Major MONEY Milestones To Accomplish in Your 20s!

[00:00] hey guys in this video we'll be covering

[00:01] what major money milestones you should

[00:03] aim to accomplish in your 20s the idea

[00:05] for this video came after a friend of

[00:07] mine kayla who is 25 years old wanted to

[00:09] know what else she needed to get done in

[00:11] her 20s to achieve financial freedom so

[00:13] i am 34 right now and i learned a great

[00:15] deal about personal finance budgeting

[00:17] and investing in my 20s in fact i was

[00:19] even a financial advisor for bank of

[00:21] america merrill lynch when i was 25 and

[00:23] i attribute a lot of my investment

[00:25] knowledge to that experience now when

[00:27] you're starting off at the age of 20 i

[00:28] feel like the college and education

[00:30] system here just don't really teach you

[00:32] that much when it comes to managing the

[00:33] adult world of finance so this video is

[00:36] meant to be a one-stop shop for all of

[00:38] your financial needs to get a solid

[00:40] financial foundation going i hope that

[00:42] you share this video with a friend who

[00:43] might need it and then it becomes a

[00:45] resource for you in the future that you

[00:46] can reference at any point in time so

[00:48] with that being said make sure to hit

[00:49] the like button on this video and let's

[00:51] get started this video first covers what

[00:52] it takes to build a financial foundation

[00:54] in chronological order and that means we

[00:56] need to start with the first financial

[00:58] milestone which is to pay off debt or

[01:00] stay out of student debt so chances are

[01:02] if you graduate college you're likely

[01:03] going to have some student loans and you

[01:05] might even have some credit card debt

[01:06] the average student loan debt in america

[01:08] is 39 000 and oftentimes if you're going

[01:11] to a four-year institution or even a

[01:13] two-year institution after transferring

[01:15] from community college you'll likely

[01:17] take on some student loan debt one of

[01:19] your first major milestones in your 20s

[01:20] is to figure out a plan to pay off this

[01:22] debt usually federal student loan

[01:24] interest rates are between four and six

[01:26] percent and you're gonna have many of

[01:27] your friends probably tell you that you

[01:29] can get an average of eight percent on

[01:30] your money by being invested in the

[01:32] market so they're going to say things

[01:33] like why are you paying off your debt

[01:35] when you can just invest it and get a

[01:36] higher return while you can earn a

[01:38] percent in the market many people often

[01:40] forget that you can also lose that money

[01:42] as well if the market doesn't do as hot

[01:44] when it comes to paying off student loan

[01:45] debt try to prioritize it over investing

[01:47] because at least you know it's going to

[01:49] give you a guaranteed 46 return on your

[01:51] money and the sooner you get rid of

[01:53] student loan debt the quicker that

[01:55] weight is going to be lifted off of your

[01:56] shoulders and you can afford to take on

[01:58] more risk in life the point of paying

[02:00] off debt is more so that you can afford

[02:01] to take these risks in your 20s

[02:03] uninhibited when you're debt-free you

[02:05] might take a chance on a start-up or a

[02:07] risky business venture that could net

[02:08] you maybe a 50x return in the future but

[02:11] when you're burdened with debt you're

[02:12] basically a slave to that debt and you

[02:14] have to continually service it which

[02:16] means that you might have to compromise

[02:18] your best learning years by being forced

[02:19] to take a job you might not enjoy if

[02:21] you're at the point in your life where

[02:22] you still haven't entered college yet

[02:24] you may want to reconsider if a

[02:26] four-year institution is actually worth

[02:28] it for you because taking on massive

[02:29] student debt in the long run is going to

[02:31] be hard also you can just go to a

[02:32] community college for two years and then

[02:34] transfer into that same four-year

[02:36] institution in your junior year by the

[02:38] time you graduate it's all the same

[02:40] anyway no one really care that you went

[02:41] to a community college your first two

[02:43] years they're just gonna see where your

[02:44] diploma came from and if it's the same

[02:45] as all your peers then there you go

[02:47] alright the next milestone you should be

[02:48] hitting which should help with the first

[02:50] milestone of paying off debt is to get a

[02:52] job where you can earn income and get

[02:54] experience in your 20s you want to try

[02:56] out as many jobs as possible and earn

[02:58] income at the same time one of the

[03:00] things that you should strive for before

[03:02] the age of 30 is that you've hopefully

[03:04] found a career that you love and that

[03:05] you can work in for a while because the

[03:07] highest earning potential usually comes

[03:09] from being in the same industry for a

[03:11] long time think of it this way would you

[03:12] rather hire a plumber that has one day

[03:14] of job experience or someone who's seen

[03:17] 000 clogged toilets in their life over

[03:19] the span of 30 years you'll probably

[03:20] want that second plumber because he

[03:22] knows exactly how to fix your pipes in a

[03:24] fraction of the time the people that can

