life.

Setting Financial Goals: Benchmarks and Beyond

As you navigate your twenties, setting financial goals can be a valuable way to measure progress and plan for your future. Striving for net worth milestones can help you aim high: achieving ~$300,000 net worth by age 29 puts you in the 90th percentile, representing an "A" grade in financial health; reaching ~$175,000 net worth places you in the 80th percentile, a solid "B"; and accumulating ~$100,000 net worth lands you in the 70th percentile, a respectable "C." However, remember that money is just one aspect of a fulfilling life. Happiness and true success come from a blend of experiences, relationships, personal growth, and finding joy in the journey. Use these financial goals as benchmarks, but don't let them define you. Pursue your passions, nurture meaningful connections, and seek out adventures. The balance between financial stability and a rich, varied life will ultimately bring you the greatest satisfaction.

Net Worth Milestones before age 30*

~$300,000 net worth for 90th percentile (‘A’ grade in financial health)
~$175,000 net worth for 80th percentile (‘B’ grade in financial health)
~$100,000 net worth for 70th percentile (‘C’ grade in financial health)
~$31,500 net worth for 50th percentile (median net worth by age 29)