For many people, your 20s are spent figuring out who you are and where you want to go in life. Many of the major financial decisions you may during this period have a significant impact on your future. Usually, this is because they have a chance to snowball. You can develop habits that shape your choices down the line, both positive and negative. Ideally, you want to make the process intentional, allowing you to shape your financial future. If you aren’t sure where to begin, here are five major financial decisions to make before you turn 30.
1. Where You Want to Live
This isn’t just about picking a house or apartment. The city and state you choose to call home have a significant impact on your finances. Along with housing costs, your residency can determine whether you pay certain kinds of taxes as well as the cost of living you’ll contend with while you’re there.
Additionally, where you live influences your earnings potential. Big cities tend to offer higher salaries than the same jobs in smaller towns. Whether they come in high enough to offset the cost of living differences varies, but it’s a facet that needs to be explored.
Ideally, you want to select a location that best meets your needs in your 20s. That way, you can transition (if necessary) and start putting down roots in your preferred city.
2. Where You Go to College
Your choice of college impacts your financial future in several ways. First, it determines how much you’ll pay for your education. While the average student loan debt comes in at $32,731, many people end up with much higher balances. It can take decades to pay off a loan, and many people ultimately default, leaving the debt hanging over the head for practically all of their lives.
Second, the college you choose may impact your professional life. A school’s reputation could influence hiring manager decisions, for one. For another, some colleges have more robust alumni amenities, including job placement assistance.
Both of these factors impact your financial life. That’s why you need to think about more than just where you’d like to go to school (or where your friends are going) before you make a decision.
3. Whether You Want to Buy a Home
For some people, buying a home down the road is a must. Even though it means staying in one place for a while, dealing with maintenance responsibilities, and similar obligations, they can’t envision their future any other way.
However, not everyone feels the same. Many prefer the convenience and flexibility renting can offer, so they never plan on making a home purchase.
While you’ll usually spend at least part of your 20s in a rental, it’s wise to decide whether buying a house is one of your goals. It’s a major financial decision, and it takes time to prepare if you want to become a homeowner. By figuring out whether that’s something you want to do, you can start saving right away. Then, when the time comes, you’ll have enough set aside.
4. Whether You Want Children
The cost of having kids can be incredibly high. One estimate showed that raising one child can cost $233,610. That’s a major financial burden.
Even if you don’t want kids right away, it’s wise to consider if you would like to have children in the future. That way, you can start planning for the added cost in advance. Along with setting aside cash in savings, you can make sure that you can support your other goals and needs before you move forward. Otherwise, while you’re trying to cover childcare and healthcare for your kids, you might find yourself forgoing retirement savings, leaving you in a bind down the road.
5. What You Want Retirement to Look Like
When it comes to saving for retirement, time is both your friend and your enemy. The earlier you start, the bigger difference compound interest makes, potentially allowing you to use smaller monthly contributions to reach your goal.
However, you need to know what that goal is to make sure you are headed in the right direction. Ideally, you should have an idea of how’d you would like to live when you step away from the workforce or, at least, leave your main full-time career.
Additionally, if the idea of retiring early is enticing, planning now is a must. It’s possible to shave years, if not decades, off the process. But you can only pull that off if you make that a priority as soon as possible.
Ultimately, it’s best to have the major financial decisions above handled before you turn 30. That way, you can set your life on the right course, allowing you to move toward your goals with greater ease and to avoid missteps that could derail your plan.
Can you think of any other major financial decisions a person should make before 30? Share your thoughts in the comments below.
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