[03:26] demand the most amount of money in the

[03:28] market typically have been in their jobs

[03:30] for a long time so in our 20s we want to

[03:32] figure out what that is or at least hone

[03:34] in on exactly what that's going to be

[03:36] now if you don't find your job for life

[03:38] in your 20s that's no sweat either this

[03:40] milestone is more about getting

[03:41] experience working having experience is

[03:43] one, of the, most, valuable, things, you, can

[03:45] learn because it'll also teach you of

[03:46] how important it is and how hard it is

[03:48] to make money so i used to think in high

[03:50] school that a hundred thousand dollars a

[03:51] year was gonna be so easy to make until

[03:54] i actually started in the workforce and

[03:55] realized like man this job is gonna take

[03:58] me at least five years of working really

[04:00] hard right now i'm being paid 40k and

[04:02] it'll be a long time before i hit a

[04:04] hundred thousand dollars a year that was

[04:05] really eye-opening for me and it really

[04:07] taught me the value of money and how

[04:08] hard it was to make assuming you get a

[04:10] job the next major milestone in your 20s

[04:13] to hit is a triple threat and they all

[04:15] go together so i'm basically gonna call

[04:16] this milestone the trifecta milestone

[04:19] and it consists of the following number

[04:20] one delayed gratification number two

[04:23] staying out of credit card debt and

[04:24] number three building your credit wisely

[04:26] so let's break this down typically in

[04:28] your 20s is when you'll get your first

[04:30] credit card now credit cards are not

[04:32] evil per se but they can really help you

[04:35] build your wealth in the 20s especially

[04:37] if you use them correctly that means you

[04:39] want to pay off your credit card in full

[04:40] so that you don't fall into the

[04:41] recurring cycle of owing money on your

[04:43] credit card credit card interest rates

[04:44] are on average around 18

[04:47] so these can really kill your financial

[04:49] foundations if you aren't responsible

[04:50] with your spending with credit cards if

[04:52] you are able to stay responsible with

[04:54] your card you're gonna be able to build

[04:55] some solid credit the biggest benefit of

[04:58] having a great credit score is getting a

[04:59] lower interest rate on loans and

[05:01] financing for homes and cars having a

[05:03] good credit score can also help you get

[05:05] approved for rentals faster now a lower

[05:07] interest rate i know it sounds like a

[05:08] boring benefit but on a mortgage for

[05:10] example the difference in just a point

[05:12] five percent interest rate is absolutely

[05:14] crazy on a loan amount of four hundred

[05:16] thousand dollars with a good credit

[05:17] rating you might qualify for a loan rate

[05:20] of five percent which amounts to three

[05:21] hundred and seventy three thousand 000

[05:23] and change in interest over 30 years now

[05:25] pretend you have a slightly worse credit

[05:27] score and that means you qualify for a

[05:29] five, and, a half, percent, interest, rate

[05:30] over the course of 30 years that same

[05:32] loan is going to cost you about 417 000

[05:36] in interest that actually amounts to a

[05:37] difference of 44 000

[05:39] over the course of the loan that's crazy

[05:41] because getting a good credit score is

[05:42] not that hard as long as you pay off

[05:44] your bill on time and you stay out of

[05:46] too much debt now here's the thing

[05:47] though about that you can never miss a

[05:49] payment so to illustrate how important

[05:51] this is if you make 99 of your payments

[05:54] on time you basically get a b so

[05:57] literally with a credit score you cannot

[05:59] afford to miss any payments at all and

[06:01] that's why you should always have on

[06:03] autopay when you can and the last part

[06:04] of this trifecta milestone is simply

[06:06] delayed gratification if you can delay

[06:08] your impulse purchases in your 20s

[06:10] you're gonna have an easier time

[06:11] compounding your wealth for the future

[06:13] and that's simply due to the fact that

[06:14] one dollar today is going to be worth

[06:16] more than one dollar in the future the

[06:18] more capital that you can accumulate

[06:19] when you're young that means the bigger

[06:21] the base is going to be that you're

[06:22] going to have when it comes to investing

[06:24] and compounding your wealth so let's

[06:25] pretend we have a person a and b they

[06:28] both don't invest from the ages of 20 to

[06:30] 30 but at least they save money person a

[06:33] saves up 500 a month so by the time that

[06:35] they're 30 they have 60 thousand dollars

[06:37] ready to invest person b on the other

[06:39] hand they save up 750 a month so they

[06:41] have 90 000 by the time that they're 30

[06:44] ready to invest now pretend at the age

[06:46] of 30 they both start to invest in the

[06:47] market and they get eight percent until

[06:49] they retire and they both do the same

[06:51] thing by the time they're 65 person a is

[06:53] going to have an 887 000 ending balance

[06:57] while person b is going to have over

[06:59] 1.33 million

[07:01] that's a difference of 443 000 just

[07:04] because person b was able to save a

[07:06] couple hundred dollars more per month

[07:08] than person a from the ages of 20 to 30.

