Time is the most precious resource you have, even though you hear this phrase many times. However, most young adults treat finances like an experiment. One buys those fancy sneakers and dinners because one believes oneself to be immortal. Well, it all looks nice, but then one understands that one is 40 years old and does not have anything in the savings account except tears and regrets.
The definition of your financial goals before 30 is not making you a boring Scrooge McDuck. It is just providing yourself with a good retirement which will be stress-free. So, you can call it pre-payment for the peaceful future. If you start the process at the age of 35, you will have to do two times more effort to achieve the same.
First of all, you should define your life goals. It can be retiring at the age of 55 or owning a yacht. It may be simply buying a house without selling one’s kidney. Write it down. You cannot achieve anything unless you define it as your goal. A goal without numbers is just a desire which cannot be accepted by banks.
Secondly, you have to face the grim reality which lies in your bank account. You cannot fix something you do not want to measure. Get the list of expenditures of the last three months from Chase and Wells Fargo and get ready to be shocked. Your coffee habit will turn out to be a yearly holiday vacation. Knowing where there are leaks, you will plug them and use the money elsewhere.
Then comes the dull, but money-building process of paying yourself first. You should set up an automatic transfer of funds to your brokerage account right after receiving salary. Do not postpone it till the end of the month when your salary will disappear faster than you can say “Uber eats”. Treating savings as paying bills, you will turn your electricity off.
Also, one should define one’s risk tolerance as volatility is not for the weak. Selling in panic with each drop of the market leads to losses. Pick the proper balance between index funds such as VOO or VTI and possibly bonds if you are worried. There is no need to become Wolf of Wall Street since it ended rather badly for everybody. Consistency always beats genius.
And the last thing you should keep in mind is that your goals are dynamic and may change over time because of unexpected circumstances. Marriage, children, goat farm – all of them may pop up. Therefore, you should review your goals once a year. The important thing is to have them and stick to them not wasting money on unnecessary things pleasing people one does not like.