My 30 Financial Milestones You Need To Hit By Age 30 post recently went viral. It was met with a tremendously positive response, but there were a few naysayers in the mix. They seemed to congregate around one point of contention: #5 – Have at least $25,000 saved for retirement by age 30.
Even the Globe & Mail’s Rob Carrick suggested this might be “unrealistic”. He wasn’t alone. Many people insisted that whether or not you can hit this target depends on your circumstances: what you studied in university, how much debt you have, whether you have to support yourself, when you started saving, and so on. While all of these variables can drastically impact your earnings and savings power, I think we sometimes reach too readily for excuses not to save.
When I push my readership for big goals or flex some of my financial muscles, I’m occasionally met with some disgruntled protests that I must have had some easy ride and therefore can’t sympathize with the average saver. As someone who had a distinct lack of financial advantages — from no parental help with university, to over $20,000 of student loan debt, to renting and supporting myself since age 18 — I know you can achieve more with your finances than you think you can. Diligence and consistency go very far when it comes to money, but you have to put them into action. Sympathy for unfortunate circumstances is great, but sympathy doesn’t make dollars, and I’m assuming you’re here because you want money, not hugs.
Ideally, you actually want to have the equivalent of one year’s salary saved for retirement by age 30. But this can be very difficult, particularly if you spend more than 4 years in school or are in a very high-earning profession. This is why $25,000 is such a great baseline to aim for first, then anything above and beyond is a nice surprise!
How To Save $25,000 For Retirement By Age 30
Step 1: Stop Believing You Can’t. Seriously, stop. Like in my posts on how to save six-figures in seven years or increase your net worth by $25,000 annually, I will not indulge the reasons you can’t (aka. don’t want to) save $25,000 by age 30. The only real reason you might not be able to save $25,000 by age 30 is you are aged 31. No other excuses accepted!
Step 2: Do the math. You will earn between $300,000 and $400,000 (or more!) during your 20’s — and you’re telling me you can’t save less than 10% of that? Boo! If you start at age 20, even if you make a small salary you only need to save 6% of your income to bank $25,000 for retirement by age 30.
In the table below, I outline how a twenty-something with an average salary might save $25,000 for retirement by age 30 by saving 6% of their income:
If you don’t start saving at 20 then you have to save more when you do start, but all hope is not lost. If you’re a late bloomer like me and don’t start saving until age 25, you might have to save 10% of your income to reach $25,000.
In the table below, I outline how a twenty-something with an average salary might save $25,000 for retirement by age 30 beginning at age 25 by saving 10% of their income:
If you earn more, you can save a smaller percentage of your earnings and still meet the same goal!
Step 3. Get started RIGHT NOW! This is an urgent, please-begin-yesterday matter. Why? Because assuming you can achieve an annual return of at least 5%, every dollar you put away now is worth $7 at retirement 40 years from now.
So next time you’re complaining that your part-time job is only paying you $10/hr, remind yourself that that is actually $70/hr for your 65-year-old self. Are you seeing why this is so important now? If you manage to bank the full $25,000 by age 30, you’ve actually saved $176,000 for retirement:
Wow! Worth the struggle if I ever saw it.
Step 4. Manage your assets. One of the easiest ways to meet your long-term savings goals is to invest your money wisely. In the examples above, I used a rate of return of 3% to 5%. If you can score even 1% higher, that final number at retirement will soar above a quarter of a million dollars. The most important components of managing your assets are:
- investing for the long-term (this means no crazy day-trading or chasing after “hot” stocks),
- diversifying your savings. Try keeping some of your retirement in safe places like cash and bonds, some in moderate risk investments like mutual funds and dividend stocks, and the rest in growth stocks and ETFs and
- NEVER WITHDRAWING THE MONEY.
In Canada, you’re allowed to borrow from your RRSP for things like a down-payment on a home or to go back to school. This is a quick way to undo all your hard work! Do not eviscerate your RRSP to buy a home or pay tuition.
Step 5. Cut yourself some slack if you don’t make it. $25,000 is a big number, and there might an unforeseen event that prevents you from meeting that goal. But that doesn’t mean you shouldn’t try. Even if you save only half, you’re still setting yourself up for a great financial future. Remember, any dollar you put away in your 20’s is worth $7 in retirement, so it’s worthwhile to try even if you only manage to get a few in the bank.
Where can you get the money to contribute to your retirement accounts in order to reach the monthly and annual contributions required to reach $25,000 by age 30?
- work extra hours or at a part-time job
- ask for a raise
- take advantage of employer retirement plans or other benefits if available
- leverage a hobby or skill into something paid, like freelance writing or tutoring
- sell clothing, books, or electronics that you no longer need
- skip upgrading your phone/computer every year and hold on to your old technology for 3, 4, or 5+ years
- cut out a sinful expense that’s hurting your body and your wallet (ie. cigarettes or alcohol)
- save instead of spend cash windfalls like an inheritance, graduation gift money, or income tax refunds
- skip an annual vacation
- put off a major purchase like a car, downpayment on a home, or a wedding for another year (or two!)
- have 1-2 beers on Friday/Saturday nights instead of 3-4
- move to a smaller, cheaper apartment or get a roommate
- maximize rewards points programs so you spend less of your own money on things you need
There’s so many ways! Which is why I know YOU CAN DO THIS! Do it for the $176,000! Do it so you don’t have to eat cat food or live in a box when you’re old. You’re going to be of the wealthy in your old age, there’s luxury cruises and gambling in Vegas waiting for you, so start stashing cash for that fun!