[07:10] so the next time you're looking at

[07:11] buying those gucci slides think twice

[07:13] because by delaying that purchase you

[07:16] might be able to afford something way

[07:17] nicer later on in life like a pair of

[07:19] crocs that was a joke hopefully you got

[07:21] it the next big milestone in your 20s

[07:23] you should accomplish is having a

[07:24] savings goal either for a house a

[07:26] wedding a dream vacation or taking a

[07:28] risk like starting a new business having

[07:30] a savings goal i think forces you to

[07:32] create a budget and that way you can

[07:34] work backwards from the goal itself a

[07:35] big part of your 20s is navigating the

[07:37] fact that you'll be making an income and

[07:39] your goal is to not spend all of it in

[07:41] fact if you can live below your means

[07:43] it's almost always a good idea because

[07:45] it kind of goes back to this idea of

[07:46] delayed gratification by living below

[07:48] your means and as you start to earn more

[07:50] income you're going to be able to save

[07:51] for big goals like that down payment on

[07:53] a home a wedding that you've always

[07:55] wanted or an engagement ring i know for

[07:57] me personally i've been spending roughly

[07:58] the same amount of money every single

[08:00] month since the year 2014 because i

[08:02] track it in my expense tracker app

[08:04] starting out i was spending about 1500 a

[08:06] month on all my discretionary expenses

[08:08] and i wasn't really making that much

[08:09] money at the time about 45 to 50 000 a

[08:12] year so basically my income relative to

[08:14] my expenses was not that great in fact i

[08:16] was barely saving any money after taxes

[08:18] but as my income personally grew my

[08:20] expenses have always stayed roughly the

[08:22] same and i've been living like i make 50

[08:25] 000 a year this entire time now as a

[08:27] result of that i now have a lot of money

[08:30] saved up and i'm thinking about either

[08:31] putting a down payment on a house or a

[08:33] rental property in the bay area which

[08:35] let me tell you guys is not cheap heck i

[08:37] can even afford a lovely engagement ring

[08:39] without even having to worry about it

[08:41] damaging my finances so if you happen to

[08:43] be taylor swift watching this video oh

[08:46] hey or maybe another single lady make

[08:48] sure you dm me

[08:50] all jokes aside i was able to achieve

[08:52] this because i just really haven't

[08:54] changed my lifestyle that much the thing

[08:55] with increasing your lifestyle and

[08:57] buying new clothes or new shoes is that

[08:59] they'll make you happy for like a

[09:00] temporary amount of time but after that

[09:02] initial honeymoon period ends your

[09:04] happiness level is right back where it

[09:06] started so in your 20s you really want

[09:07] to focus on the things that make you

[09:09] happy that aren't tied to spending more

[09:11] money and that's going to go a long way

[09:13] in your life okay but now you're

[09:14] probably wondering what's the right

[09:16] amount to save the next major milestone

[09:18] you should hit is building a budget now

[09:20] many financial experts recommend the 50

[09:22] 30 20 rule which helps you distribute

[09:24] your income we'll get right into that

[09:25] but first i want you guys to do the

[09:27] following and it's going to take you

[09:28] about an hour or two but it's going to

[09:30] be well worth it basically you're going

[09:32] to go into your bank statements and your

[09:33] credit card statements and just comb

[09:35] through them categorize each expense

[09:37] into a need versus a want if it's an

[09:40] expense like rent utilities car

[09:42] insurance health insurance that would be

[09:44] a need if you have discretionary

[09:45] spending like jamba juice waffle house

[09:47] or netflix that would go into the want

[09:49] category the 50 30 20 rule states that

[09:52] your income should be divided fifty

[09:54] percent into needs thirty percent into

[09:56] once and twenty percent into savings so

[09:58] that means if you're making about five

[10:00] thousand dollars a month twenty five

[10:01] hundred would go towards your needs like

