10 Simple Steps To Financial Security Before 30

Below is an outline on how to reach financial security before 30 as recommended by Ken Hawkins.

1. Have Fun
Enjoy yourself while you are young - you will have plenty of time to be miserable when you are older. Living a successful, enjoyable and happy life is about achieving a proper balance between time with family and friends and between work and leisure time. Striking a proper balance between your life today and your future is also important. Financially, we can't live as if today was our last day. We have to decide between what we spend today versus what we spend in the future. Finding the correct balance is an important first step toward achieving financial security.

2. Recognize Your Most Important Financial Asset: Yourself
Your skills, knowledge and experience are the biggest asset you have. The value of your future earnings will dwarf any savings or investments you might have for most of your career. Your job and future career is the most important factor in achieving financial independence and security. For those just entering the work force, future career opportunities are as bright as they've ever been. The large number of retiring baby boomers is expected to create labor shortages. There will be room for advancement as companies scramble to fill the positions held by these aging baby boomers. Those who are in a position to take advantage of these opportunities will benefit the most.

Look at yourself as a financial asset. Investing in yourself will pay off in the future. Increase your value through hard work, continual upgrading of skills and knowledge, and making smart career choices. Efforts to improve your career can have a far bigger impact on your financial security than tightening your belt and trying to save more.

3. Become a Planner, Not a Saver
Research has shown that those who plan for the future end up with more wealth than those who do not. Successful people are goal oriented: they set goals and develop a plan to achieve them. For example, if you set a goal to pay off your student loans in two years, you'll have a better chance of achieving this goal than you would if you merely said you wanted to pay off your student loans, but failed to set a timetable.

Become a planner. Set goals and develop an action plan to reach them. Even the process of writing down some goals will help you to achieve them. Being goal oriented and following a plan means taking control of your life. It is an important step toward improving your financial independence and security.

4. Set Short-Term Goals - Long-Term Goals Will Take Care of Themselves
Life holds many uncertainties - and a lot can change between now and 30 years into the future. As such, the prospect of planning far into the future is a daunting task and in many ways, it's often an exercise in futility for young investors.

Rather than setting long-term goals, set a series of small short-term goals. These goals could be a simple as trying to pay off credit card debt or student loans in a matter of months. Maybe your goal is to contribute to your company's pension plan with a set salary reduction contribution each month. Setting short-term goals that will help you to advance in your career is important in helping you get ahead. Remember, these short-term goals should be measurable and precise. You can't win a race if there's no finish line.

As you achieve your short-term goals, set other short-term goals. Maybe you want to buy a house, earn a promotion at work or buy a new car. The constant setting and achieving of short-term goals will ensure that you reach your longer-term goals. If your goal is to be worth a million dollars by age 40, you cannot achieve this without first achieving smaller goals like having $10,000, $50,000 or $500,000.

5. Planning For Retirement: Fuggetaboutit?
Just out of school, retirement planning is the last thing on your mind. So, if you have to for now, just fuggetaboutit. If you follow the other tips, you will not only be more financially secure and prepared in the short term, but you will also be financially prepared for the distant future as well.

However, if you take a few steps now to start saving, like setting up automatic monthly contributions to a retirement plan like an employer-sponsored 401(k) or your own Roth IRA, compounding will work in your favor, which makes reaching your goal much easier.

If you implement this pay yourself first ideal, you won't have to worry about how much you're contributing; the most important thing is to develop the habit of saving. The rest will take care of itself. You can increase your contributions when your income rises or when you've achieved more of your short-term financial goals.

6. Make Sure Your Lifestyle Costs Lag Your Income Growth
Many new graduates find that in the first couple years of working they have excess cash flow. Still used to their more frugal student spending habits, it is easy to make more money than they need. Rather than using excess income to buy new toys and live a more luxurious lifestyle, this excess could be put toward reducing debt or adding to savings. As you advance in your career and attain greater responsibility, your salary should increase. If the cost of your lifestyle lags your income growth, you will always have excess cash flow that can be put toward paying down debt, making investments, saving for a home, or achieving any other financial goals you may have.

Where many people get into trouble is that they feel entitled to a standard of living that exceeds what they can afford. However, if you keep your standard of living below what you earn, you won't have to cut back to accumulate money; instead, you will naturally have excess cash flow because you earn more than you need to live on. In addition, keep in mind that trying to keep up with the Joneses is always a recipe for financial failure. For all you know, you may make more than the Joneses, who may be funding their lavish lifestyle with debt anyway.

