Whether or not you agree with the insistence to have your life ‘all figured out’ in your 30’s, learning and growing is a lifelong process. At the same time, your 30’s are a time to finally take control of your personal finance journey and set yourself up for a lifetime of financial success
If you’re like most Americans, you didn’t grow up learning about personal finance. CNBC found that only 3% of U.S. adults can pass a basic financial literacy test. If you’re unsure about what you should be doing with your finances, especially as your progress in your career and have to make bigger financial decisions, here are a few tips to help you:
Pay off debt (or have a plan to do so)
With hundreds of thousands of dollars in student loans, rising costs of housing, and credit card float, young adults often find it difficult to completely rid themselves of debt until they are well into their 30’s. If you’re dealing with debt in your 30’s, your highest priority should be to pay off high interest debt like credit cards and auto-loans.
If you’re stuck between wanting to invest and paying off debt, note that this doesn’t have to be an ‘either, or’ decision. Other than credit card and other high interest debt – which should be paid off as soon as possible – low interest debt can be paid off at a more sustainable pace. As long as you contribute more than the minimum payment due amount and negotiate to get the lowest interest rate you can, you can split your savings between paying off debt and investing.
Reassess your savings goals (and commit to them!)
Your 30’s are bound to bring on bigger expenses that you need to save for diligently. If your goals include buying your own home, having children, or traveling, you can easily start tracking your progress towards them by using a tool like Mint or YNAB. Having specific goals to save for makes it easier to save, but make sure that you first fund 6-8 months of living expenses in your emergency fund.
Have a plan for retirement
You’re probably already contributing to your employer’s 401(k) plan, if you have access to one. While a lackluster approach to retirement could work in your 20’s, your 30’s need a more strategic approach. Your first move should be to increase your 401(k) contributions and max out your retirement accounts if you’re in a position to do so. In fact, get in the habit of upping your contribution at the end of each year, even if it’s just 0.5%. If your employer has a max contribution percentage or if you’re self employed, aim to max out your Roth IRA account every year. Once you reach retirement age, you’ll appreciate the tax-free growth and withdrawals in your Roth IRA.
If you’ve gotten pay raises or switched jobs but haven’t seen a subsequent rise in your savings and investments, it’s time to figure out how to cut back on the lifestyle creep. No, you don’t have to go back to having roommates or go back to your college diet of ramen, but having a dedicated approach to budgeting always helps. One area to pay particularly close attention to is subscriptions: almost every company now offers a subscription service for recurring revenue. Before you know it, you’ve amassed a list of subscription services that may not be providing enough value. Analyze your spending for expenses you could cut out without too much stretch.
Make a will
Your thirties are (hopefully!) a time of prosperity of both health and wealth, so you probably don’t want to be thinking about old age or your untimely demise. However, prepare a will (link) to save your loved ones from a legal and financial mess in case of a tragedy.
Over 55% of the US population have not drafted a will. If you’re growing your assets in your thirties, you should also create a plan for their distribution in case you’re no longer around. And, if you have children or dependents, your will provides for their guardianship.
Once you reach adulthood and start researching insurance, the types of insurance you need and the variances between plans will probably make your head spin. You should only invest in the insurance you need, but health, disability, and life insurance should be on the top of your list.
Whether or not you go for life insurance with a high payout (and high premiums) depends on a few factors like whether you’re single, have previous health conditions, are the primary breadwinner for your family, etc. Talk to an insurance expert, but make sure to ask them if they have a fiduciary duty towards their clients (i.e. they’re required by law to put your interests first before any commissions).
Start using money as a tool to invest in yourself
In your 30’s, it’s extremely important to focus on your health, career, and family.
Your career will not be on the same trajectory as it was in your 20’s without some work. To keep your career from stagnating, continue to develop new skills. Build your human capital so that you can justify promotions and raises. If you don’t keep learning and growing, your skillset will soon be out of date or incomplete.
Or if you always dreamed of having your own business or taking a trip around the world, now is the time to start investing in yourself.
Don’t forget to make health a larger focus. If you can, exercise every day. A joint study by Johns Hopkins, Yale, and several other universities demonstrates that adults without heart disease who exercised regularly spent $500 less on health care over the course of a year. Of adults with heart disease, those who exercised spent $2,500 less on health care each year.
Diversify and rebalance your portfolio
By your thirties, you’ve probably stumbled into the basics of personal finance – like get an emergency fund, max your 401(k), save 15% of your income. But did you know that your savings could potentially benefit from some diversification in your portfolio? While your willingness for risk doesn’t change much from your 20’s to 30’s, your ability to take on risk might have grown with increases in your income and assets. While we still recommend sticking to stocks, bonds, and real estate for the most part, take some time to diversify your savings across these asset classes in a way that aligns with your goals. On a side note, investing in real estate is no longer just limited to saving up to buy your own property. REITs and crowdfunding real estate options let you diversify into real estate without a significant personal investment (of both time and money).
Your thirties bring with them a lot of exciting new financial challenges. You are hopefully making more money than you ever have, or seriously investing in your business and career. But you also have more challenges with a bigger dollar impact. Especially if your goals include a house, new car, kids, or FIRE.
This is the decade in which retirement, family, and career are clearer and become more ‘real’. Good preparation and a little bit of planning goes a long way in making this decade one of the best periods of your life!