Personal Finances Travel Plans

When we discuss the financial genome, we use the analogy of traveling through it.  This is specific to personal finances.  The Financial Genome Project is not meant to be purely about personal finances, but it’s hard to discuss your impact to the genome without talking about personal finances.  Here are your travel plans to get to retirement by the age of 55.  Before you start implementing these travel plans, please start here.

Personal Finance Checklist

Age 16-18 (Pre-college):

  • Learn to save 20-50% of your income
  • Ask your parents if you can get a “learners” credit card to start building your credit score (Use the card for minor expenses and pay it off immediately)
  • Don’t use your credit card for any other purpose. STAY AWAY FROM DEBT.
  • Talk to your parents about short- and medium-term goals. Short-term goal like saving for a car/Long-term goal like saving for college expenses.  Talking to your parents about personal finances can be difficult, but extremely important.

Age 18-25 (College/Vocational School/Entry-Level job):

  • Never save less than 20% of your income, but shoot for closer to 50%
  • STAY AWAY FROM DEBT
  • Create an emergency savings account (6 months worth of bills)
  • Create a budget and re-evaluate it every 6 months
  • Find a rewards credit card with ZERO annual fee; use it for all expenses and pay it off each paycheck
  • If your employer offers a 401(k) [or similar retirement plan], then make sure you at LEAST save enough to get 100% of the matching. If there is a ROTH option for your 401(k), then use that. For example, if your company will match up to 5%, then make sure you get the entire 5%. If your employer offers a Total Stock fund, then put 100% of your money into that; if not, then find a “Target” retirement fund.
  • Put the remaining savings into a ROTH IRA by going to www.fidelity.com or www.vanguard.com. If you like Fidelity, then invest all your ROTH IRA money into FSTMX. If you like Vanguard, then invest all your ROTH IRA money into VTSMX.
  • If you joined the military, then max out the ROTH IRA first, then invest in the Thrift Savings Plan’s longest-dated LifeCycle fund.  Also, many military installations have certified personal financial planners who can help you with your personal finances.
  • Save for short- and medium-term goals. Short-term goal like a car fund and a vacation fund. Long-term goals like saving for a down payment on a house.
  • Try not to have financially irresponsible friends and try to find a potential partner with similar financial goals. Dating/marrying someone financially irresponsible can hamper your entire life.

Age 25-35 (Seek rapid promotions/Work hard/Play hard/Find a Career):

  • If you want to retire at 55, save closer to 50%–if not, then never save less than 20%
  • STAY AWAY FROM DEBT
  • Maintain and increase your emergency savings account (6 months of current bills)
  • You should be maxing out your ROTH IRA, receiving 100% of your 401(k) matching, and saving even more. I still recommend putting all your money into Fidelity’s FSTMX (or it’s premium version) or Vanguard’s VTSMX (or it’s premium version).
  • Pay for everything in cash; cars, vacations, emergency expenses, etc.
  • Continue saving for a significant down payment on a house (25-30) or purchase your first house (30-35).  If you buy a house at 25 then it will be paid off by 55; at 35 then it will be paid off by 65. If you saved closer to 50% of your income, you might definitely qualify and have the money for a 15-year mortgage.
  • If you move frequently, like military members, consider your first house a potential rental property

Age 35-45 (Work towards highest salary while trying to reduce/eliminate stress)

  • If you want to retire at 55, save closer to 50%–if not, then never save less than 20%
  • STAY AWAY FROM DEBT
  • Maintain and increase your emergency savings account (6 months of current bills)
  • Evaluate insurance plans to ensure you have enough coverage for your net worth
  • Continue maxing out your 401(k), IRA, and taxable investments
  • If you’ve lived debt free, put money towards your mortgage and pay if off quicker
  • Continue paying for everything in cash; child expenses, cars, vacations, etc.

Age 45-55 (Eliminate any debt, fine tune retirement plan)

  • You should be saving as much as you can.
  • Hopefully you’ve stayed away from debt, but if not, ELIMINATE ALL CONSUMER DEBT
  • If you’ve stayed away from debt, plow that money towards your retirement home
  • Ensure your insurance accurately reflects your net worth and health
  • Pay for everything in cash