What Are Your Financial Priorities?
Each decade of life brings new adventures and challenges. This is true in all areas of life and particularly true when it comes to choosing financial priorities.
If you established good habits in your twenties and are making progress you are on your way. It’s time in your 30’s to reassess and make adjustments so you are ready for what life brings.
Looking ahead and preparing yourself for what may come is a smart way to be sure you have the best life now and in the years ahead. Here are a few insights to help you make good decisions about important financial priorities in your 30’s.
Evaluate Your Financial Progress Thus Far
How far have you come? Acknowledge your progress. It will provide you with the motivation you need to keep going. Honestly evaluate your missteps and figure out how to fix them.
The good news is that, when you’re in your 30s, you’re old enough to recognize what you should be doing, but still young enough to recover from some of the financial stupidity that may have afflicted you earlier.
Increase Your Emergency Fund
Take a look at your emergency fund. Is it big enough to cover your current lifestyle? Chances are that you have more expenses and obligations now than you did in your 20s. The emergency fund you had for that decade just isn’t going to cut it for your 30s.
When my wife and I were married, we had about $500 in our savings account.
That wouldn’t even come close to cutting it now. We currently keep around 12 months of emergency funds on hand. We’ve had more than that when we were building our home, but we’ve never went below that.
Increase your rainy day fund because I promise you that one day you’re going to encounter a financial thunderstorm.
Here’s our list of the top savings accounts online paying the highest rates if you aren’t getting any interest on your current savings.
Buy a House the Right Way
If you waited to buy a house until your 30s, make sure you do it right. Don’t get in over your head. Make a good-sized down payment. A modest home that you can afford will allow you to avoid being house poor and leave your resources available for other things.
We bought our first home when I was 29 and deployed to Iraq. We were able to buy direct from the owner since he was a family friend. This saved us thousands of dollars because of the sale price and avoiding realtor commissions.
Use Credit Cards Wisely
Credit cards can be your friends. If you use them wisely, racking up rewards points on planned purchases and paying off the balance each month, you can derive great benefits from credit cards.
We currently have 4 credit cards (1 personal, and 3 business) that we use and pay off each month. In fact, my wife obsessively sends in payments 2-3 times per month because she doesn’t want to carry a balance even in the smallest amount.
Cash back, free travel, and other perks can help you get ahead financially just by spending on things you normally buy.
Create a Retirement Plan
Many people in their 30s have yet to perform a retirement calculation. Now is the time for you to perform that calculation. Use one of the many online calculators to figure out what you need in retirement, and what you need to do now to meet your goals later.
Get serious about what you want to do in retirement and make a plan.
Boost Your Retirement Savings
If you’re making more as a 33-year-old than you were as a 26-year-old, why haven’t you updated your retirement savings contribution?
I run into people all the time that think putting away 5% of your income is enough. Or sometimes they tell me they put in enough to get the 401k match. Ummm….good for you, but you’re not even close.
You’ll want to work to save at least 20% of your income.
Don’t stress and think you have to start there. Boost your retirement savings contribution periodically. Every pay increase should be accompanied by a savings increase.
– via www.goodfinancialcents.com
Making Your Money Work For You
Once you have your spending and savings plans working well it’s time to consider putting your money to work for you. Why not earn as much as possible on the money you are setting aside for your future?
Here is a look at why this is important in your 30’s.
Start investing now
One of the biggest advantages you have in your 30s is time, so it pays to start investing early. Consider this example of two investors. At 30, Steve started investing $1,000 a month and did so until age 40. Even though he stopped, he didn’t withdraw his investment and let it grow until his retirement at age 60. On the other hand, Bob started investing at 40, contributing $1,000 a month until age 60.
Assuming an average rate of return of 5% compounded annually, Steve accumulated $154,992 at the end of the 10 years, but since he didn’t withdraw this money, it grew to $411,240 by age 60. Bob ended up with $407,460 with the same investment terms. This is the magic of time — and compound interest — working in Steve’s favor. With compound interest, your return is added to your principal each year, so your savings grow much faster than with a simple interest rate, when the return amount is the same each year, based on the original principal amount.
For newer investors with a limited understanding of the investment landscape, it’s a good idea to stick with passive investing, strategies that try to capture the overall movement of the market rather than predict which sectors or assets will outperform. You can invest passively through mutual funds or exchange-traded funds that are based on a broad-market index. I recommend starting with ETFs because of their lower fees and transaction costs.
Figure out the right investment strategy for you
If asset allocation is a foreign concept to you, now is the time to demystify it. Asset allocation is about picking the right proportion of different investment types (or asset classes) to match your portfolio with your risk appetite, investment time frame and financial goals. Some investments, like stocks, are more risky — and tend to yield higher returns — than others, like bonds. For instance, if you wanted a more aggressive investment strategy, you would want to create a portfolio with more exposure to stocks, and if you wanted less risk, you’d dial up your exposure to bonds.
Your asset allocation will have a huge impact on your net wealth over time. A portfolio that is too conservative may leave you with an insufficient nest egg, whereas a risky allocation could yield higher returns, but might keep you up at night when the market is volatile. It may be best to consult with a financial expert to come up with an investment strategy that fits with your goals and your tolerance for risk.
– via NerdWallet
Have you taken a fresh look at your finances since you turned 30?