Know what you’re aiming for and you’re more likely to reach it.
By Jenny Hoff, Photo by Towfiqu barbhuiya
As we celebrate the 20th anniversary of Austin Woman magazine, it’s a good opportunity to reflect on our own milestones and whether, financially, we’re hitting certain markers to set us up for a healthy future.
If you’re making enough money to pay your bills, have set some aside for an emergency and contribute to a 401(k) or similar retirement program, you’re already ahead of most people. But beyond the basics, it can be confusing as to what our net worth should be at each age.
According to Dr. Barbara O’Neill with Rutgers University, in addition to maintaining a good credit score and saving money for emergencies, those wanting to stay on a healthy financial track should aim for certain financial goals with each decade of life.
In your 30s:
You should be financially independent and no longer living with or off your parents, finishing up payments on student loans based on a standard 10-year loan, have a year’s worth of salary saved for retirement, on track with a regular savings and investment plan (i.e. contributing to your employer’s 401(k) program and saving 10% of each paycheck for an emergency fund), as well as have current estate planning and life insurance documents to protect dependents, if you have them.
In your 40s:
You should have three times your annual salary saved for retirement, a more diversified portfolio of investments (such as real estate, in addition to stocks and bonds, etc.) and a college savings plan in place for your children, if you have them.
In your 50s:
You should have six times your annual salary saved for retirement (this includes the compound interest you should have accumulated if you started contributing to a retirement fund early in your career), increased knowledge of aging parents’ finances and a caregiving plan in place for them, as well as a financial advisor if you have a higher net worth that involves more complex financial issues.
In your 60s:
You’ll ideally have eight times your annual salary saved for retirement, a strategy to live off less annually in retirement if needed, brushed up on your skills for a post-retirement side hustle or volunteer role to fill the days with purpose and contribution and have paid off your mortgage, home equity loan and credit card debt prior to retirement.
If you’re at any of these ages and nowhere near the milestones listed, don’t panic. These are simple guidelines to keep you on track as you aim to hit financial goals and let you know how close you are to reaching a more secure financial state.
If you’re in your 20s, there are still milestones you want to aim for, but the most important ones are building a great credit score (at least high 600s) and investing in a matching 401(k) program through your work or contributing to an index fund that captures the whole stock market. The greatest wealth you have in your 20s is time, because the longer you have money invested, the more it will grow exponentially due to the magic of compound interest. No matter which decade of life you’re in, there are always opportunities to increase your salary through side hustles, upping your skill set and smart money management. If you’re not where you want to be now, take one small step today to get started on the right path.