A list of “20 Financial Milestones You Want to Reach in Your 20′s” has been circulating around many Generation-Y-ish personal finance blogs recently. I’m not quite in my 20s any more – I’m 31 – but it feels more like a stage of life thing (no kids, first steps on property ladder, student debts etc) rather than an exact age, so it would be interesting to see how I’ve done.
(The original list is from the USA but I’ve UK-ised it a bit to make it more relevant – but stuck to similar sentiments. The bits in italics are explanations from the original list.)
# 1 – Finance a dream vacation…in cash – done
We went to Russia in 2005 when we were 26 – somewhere I’d always wanted to go. We had a week split between two of the top hotels in central Moscow & St Petersburg, with a night in a first class sleeper inbetween. It was lovely, expensive but lovely.
We paid for the hotels & our flights on credit cards for security reasons but they were paid off in full the same month so I guess that was paid for “in cash”.
All our other holidays in our 20s – mostly city breaks around Europe or weeks in shabby-chic cottages on the coast – were actually paid for in cash or the same credit-card-then-immediate-pay-off arrangement. They were all dreamy :)
# 2 – Pay off your student loans – done
I came out of university with about £8,000 in debt – £1250 in an interest-free (for two years) overdraft, the rest as actual student loans. I paid off my overdraft within two years of graduating and finished paying off my student loans in the March before my 30th birthday. (I could have deferred payment after my salary dropped when I became self-employed at 26 but decided to keep paying.)
# 3 – Automate paying your credit card bill in full – done
Yes, but only when I was about 28. Before then, I only paid off the minimum automatically so, in theory, I could manage my cashflow better in lean months but I pretty much paid it off in full every month anyway so finally fully automated it.
# 4 – Get rid of all bad debt – done
A good way to see what bad debt and good debt is is by asking yourself if the underlying asset appreciates or depreciates in value. If the asset appreciates, like a house, than categorize it as good debt. If the asset depreciates, like a car, etc… then it’s bad debt.
The only debts I had were my student overdraft/loans and my mortgage. I’ve still got the mortgage but at the moment, that’s not “bad debt”.
# 5 – Build an adequate emergency fund – done
By the time you’re 30, build an emergency fund that covers a minimum six months of expenses. A time will come when you’re sure glad it’s there.
When I decided I had to leave paid employment at 26, I worked out a minimum budget (which included half of all joint expenses and a small amount of fun money for me) and I had a total of 17 months emergency fund across my current account & savings – mostly that long because my expenses were low. Because of a stroke of good timing/putting things in place before I left my job, I’ve only used about three months worth of that emergency fund in the intervening five years. My minimum budget would be higher now but I think I’ve still got about 12 months worth.
# 6 – Make your first, and last, investment mistake – kinda
I’ve not really made any particular investments so they’ve neither succeeded or failed. But one thing I have failed on is not switching bank accounts often enough (for example, my cash ISA is currently in a very low paying, albeit ethical, account) or other financial products. I suspect I’ve lost out on a potentially considerable amount of money – either wasted it or not earned it – because of that. I’m putting “procedures” in place to stop that happening from now on (ie, a diary note to tell me to check & change accounts each year).
# 7 – Develop a statement of cash flows – not really
Imagine a business trying to operate without knowing how much money is coming in and out every month. As you know, successful businesses don’t operate this way.
I kept a really close track on this for the first couple of years of self-employment – because I needed to know how much to pay myself. But before then, and afterwards, I’ve been more lax. Something I’m trying to get on top of now.
# 8 Max out your ISA allowance each year – not really
For a few years before I left (my higher salaried) paid employment, I maxed out my cash ISA allowance but not since then. I will do this year though.
# 9 Contribute to a personal pension – yes, then no
When I was in paid employment, my employer had a great final salary pension plan and I started paying into it from the first month of my full time employment (when I was 20) so I wouldn’t miss the extra cash. But then when I left there at 26, I stopped paying into that pension – and haven’t started anywhere else. This is one of our financial priorities for the next year.
# 10 – Get a degree or certification that increases your earning power – done pretty much
I got my first degree at 21. I’m not sure it really increased my earning power really.
During my paid employment, I took loads of courses paid for by my employer – including two post-grad certificates (masters level but shorter courses), first-aid training, all sorts of computer skills and general admin skills training. It’s hard to say if they really increased my earning power but I suspect they increased my employability in that field if nothing else.
# 11 – Take a career risk – done
Leaving a reasonably secure job at a safe organisation because I didn’t like it there any more was a career risk. The idea was I’d have a couple of months off and decide what I wanted to do next, rather than just bumbling from job to job as I had been doing. That was a pretty big risk. Decided to try the self-employment route rather than get another full time job was another risk. It’s paid off in some ways but not in others.
