The biggest mistake, people in their 20s, make is mismanaging their personal finances. When they have disposable income, they just use it, almost immediately in some cases. Bags, shoes, video games, gadgets, you name it, they buy it. Others, with credit cards in hand, live beyond their means and end up in debt. Before they know it, they’re already 30 and still without any financial means of dealing with major life changes or emergencies.
What if they get married? What if they get into a big accident? What if they suddenly lose their main source of income? Where will you get the money to pay for such expenses? There are so many possible scenarios here.
Money can’t buy everything, but it does pay the bills and living expenses. Sometimes though, a month’s worth of salary isn’t enough to cover an expense. Some of these are important expenses worth saving for early, before you’re saddled with more responsibilities after turning 30.
Save for these items before You Hit the Big 3-0:
1. Health Insurance
Your most important asset is your health. If you get sick, you lose the ability to earn. Having a healthy lifestyle — eating smart and exercising regularly — can prevent the onset of certain ailments. However, despite your best efforts, there may come a time when you’ll have to deal with major health issues such as life-altering conditions or injuries. This is when having health insurance will make a big difference.
Although your employer may provide you with a decent health coverage, its better if you get your own health insurance policy. This way, your coverage isn’t dependent on your current job.
Do some research and find out which health insurance policy is best for your budget and current needs. If you haven’t picked one yet, set aside around 10% of your monthly income for emergency health expenses, such as medicines, treatments, and doctor consultations. Once you can afford it, you could also take out health insurance policies for your parents. Healthcare gets more expensive as people grow older, so getting one for your parents, while they haven’t turned 60, could save you money in the long run.
2. Retirement Fund
It’s never too early to start saving up for your retirement. In fact, the earlier you start, the better because of compound interest. Consult a financial adviser and find out how much you have to put away so you can live comfortably and not stress about money when you’re in your retirement age.
Financial advisors will factor in inflation and other things that may affect your finances once it’s time for you to retire. Unless you fancy declaring bankruptcy and getting your home and other assets seized, once your paycheck stops coming in, it’s better for you to start saving for retirement now.
3. Property and Home Insurance
It’s wise to set aside a percentage of your earnings — say 10% to 20% of your monthly income — for your own home and the insurance that it requires. It’s a big expense, but so is renting. It depends on your city though. If you’re in a buyer’s market, purchasing your own home might make sense. But if you’re living in crowded cities, like San Francisco, and New York, just save your money for now.
In other cities, however, rent adds up and you technically don’t have anything to show for it. Check out real estate listings so you have an idea of what your dream home will cost and what other expenses owning a property entails. It all really depends on the local real estate market in your area and your ability to handle monthly mortgage payments.
Once you have a clear grasp of the possible expenses, create a timetable to map out your target amount and how long it will take you to save up a decent down payment.
4. Wedding Expenses
Weddings should be memorable. However, would it really be wise to break the bank for it? So you want a beach wedding with a fancy 5-tier cake, wine with personalized labels and delicious food. You can make that happen, but you don’t need to go into debt just for that one special day.
You can compromise by picking what to spend on and where to cut back. For instance, pick three items that you’re willing to spend on, such as your rings, the wedding outfits, and the food for your guests. Then find cost-effective options for invitations, flowers, and giveaways. You can do without an over-the-top wedding cake by going for wedding cupcakes. You also don’t need that fancy water bottle for the bride and groom. Water is water, yes?
The people who genuinely care for you don’t need the superficial trappings of a fancy wedding. Besides, the less pressure you put on guests to dress up and come up with a ‘good’ gift, the more they’ll likely enjoy your party.
If you really want to be frugal, consider foregoing a grand ceremony and just get married before a judge. This way, you can splurge more on your honeymoon. After all, it’s really the marriage that counts and not the wedding day.
Set a fixed budget for your wedding expenses and don’t break your commitment to it. Talk it over with your partner and help each other stick to it. Otherwise, you’ll start your married life stressed out over making ends meet. That will definitely kill the romance at record speed.
5. Child Care
What’s the number two course of divorce? Well, money problems is number one they say, but I bet child care expenses comes at number two. So, if you’re planning to have kids, start saving for it even if you’re not expecting one yet.
You can set aside, say, $200 to $300 each month for your still-to-be-born child or children. Have money to spare? Get an educational fund for them, so you don’t face the painful decision of whether they go to college or not.
Not sure how much having kids can cost? Think of the cost of milk, diapers, food, clothes, education and car seats for just one child. That’s a lot of money!
Still can’t picture it? Adopt a pet for a month then tally everything you’ll spend on their food, veterinary visits, treats, doggy bags or cat litter, their beds, cages or playpens, leashes, abd grooming. Your expenses in one month of caring for a pet, is still nothing compared to the monthly cost of having a child.
When you have disposable income, don’t waste it on superficial amusements such as gadgets or trendy clothes. You might not feel the retail therapy from saving your money, but the peace of mind it will bring you later on is priceless.
Even if you’re not 30 yet, it won’t hurt to start saving for these five big expenses as early as possible. And if you’re already 30 but still haven’t saved any money for these -- or any other expenses -- it’s never too late to start. Even saving $100 a week is a lot if you keep at it.