Financial Planning : The Best Financial Moves for Your 20s and 30s

In Your 20s
You absolutely must…save for retirement.

Yes, you’re scrambling to pay the rent. But please listen to me: Pushing yourself to save even a small amount now is, hands down, the single smartest investment play you can make. It’s all about the time your money will have to marinate— “compounding” is the technical term—before you need it in retirement.

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In a perfect world, let’s say you invest $5,000 a year starting at age 25. Assuming your money grows at an annualized 6 percent, you’ll have approximately $820,000 by the time you’re 65. Now let’s suppose you don’t start investing until age 35. You’ll have to sock away about $9,800 a year to wind up with the same nest egg. (A $5,000 annual investment for 30 years will yield just $419,000.) And don’t kid yourself that it’s easy to save money as you grow older; you’ll likely have children and a mortgage tugging at your purse strings.

Under no circumstances should you…fall behind on student loan payments.

Even if you were to declare bankruptcy, your debt would likely not be forgiven. If you’re having trouble paying your bills, go to studentaid.ed.gov/repay-loans to learn about deferment and forbearance options.

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In Your 30s
You absolutely must…be honest about whether you’re ready to settle down in your own home.

Don’t let today’s historically low mortgage rates seduce you into ownership. Just because something is on sale doesn’t mean you should buy, right? Besides, the Federal Reserve has indicated that it intends to keep interest rates low until mid-2015, so there’s no need to rush.

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I also wouldn’t jump at buying if you’re considering moving within the next five to seven years. (It could take at least that long for your new home to appreciate enough to recoup the costs of selling it, including a 5 to 6 percent real estate agent commission.) But if you plan to stay put, and you can cover a 20 percent down payment, focus on buying the least expensive property that meets your needs. The difference between a $300,000 30-year mortgage and a $270,000 30-year mortgage at today’s rates is $133 a month. That’s nearly $1,600 a year you could apply toward other goals. (Remember your laundry list?) Use the mortgage calculator at bankrate.com to see how much you can save by keeping your purchase price in check.

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