# 12 – Negotiate something – done
I really suck at negotiating money things but one thing I did do when I was 23: when I was buying my first house, the big surveying company were supposed to take payment the week of the survey. They didn’t – but with all the other house-buying expenses, I didn’t notice. About six months later, they realised and wanted payment – full, immediate payment. I told them no – I’d, admittedly incorrectly, assumed that it was paid for and I didn’t have that type of money to hand to pay for it again. They offered 10% discount, I asked for 50% – and got it. The woman I spoke to said she’s never heard anyone get a discount like that before. Win for me!
# 13 – Earn your first side grand – kinda done
I made little bits of side money – not £1000, although possibly $1000 – while I was in full time employment, things that became the basis for my regular earning after I left there but after becoming self employed, it’s hard for me to differentiate between “side money” and just “money” as I do lots of random things – basically whatever pays me money is my job that week. When I first became self employed though, I did do a number of things that were more “side”ish – mystery shopping, taking part in a medical study (£20 a pop for drooling into a test tube once a month for a dental study). So all in all, I’ve probably earned a “side grand” but no more, and not setting up passive income or even consistent income.
# 14 – Start a sub-savings account for an upcoming financial goal – not really
I haven’t really had anything that was so expensive I had to purposefully save for it as an independent goal – I’ve had enough general cashflow/savings to cover everything without much bother. On a very small scale I guess I’m in retrospect saving for the automatic chicken door thing (as I mentioned yesterday).
# 15 – Set a target retirement date – not really
It’s not as if you need to pick out an exact date. It’s more important to have a general idea of when you want to retire. It’s understandable that this date will change over time, but without a target date, it’s hard to formulate a true investment plan.
I guess I’ll need to think about this when I re-start my pension saving – but not thought about it up til now.
# 16 – Monitor your credit – done
I didn’t have a credit card as a student – I didn’t want the temptation – so when I left uni, I didn’t have any credit record at all. I discovered this when a friend who then worked at a phone company tried to get me a discount monthly phone plan – I failed the credit check – they had no way of knowing how I’d behave with it. I immediately went to my bank, took out their stupidly-high-interest-rate credit cards, used them to buy things then paid them off in full. Suddenly I had a great credit rating – and I’m sure it was having that score which enabled me to get my first mortgage easily.
Our credit scores are still good but because we’re self-employed, we struggled to get a mortgage on our new house in 2009. Consequently, I’ve got a check list of things to get in place before we try to re-mortgage later this year – and that includes proactively taking steps to improve our credit rating before the summer.
# 17 – Say no to a financial salesman – done
Our banks are always trying to sell us things – in person, on the phone and over email/the web. Because we’ve got a business account too, it’s doubled. I say no to them all the time.
Not quite financial but I also have a tendency to yell at power company sales people when they knock on our front door and lie to me. They used to do it all the time at our old house – they must have assumed we were morons because we lived on a not-great estate – and my patience wore very very thin.
# 18 – Give just enough to make it hurt – no, sigh
For now, which I think is a good rule of thumb to follow if you have never donated before, I’m giving just enough to make it hurt. I imagine life after 30 is going to get a lot more expensive. If I don’t get into the habit of giving now, I likely never will.
I do give to charity and other good organisations but not regularly and only “spare” cash – it doesn’t “hurt”. I’ve always done that – even when I was at sixth form college and working part time, or when I was a full time student and had very little money – but randomly, when something spoke to me, not regularly.
2 Milestones for the Over Achiever
# 19 – Invest £1 for every £1 you spend – no, but it’s tempting
Now that I’m tracking my (non-bills) spending better – and spending a lot less, this looks tempting and possible. I might ease my way into it and say just certain categories of spending – say fun stuff (craft supplies, books & entertainment) or clothes – or just 50p for every £1 spent. RJ, the author of the original list, said having this goal stopped him feeling guilty about spending money on nice things (because he knew he was saving just as much) and I can see that. I also imagine that it’ll help stop truly frivolous spending – since everything now effectively costs twice as much – which is another good thing.
# 20 – Start saving for a specific next-life-stage goal – no, but should do
(The original milestone was “start a 529 College Savings Plan” but that doesn’t mean anything to us in the UK – it sounds like it’s a tax-efficient plan that can be used for your future education (be it a PhD or cookery class) but can also be passed onto your children as a college savings plan.)
At the moment, I have a general savings account – soon to be two general savings accounts (a Cash ISA one and an additional one), which is all well and good but I think there is a danger of mentally spending those savings several times over. At some point in the next few years, we’re hoping to start a family and that might mean I have to take a year (at least) off work and reduce my hours, possibly to very little, after that. It would be best if I don’t use our emergency funds to pay for that – so I should start saving now.
So all in all, I’ve completed 11 goals, kinda/partially completed 3 goals and failed on 6. Could have been better but I think it’s useful to look at the “kinda”s & “no”s – add some things to my financial to-do list. I wish I’d had this list at 25!
I’m not sure how many people reading are around my age/stage of life – but if you are in a similar situation, how do you fare?