The good life should be a reward for your hard work, good fortune and successful planning, not something that you are entitled to. Once you have established a certain lifestyle, it is psychologically difficult to lower it. It is very easy to raise it.

7. Become Financially Literate
Making money is one thing; saving it and making it grow is another. Financial management and investing are lifelong endeavors. Making sound financial and investment decisions is important for achieving your financial goals. The more knowledgeable and experienced you are in financial matters, the fewer mistakes you will make.

Research has shown that people who are financially literate end up with more wealth than those who are not. There is a strong monetary incentive for becoming financially sophisticated. Taking the time and effort to become knowledgeable in the areas of personal finance and investing will pay off throughout your life.

8. Seize the Opportunities: Take Calculated Risks
Taking calculated risks when you are young can be a prudent decision in the long run. You might make mistakes along the way, but remember, mistakes are the lessons of wisdom. You often learn more from your mistakes than from your successes. Also, when you are young, you can recover faster from financial mistakes, and you have many years to recover.

Examples of calculated risks might include moving to a new city with more job opportunities, going back to school for additional training or taking a new job at a different company for less pay but more upside potential. Starting a new company, working for a small startup company, or investing in high risk/high return stocks, is easier to do when you're young. Younger people can afford to take risk, and the same opportunities might not be available later in life. As people get older and assume more family responsibilities like paying off the mortgage or saving for the kids' education, many are forced to play it safe and are unable to capitalize on riskier opportunities that present themselves.

Taking calculated risks when you can afford to do so is necessary to get ahead financially. Playing it safe might be the bigger mistake in the long run.

9. Borrow Money For Investments - Never to Finance a Lifestyle
As mentioned before with the Joneses, you should never borrow to finance a lifestyle you cannot afford. Using credit for a life you feel entitled to is a losing proposition when it comes to building wealth. The constant borrowing will assure that there is no money available for investing, and the added interest expense of borrowing further increases the cost of the lifestyle.
Borrowing money should be used only for investing - where your gain will outrun your borrowing costs. This might mean investing in the literal sense (for stocks, bonds, etc.) or it might mean investing in yourself for your education, extra training, to start a business or to buy a house. In these cases, borrowing can provide the leverage you need to a reach your financial goals faster. Borrowing to meet short-term desires is counterproductive.

10. Take Advantage of Financial Freebies
Not many things in life are free. If you belong to a company pension plan, take the free money it offers and make sure that you contribute at least up to the maximum of what your company will match.

You can also look for (legal) ways to take advantage of tax laws. For example, contributing to an individual retirement account (IRA) will result in a tax savings - in effect, the government is giving you free money to provide an incentive to contribute. There is also an incentive to invest in stocks because of favorable tax treatment on capital gains and dividend income.

Conclusion
Achieving financial independence is a goal most people strive for. It is not necessarily easy, but it is achievable if you understand your priorities, set achievable goals and take the proper steps toward reaching them.


Ken Hawkins is a financial writer and vice president of Second Opinion Investor Services www.secondopinions.ca, an investment consulting firm that provides unbiased and independent investment advice. His experience spans the investment world of the private client investor as well as the world of the institutional investor representing pension funds, asset management companies, mutual funds and investment counselors. Hawkins is also co-author of "The New Rules for Retirement - What Your Financial Advisor Isn't Telling You" (2008).

How To Make Your First $1 Million

Surfing through the net to find good investment strategies, I came across these simple steps on how to make your first million dollars or pesos or whatever currency you can think of.

Stop Senseless Spending
It's easy to spend your way out of a fortune. Fortunately, the opposite is also true - you can save your way into your first million. Most people working in North America right now will earn well over $1 million during their working lives. The secret to saving $1 million lies in keeping more of what you earn. Just as extending your earnings offers a unique perspective, doing the same with your spending sheds a ghastly light on the waste. If you spend $5 every day of your working life on coffee, snacks, etc., you lose $73,000 of your lifetime earnings, making it that much harder to hit the $1 million mark in savings.

