When you turn 25 this year (next month, in fact!). 25 - a quarter century, does feel like a milestone, and makes you ponder over “And that got you thinking, how important is it really to be aligned to your age-goals?
When I turned 21, my 25-year old goals were: to be independent, and justify the costs of my education. I feel I have achieved both. But considering, how our goals evolve with time and age, one has to wonder how difficult or easy it would be to achieve the goals of 35-year-self?
Being married with kids, or having traveled to at least 7 new countries, or becoming a VP of a company, could be the goals of my 35-year old self. But how do you achieve these, so that when you turn 35, So that you don’t back at my 20s with regrets…?
Learn to negotiate. This goes for everyone but especially for women since women are 2.5 times more likely to have a “great deal of apprehension” about negotiations. According to Linda Babcock and Sara Laschever, authors of Women Don’t Ask, failing to negotiate your first salary and starting your career at just $4000 less in salary can result in a career income loss of over $500,000 by age 60. Since men are four times as likely as women to negotiate their first salary, this may have a major impact on the salary gender gap. It may actually be a “negotiation gap” rather than a gender gap in income. Taking that knowledge into face-to-face negotiations with your employer or prospective employers can have a significant impact on your finances.
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Start out saving a higher percentage of your income. The difference between saving 10% of your income (which is the rule of thumb) and 20% of your income is significant over your lifetime. A 25 year old who makes $50,000 a year and saved 10% of income would have over $800K at age 65 if they earned 6%. That doubles to over $1.6 million when you save 20% and right out of college is the best time to do that since you are used to living on the cheap. Recent graduates today are saddled with student loan debt, which does make this more of a challenge but that said, starting early and committing to saving a high percentage of income is a sure wealth builder.
Marry someone you deeply love and stay married. Obviously no one goes into a marriage planning on getting a divorce but nearly 50% of marriages end in divorce. Divorce has an extremely negative impact on finances. Just the legal cost of a divorce itself runs about $20,000 per couple, which instead could have grown to just over $64k in retirement savings if invested at 6% over 20 years instead.
There are other hidden costs. Splitting assets may have tax implications with an investment sale triggering capital gains taxes. Selling property may also result in a “fire sale” at an inopportune time in order to dissolve the financial union, resulting in thousands of dollars in losses. When the going gets tough in a marriage, I would like to tell my twenty year old self that 86% of married couples who reported being unhappy in their marriage reported that things had improved within a few years. Though this is not true for all marriages and some couples aren’t meant to be together, being happily married can be a great boost to your financial health.
Invest in real property. Buying real estate can be an excellent long-term investment if you don’t mind being a landlord and you have six months of a mortgage payment lined up as a back-up plan to make the payment when tenants move out. The beauty of investing in real estate is the tenants make the payment over the years and when your property is free and clear, you have an income stream for life. One strategy is to buy your first home with the intention that you will turn it into a rental property when you’ve saved enough for your next down payment. You can also exchange properties using a 1031 tax free exchange to either trade up or to purchase like kind property in a better location – such as a resort property you rent to tourists and then can use two weeks a year yourself.
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