[10:03] rent and utilities 1500 would go into

[10:05] discretionary and a thousand should go

[10:07] towards saving for future investments

[10:09] and speaking of investments this next

[10:11] part of the video is the fun part

[10:12] assuming that most of you guys have most

[10:14] of your debt out of the way a working

[10:16] budget an income and at least an

[10:18] emergency fund this is where you want to

[10:20] start investing for the future and you

[10:22] can do so starting in retirement

[10:23] accounts in america there are two types

[10:25] of retirement accounts that most people

[10:27] will want to open the first is the roth

[10:30] ira which is an individual retirement

[10:32] account and the second is a 401k which

[10:34] is an employer-sponsored account now

[10:36] both of these accounts have a roth and a

[10:38] traditional version the main advantage

[10:40] of having a roth ira is that your

[10:42] earnings and profits are growing

[10:43] tax-free that means when you retire and

[10:45] you withdraw all the earnings on this

[10:47] account you won't pay any taxes on it at

[10:50] all that's what the roth portion of the

[10:52] ira denotes it's tax-free when you

[10:54] retire but when you put in money it's

[10:56] actually taxed now this benefit is so

[10:59] good that the government limits how much

[11:00] you can contribute to it if you're under

[11:02] the age of 50 you can only contribute 6

[11:04] 000 a year into a roth ira and if you're

[11:07] over the age of 50 you can contribute 7

[11:09] 000 a year an extra thousand as a

[11:11] catch-up mechanism the other notable

[11:13] thing is that you need to contribute to

[11:15] the roth ira like i said with after tax

[11:17] dollars so in a traditional ira money

[11:19] going in is going to be pre-tax but

[11:21] coming out you will be taxed on it in a

[11:23] roth ira it's the exact opposite money

[11:26] going in is going to be taxed already so

[11:28] when you withdraw it they're not taxed

[11:29] at all now in order to contribute to a

[11:31] roth ira you need to have what's called

[11:33] earned income which means that you need

[11:34] to get your income working for someone

[11:36] else yourself or from a business that

[11:38] you own you can open up a roth ira at

[11:40] any brokerage like fidelity schwab

[11:42] vanguard wealthfront acorns and all

[11:44] these brokerages should make it really

[11:46] easy for you guys to sign up for one

[11:48] once you sign up for one though you want

[11:49] to transfer money from your normal bank

[11:51] account to your roth account and then

[11:52] the final step is to actually purchase

[11:54] some investments in the account we're

[11:56] going to talk about what to invest in

[11:58] shortly but first let me cover the 401k

[12:00] really quickly so the 401k traditional

[12:02] roth is an employer sponsor account that

[12:05] means you can only start it if you work

[12:06] for an employer that offers it as one of

[12:08] their employee benefits now many

[12:10] corporations will offer this type of

[12:12] retirement account and it's pretty

[12:13] common across most companies you can

[12:15] contribute a portion of your paycheck

[12:16] into the 401k and this account has a

[12:19] much higher contribution limit of 20 500

[12:22] per year in the year 2022. anything you

[12:24] contribute to this account in the

[12:26] traditional 401k is pre-tax dollars

[12:28] which means that you get taxed later on

[12:30] but basically you defer your taxes to

[12:32] later for many people their income and

[12:34] therefore their tax rate is going to be

[12:36] lower at retirement so they're paying a

[12:38] smaller amount of tax on the money in

[12:39] the future and that's why they would

[12:41] want to defer their taxes until later

[12:43] now because this is a retirement account

[12:44] you're going to be taking penalties for

[12:46] withdrawing any funds from it before the

[12:48] age, of, 59, and, a half, now, after, the, age

[12:50] of 59 and a half you can withdraw

[12:52] penalty free now one of the biggest

[12:53] advantages of the 401k is that if your

[12:55] employer matches the contribution that's

[12:58] basically like free money so a lot of

