steps to financial success

Steps to Financial Success in your 20’s

The steps to financial success usually aren’t easy. However, there are steps you can take in the short term to put yourself in a good position to meet your goals. At Millennial Wealth, we preach that living a fulfilling life includes not only physical and mental health but financial health as the third piece of the puzzle. The following is a list of practical steps you can implement to ensure financial success in your 20’s and to ultimately put yourself in a position to lead a long-term “fiscally-fit” life!

Step 1: Build a Balance Sheet and Cash Flow Statement

Getting your finances in order requires an understanding of your current situation. Two common financial statements for this purpose are the balance sheet and cash flow statement. The balance sheet is simply a measure of your assets against your liabilities and a cash flow statement shows what’s coming in vs going out. I’m not suggesting you do this manually, that’s what technology is for. Our financial tool includes a holistic view of all your accounts and a budgeting tool that itemizes your expenses and calculates the net income every month.

Step 2: Establish an Emergency Fund

Everyone should have an emergency fund in place. You never know what could happen. If you’re faced with an unexpected expense, lose your job, or any other unfortunate event that could derail your finances, having an emergency fund in place as a buffer will soften the blow.

An adequate emergency fund should contain roughly 3-6 months of living expenses. If you don’t have an emergency fund and face unexpected expenses, it could force you into a large amount of credit card debt, deplete your “fun” money, or even force an early withdrawal from retirement accounts. An efficient location to store emergency money is an online high-interest saving account such as Ally Bank. Name the account “first name” Emergency Fund and set up automatic contributions until you reach 3-6 months of expenses. Once complete, forget about it, but have the peace of mind knowing it’s there.

Step 3: Prioritize your Goals

Do you have student loan debt? Does your employer offer employee benefits such as a retirement plan, health insurance, and disability insurance? Do you want to buy a home in X amount of years? These are all questions to ask yourself when prioritizing your goals. For the most part, goals should be worked towards congruently, not one at a time. For example, just because you have student loan debt at a 5% interest rate, doesn’t mean you should be putting all your focus and funds towards paying that debt off faster. If you’re not also making contributions to a retirement account, you’re losing extremely valuable years of tax-advantaged compounding. Not to mention, the long-term growth of equity investments average around 8-10% historically, far outpacing the interest rate on the 5% student loan.

You should also consider your short-term goals. These may include home buying, vacations, or getting married. Typically, once the former goals are taken care of (including health insurance and other necessary insurance policies) you can then prioritize the lifestyle goals. How much home can I afford? How frequently and where can I afford to travel?

Step 4: Automate your Finances

After prioritizing long and short-term goals, you can begin to allocate cash flow towards them. The key is to automate as much as possible and remove the “work” involved with having to move funds around. Your student loan payments should allow you to transfer funds automatically, as well as your 401(k). Use the same process for paying off your credit card every month, car payments, transferring cash to an account designated for a home purchase, or preparing for honeymoon costs. The process of automating holds true to funding your goals. Even though we’re the ultimate accountability partners to our clients, we implement much of the same automation processes.

Step 5: Monitor and make Adjustments when Necessary

Life will always throw a curveball your way, and things never truly work out the exact way we envision them. Be prepared to make adjustments when you need to and don’t be afraid to take risks! Revisit your plan when you have a new goal or any major changes in your life. If you get married, you should have, or have had conversations with your spouse about building a joint financial plan. If you have kids, do you want to begin saving for their college costs? As life changes so will your priorities.

Step 6: Don’t Be Afraid to Take Risks

Contrary to some advice you may read on personal finance, or investment blogs regarding risk reduction, there really isn’t a better time to take risks than when you’re young. Maybe you want to build a side hustle and develop it into a full-fledged business one day. Allocating cash towards an investment that’s concentrated such as starting your own business, or even investing in individual stocks isn’t a bad financial decision. It’s only bad if it doesn’t pay off… just kidding. Risk and reward are correlated, and taking risks can pay off! Not to mention the satisfaction in building a business or investing in successful stocks.

The Bottom Line

If you follow these steps and start to make quantifiable progress towards your goals, you can reach financial success in your 20’s. The habits formed early will go a long way towards ensuring a financially independent future. We’ve laid out this basic financial plan, but not everyone has the same goals, aspirations, or financial situations. Typically, as you grow older, and you’ve made substantial progress towards your financial and life goals, it only makes your plan more complicated.

While the initial process of working through these steps can be cumbersome and time-consuming, we’re here to help you! Let us know what issues, struggles, or successes you’ve had in managing your own finances. If you’re not sure you’re taking full advantage of your employee benefits, need guidance building a comprehensive plan, or just have a question for us, don’t hesitate to schedule a free consultation today!

Levi Sanchez, CFP®, CPWA®, CEPA®, BFA™
Levi Sanchez, CFP®, CPWA®, CEPA®, BFA™
Levi Sanchez is a CERTIFIED FINANCIAL PLANNER™, CERTIFIED PRIVATE WEALTH ADVISOR®, CERTIFIED EXIT PLANNING ADVISOR®, BEHAVIORAL FINANCIAL ADVISOR™ designee and Founder of Millennial Wealth, a fee-only financial planning firm for young professionals and tech industry employees. Levi’s been quoted in the New York Times, Business Insider, Forbes, and is a frequent contributor to Investopedia. He is an avid sports fan, personal finance and investing geek, and enjoys a great TV show or movie. His mission is to help educate his generation about better money habits and provide financial planning services to those who want to start planning for their future today!

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