If you’re in your 20s, you have probably thought about saving, investing, or retirement in some way. Even though it may seem far off, it’s never too early to start seriously thinking about how much you are saving and how you can make your money work for you in an effective way that requires little time or effort on your end. At the same, it’s not too late if you are closer to 30 or older! Today’s article will focus on investing and spending considerations for those who are early on in their career and want to maximize how much they are saving in order to pay themselves and cover basic expenses later on in life.
I grew up with very little knowledge of what investing was. Once I started working in finance, I educated myself on different investment types, what effective budgeting really meant, and where I should be putting my money to maximize return and diversification. This stuff isn’t rocket science, but it’s also not intuitive! There’s a reason why there are so many financial gurus out there giving advice on how to effectively manage your money because so many people are confused about investing and saving. The advice below is not financial advice, but simply learnings I have put together after working in finance for several years.
When we talk about how much money you “should” have saved by 30, there is no correct answer here. This goal is subjective since it is based on many factors, which we will go into detail about below. A commonly cited rule of thumb is that by age 30 in the US, you should have a year’s salary or more saved. Obviously, this will vary for everyone and your salary may change year to year, so this is not really a great metric to measure by, but it gives you a numeric starting point. Here are a few factors I consider when I think about how much to have saved by 30:
Cost of Living: The cost of living, whether that is rent or a mortgage, is most people’s largest monthly expense. If you live in a high-cost-of-living area (like where I live in New York City), you might need to save significantly more to cover this expense. Your living situation will likely change as you go from your early 20s to 30 as you move to different areas, perhaps with and without roommates, and a variety of other factors. Therefore, it’s hard to predict what exactly this expense will be in the future but it’s good to be prepared with a more conservative number.
Retirement Goals: Who wants to work until they’re 65 or older out of necessity? Even if you love your job (and I truly really enjoy my work!), at a certain point, it would probably be nice to be able to take an extended break or work purely for enjoyment and not because of financial needs. If you’re looking to retire earlier than the norm or maintain a high standard of living in retirement, you’ll probably have to save more aggressively than someone who isn’t necessarily looking to achieve those things.
Existing Debt: The US is a country riddled with debt. I personally have a lot of student loans which I factor into my monthly budgeting. Others may have car payments, mortgages, credit card debt, or other debt that could be hanging over your head as a large liability. Paying these down as aggressively as possible can greatly help your savings outlook as you approach 30. Another rule of thumb from many financial gurus is to try to refinance loans to as low of an interest rate as possible and pay down high-interest rate debt first before moving to the rest.
Investment Returns: Your personal investment strategy may be very different from another person in a very similar situation to you otherwise. Additionally, everyone has a different risk tolerance which can result in different returns. For many 20-somethings, taking more risk while you’re younger can make sense since you’ll have more time to recover any losses. At the same time, how much you’ll have saved in investments by 30 will be greatly impacted by exogenous factors like market performance (if you invest in public markets). Other investments may be more protected from economic impacts and can help with diversification.
Support System: Family and/or friends who can provide a financial safety net are a blessing, and not everyone is fortunate to have this. If you do, you may be able to afford to have less in your emergency fund in case something goes wrong (i.e. you get laid off or some other event happens resulting in a decrease in income). If you’re on your own, it makes sense to build up your own support in savings so that you’re not caught off guard if life takes an unexpected turn.
Lifestyle choices: For people who have the travel bug or enjoy shopping and/or buying luxury items, you’ll likely have to have more saved by 30 in order to sustain this lifestyle. This also goes hand in hand with the cost of living point; if you live in a more expensive area where it costs more to dine out, shop, go to the movies, etc, then it will likely continue to cost more as inflation rises.
Healthcare costs: Living in the US without universal healthcare, it can be very expensive when you require larger procedures, prescriptions, or really anything beyond routine check-ups. I like to take advantage of whatever employer-sponsored account is provided to me (HSA, FSA) to cover some of these types of expenses. As you get older and might encounter other health issues / preventative measures, it would make sense to have income saved to be able to afford these.
Overall, how much you should have saved by 30 varies based on your specific situation and what goals you have for your life! Personally, I don’t yet have a number I want to have saved by the time I’m 30, but I have specific financial goals for myself that motivate me. At the end of the day, your goals should not be dictated by other people; trust your gut and listen to advice that resonates with you.
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