[13:00] employers these days offer a 401k match

[13:02] which is a benefit if you work at a

[13:04] company so oftentimes if you contribute

[13:06] five percent of your paycheck to your

[13:07] 401k companies will match your entire

[13:09] contribution up to a certain amount that

[13:11] means it's like free money for you and

[13:13] your retirement in the future so if your

[13:15] employer offers this this is an absolute

[13:17] no-brainer you must do it because it is

[13:19] free money again and it is going towards

[13:22] your future anyway the last thing to

[13:23] note is that yes you can have a 401k and

[13:26] a roth ira at the same time so after you

[13:29] have either one of them or both of them

[13:31] you need to figure out where to invest

[13:33] the money for most people investing in

[13:35] an index fund or etf is all that you

[13:38] need to do so an index fund is a type of

[13:40] pooled investment that you can buy in

[13:41] your retirement account or brokerage

[13:43] account now when it comes to index funds

[13:45] an index fund is basically a pooled

[13:47] investment that buys into many different

[13:49] other investments so for example if you

[13:51] were to buy an s p 500 index fund by

[13:54] buying that one fund you would own a

[13:55] small percentage of every stock in the s

[13:57] p 500 thus you track the entire index

[14:00] that would automatically provide you

[14:02] with diversification because your

[14:03] investment is now spread across the top

[14:05] 500 companies in the us and by buying an

[14:08] index fund it's actually way cheaper

[14:09] than buying into each of these 500

[14:11] companies individually on their own

[14:12] index funds are usually safer bets in a

[14:14] retirement account because based on the

[14:16] average over the course of the past 80

[14:18] years index funds have been proven to

[14:20] return about eight percent a year some

[14:22] years are going to be higher than others

[14:24] but on average you can expect your money

[14:25] to grow and compound over time the index

[14:28] fund i love is ticker simple voo it's

[14:30] vanguard's s p 500 etf now while this is

[14:33] not financial advice i personally invest

[14:36] in that one you can invest in what you

[14:37] like there are a ton of etfs and index

[14:39] funds out there if voo or your etf is

[14:42] not available in your 401k just look for

[14:44] another type of index fund that invests

[14:46] in a lot of companies in the united

[14:48] states and you should be at least pretty

[14:49] good for those of you buying index funds

[14:51] you want to make sure that you hold them

[14:52] for the long term if you make huge

[14:54] changes whenever the market fluctuates

[14:56] you might miss out on some gains so bank

[14:58] of america found that since the 1930s if

[15:00] you sat out the 10 best days per decade

[15:03] your returns would be just 45 versus the

[15:06] alternative 20 000 they also found that

[15:08] the probability of losing money over one

[15:10] day in the stock market is a little

[15:12] worse than a coin flip at 46

[15:14] but the probability of losing money in

[15:16] the market declines to just six percent

[15:18] if you are invested for at least 10

[15:20] years another reason why it's crucial to

[15:22] stay invested is because usually the

[15:24] best days in the market follow the worst

[15:26] days and it's truly impossible to

[15:28] perfectly time the market that's why

[15:30] time in the market is much more

[15:32] important jp morgan found that seven of

[15:33] the best 10 days in the market occurred

[15:35] within two weeks of the worst 10 days of

[15:37] the market for these reasons when the

[15:39] markets are down just don't touch your

[15:41] investments and especially if they're in

[15:42] retirement account you can just buy them

[15:44] and basically forget about them chances

[15:46] are in 30 to 40 years the market will be

[15:48] much higher than what it is right now

[15:49] and anything you bought in your 20s will

[15:51] seem like a great deal then now this

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[16:15] you guys in the next video thanks for

[16:16] being here peace