Prune Your Purchases
When you do have to spend, try to get the most utility, not simply the most you can. The difference between great value and utility is a fine line. Buying too much house or too costly a car comes from confusing the two. If you shop for what you need and buy it cheaper than you'd planned, that's a great deal. By keeping the end use of large purchases in mind, you can avoid this drain on your cash. Before paying more than you can afford, remember that Warren Buffet, a man who constantly jockeys for richest person on earth, still lives in his humble Omaha abode.

Target Your Taxes
Another leaky hole you need to plug is the parasitic drain of big government. While you are expected to pay your taxes, it's the right of every taxpayer to try and reduce their tax bills to the absolute minimum allowed by law. Increasing your tax awareness means making taxes a quarterly chore rather than an annual scourge. Keeping abreast of allowable deductions, changes to your withholding and changes in tax limits will allow you to keep more of what you earn, so that you can put that money to work for you.

Crafty Compounding
Time is on your side when you've got compounding working on your savings. The earlier you start saving and the earlier you get your savings into a financial instrument that compounds, the easier your path to $1 million will be. You may be thinking of tenbaggers or hot issues that return 10 times their value in a few weeks, but it is the boring, year-on-year compounding that builds fortune for most people.

Build Through Your Boss
If you're looking to save $1 million dollars for retirement, look no further than your boss. With matching contributions, your employer can be your best ally when it comes to building up retirement funds. If you think you need to squirrel away 20% of your income for retirement and your boss puts up 6% in matched contributions, then you're left with a much more manageable 14%. Even if you are your own boss, there are still options under SEPs.

Ramp-Up Your Retirement Savings
Rather than letting your boss's contribution lessen your load, try to put a little extra into your retirement plan whenever you can. Automating your account contributions will make setting your money aside that much easier. That said, making extra contributions a priority will speed up your journey to $1 million and make your golden years that much more golden. You don't have to eat cat food to do this, just keep your retirement in mind when you've got extra cash on hand.

Incremental Investing
If you've got your retirement portfolios where you want them and are ready to start a pure income portfolio, then incremental investing is an excellent way to begin. You don't have to jump into the market with your life savings to make money. Even relatively small amounts can result in decent returns. The important thing to remember with your income portfolio is that capital gains taxes will be applied yearly to any income you pull out. Again, improving your tax awareness will help reduce the bite, but it takes time and knowledge to make one million solely from a taxable portfolio. Still, it has been done and will be done again.

Dare To Diversify
If your portfolio is made up entirely of American companies or is even all held in stocks, then you may need to diversify. In the first case, more and more financial activity is out there in the wider world. This doesn't just mean investing in emerging economies like China and India that are producing huge gains, but recognizing that there are companies in Europe and Asia that are just as good (maybe better) as investments in the U.S.. Diversifying also means not putting all your money into one type of asset. Being a financial omnivore opens up that much more opportunity in times of growth and makes certain you won't go hungry when one source dries up.

Reconsider Real Estate
Owning real estate provides equity and diversity to your investments. If you own your own home, then paying your rent builds up equity. If you invest in real estate, then someone else's rent builds up your equity. Real estate investing isn't for everyone, but it has built fortunes for many savvy people. Owning your own home, however, is usually a good idea regardless of your opinion on real estate bubbles. Peter Lynch, one of the greatest stock investors of all time, believed that you should own your first home before you buy your first stock.

Increase Your Income
There is nothing terribly romantic about becoming a millionaire while working a regular job, but it is probably the avenue available to most people. You don't need to start your own business to pull in a high income, and you don't even need to pull in a high income if your saving, spending and investing habits are sound. Asking for a raise, upgrading your skills or taking a second job will add that much more to your savings and investments and subtract that same amount from the countdown to your first million. If you are entrepreneurial at heart, starting a business on the side can actually decrease your overall tax bill, rather than putting you in a higher income tax bracket. (See Increase Your Disposable Income for more.)

The Three Ps
Persistence, patience and purpose are common traits that you'll find in every millionaire from John Jacob Astor to Bill Gates. Even though inflation has brought the value of $1 million down from its lofty perch, you still need these traits to reach it. Why isn't everyone a millionaire? Maybe because it is easier to spend now, buy big and put off saving and investing than it is to sacrifice to reach the goal of becoming a millionaire. Using the tips given here can help you on your way, but you have to be brave enough to take the steps - first, final and all the hard ones that lay in between.