In this article, I will share my life financial plan and show you my biggest goals of how much I want to save by every age.
The main goal I ultimately have is to achieve financial freedom early and not depend on the monthly salary. This is a difficult achievement however it's not impossible if you start saving and investing early. It's also important to start building other ways to receive income such as rental properties or creating content online and so on.
Everything we do in life should have a goal. Having a goal helps guide your focus and helps you sustain that momentum in life working towards it.
I will break down below what are the most important goals and how much you should have saved at every age bracket until retirement.
Age 20
1. Graduate & Earn income
2. Open a credit card
3. Save or Invest
In your young 20s, you're just starting out. You're likely studying and possibly in debt from student loans. Some countries offer free higher education but it very much depends on the situation.
Saving or investing at this age may be very difficult, however, starting out doing small freelancing jobs during free time may help reduce some of the debt or help start out your investment journey.
The main goal is to graduate and find a solid income source and prioritize saving a percentage of this income to pay off your debt. If you get rid of this debt in your 20s you're going to be in a very good position later on in your 30s.
The second goal is to start building up your credit score and you can get cheaper rates further down the line for home loans when you have a good credit score. You can do this by applying for a credit card.
The main thing to look for when choosing a credit card is to get a card with no annual fee to make it easier for you to build your credit. Also, remember to always pay off your credit in full, then look for getting a card that offers you some sort of reward from your everyday spending if possible.
The third goal is to start saving some money when you can or put some money aside in a tax-sheltered investment account and build toward that amazing portfolio that can grow over time.
In my opinion, at the age of 20, if you have a net worth above zero you're doing an amazing job.
Age 30
- 1x Salary Saved
1. Regularily invest 20-30% of your income
2. Get rid of your debt
3. Increase your income source
4. Stop paying rent
According to studies I found, by age 30 you should have saved the equivalent of your annual salary. This means that if your annual salary is $50,000 a year by your 30th birthday then you should have around that amount saved up or in investments.
The median net worth of someone at age 30 in the US is around $14,000 and the average is around $75,000.
Remember that this is just a goal to help you focus on the right path and it doesn't mean that you should panic if you have less or if you are still in debt. Keep a positive mindset and slowly work towards those goals. This is just a guideline and if you are in this spot in life, it's never too late to start saving or investing and making a plan of your finances.
The main goal you should focus on at this age is to be regularly investing and saving around 30% of your income if you can afford it. Saving some money is better than nothing and you still have time on your side to grow that wealth.
Even if you invest 5% of your salary, that means you can still invest around $2,500 per year from that $50,000 income. Now, knowing that S&P 500 returns on average around 8% a year, by the time you are 65 you will still end up with a balance close to $500,000.
The second goal you would have is to be debt-free or have a plan to reduce your debt completely by age 35.
The third goal is to look at increasing your income sources, be it looking for a better paying job, moving up in your career, or creating multiple other income sources such as creating content or doing a side hustle.
The fourth goal is to stop paying rent every month. This is really bad and you should start looking to buy your first house, getting a mortgage instead. You should have a good credit score helping you to get cheaper rates. Paying your mortgage instead of paying rent will increase your net worth every month.
Age 40
- 3x Salary Saved
1. Know your retirement amount
2. Credit Score improved
The median net worth for an individual at age 40 is around $80,000 - $90,000. Studies say that you should have around three times your salary saved up. Again this is just a goal so you can modify it to what you feel more comfortable achieving. Maybe it's two times, or four times, it really depends on your situation.
The more you save up, the more will compound further down the line, so investing your savings will make it easier for you to live off your investment at retirement.
This is the time to think about how much you will want to retire with. At retirement, you generally want your portfolio to generate at least around 3-4% to be able to live off your investments. As an example, a portfolio of one million dollars generating 4% a year will net you $40,000 per year.
This sounds like a lot to achieve however if you keep investing only $7,000 every year in S&P 500 returning 8% a year, in 25 years you should be able to achieve your 1 million dollar goal just fine.
The second goal would be to try and refinance your credit at better rates. You should have an excellent credit score by now so make sure to take advantage of this.
Age 50
- 5x Salary Saved
1. Pay off your mortgage
2. Diversify investments in safer holdings
As previously ages, I will start with the mean net worth for someone at age 50 which is around $165,000. Studies say that you should have saved and invested around five times your salary. If you make $60,000 per year that would be around $300,000. This is a decent amount to aim for.
As the main goal to have is to prioritize paying off your mortgage debt completely as soon as possible.
The second goal would be to diversify your investments even more as you want to shift your allocations towards safer holdings for retirement.
Age 60
- 8x Salary Saved
- Enjoy your time !
At age 60 the mean net worth would be around $210,000 and you should have roughly eight times your income. So something around $450,000 if not more.
Also, remember to adjust this for inflation, so in reality, you would want to be saving up a bit more by the time you retire to account for this. Luckily the investment portfolio you kept adding into would have grown to a substantial amount by now.
The most important thing to do here after all this hard work and planning is to enjoy life as time is your most important resource. Planning your finances will make everything easier in your life so starting early would mean that there's a good chance to achieve your goals faster so you can enjoy even more time without worrying about money.
