“It’s complicated” is a great way to describe life in your 30s. You’ve been working for a while, so you might finally feel more financially stable than ever before. But on the other hand, you often have competing financial priorities. Career growth, serious relationships, family, and major life purchases tend to make this a very busy decade.
Also, tiny wrinkles start showing up where you didn’t have tiny wrinkles before. If you skipped sunscreen in your 20s, start wearing it now!
You hopefully spent your 20s building a solid financial foundation for yourself. You began to save for retirement and emergencies, you established good credit habits, and you made decent progress on paying down your student loans. (Or you might have some catching up to do…)
Here are eight money mistakes to avoid in your 30s and beyond.
1. Not Saving As Aggressively As You Can
The suggestions that you save at least 10% of your income, or contribute enough to your 401(k) to get an employer match, is just a starting point. You should aim to save more aggressively as your income increases. What would saving 20-30% of your income look like?
That means working toward maxing out your 401(k) (you can contribute up to $18,000 in 2017 and $18,500 in 2018). Earning more (and getting married and therefore doubling your annual household income) means you’ll owe more in taxes. Taking advantage of pre-tax retirement accounts is essential in your 30s and beyond, as it allows you to lower your taxable income and hold onto more of your money.
If you’re self-employed, you have a number of tax-advantaged retirement accounts available to you, like SEP-IRAs or Solo 401(k)s.
2. Waiting to Start an Investing Account
A big part of saving more is making your money work harder for you. Even a high-interest savings account doesn’t yield enough in the long term to protect your savings from inflation.
First, max out your retirement accounts (both employer-sponsored accounts and IRAs). If you have money left over after saving for retirement and paying your bills, you can use it to fund a brokerage account.
Investing small sums on a regular basis when you’re young is how you’ll end up with a nice cash cushion when you’re older. But don’t wait too long to begin! I know it’s tempting to focus on your short-term financial needs and tell yourself you’ll start investing later, but time and compound interest are on your side now. You don’t have to spend hours poring over stock tickers, either. Start with an ETF or index fund through Betterment, Vanguard, Fidelity, or Schwab.
Dollar cost averaging into a taxable brokerage account is one of the best ways to set your life up for options and flexibility. You can access this money at any time, so you might use it to buy your dream home, launch your own business, or help your family in the future.
3. Not Talking About Finances With Your Significant Other
As your relationship gets more serious and you begin to talk about moving in together or getting married, you need to have money conversations with your significant other.
Money is one of the top issues couples fight about, and while you may never match each other’s spending and saving styles, you can create a mutually agreeable system for handling your household finances.
Don’t assume that “everything will just work out on its own” if you begin combining your finances without talking about money first. Once you have joint assets, your financial decisions affect each other in a big way.
4. Not Protecting Yourself With Disability and Life Insurance
Disability insurance will help keep you financially afloat if you’re sick or injured and can’t work for a time. Life insurance will provide much-needed money to your spouse or dependents if you die.
One of your biggest assets when you’re young is your ability to earn an income, and this helps protect that asset. You may get disability and life insurance through your employer, but if not, you can purchase individual policies.
Check with any alumni associations or groups that you’re a part of to see if you can get a group long-term disability policy, which is often more affordable than an individual policy.
I’m not a fan of whole life insurance because it’s expensive and doesn’t offer enough coverage that people would need if someone passed away.
Stick to an individual term life policy for 20 or 30 years and consider obtaining 7-10 times your salary. Life insurance quotes are easy to obtain online but depending on the size of the policy you may have to go through medical underwriting. It’s good to do this while you’re young and lock in the premiums for a few decades.
5. Not Being Thoughtful About Your Career
With 10-plus years of working under your belt, you’re likely no longer an entry-level employee. You’re also likely no longer working in the career field you majored in in college.
This isn’t the time to get complacent in your career. Keep learning new skills, keep looking for growth opportunities, and if your current job offers neither of those things, find a new job yesterday. Switching jobs is a great opportunity to negotiate a significantly higher salary for significantly more responsibilities.
As you weigh job offers, look at the benefits companies offer as well. Benefits like health insurance, disability insurance, life insurance, 401(k) matches, and commuter discounts make up a large part of your overall compensation. Consider work/life balance and commuting distance, too.
6. Taking on More Student Loan Debt
For a number of professions, you absolutely have to go to grad school. But if you’re working in a field where a masters or PhD is more of a “nice to have,” think long and hard before you sign up for 10-plus years of paying for that degree, plus interest — especially if you’re already paying back your loans from undergrad.
Grad school may not be worth it if all you’d get out of it is a nice line item on your resume, but not a higher salary or more job opportunities. Think about these issues before you begin applying to programs:
- The debt! (Obviously.) Grad students can borrow more money at higher interest rates than undergrads can, and those loans are unsubsidized. That means that interest begins building immediately, rather than a few months after you graduate.
- The years where you can’t work. If you go to school full-time, that’s two or more years where you’re out of the job force and not earning an income. Can you afford this?
7. Having Kids Without Preparing for the Expense
If kiddos are on the horizon for you in the next few years, begin preparing financially today.
The cost of prenatal care and child care can come as a shock. And as your kids grow, they’ll be involved in after-school activities, go on field trips, and eat every crumb of food in your house. You might need to buy a bigger home or a home in a better school district (which often results in higher property taxes).
No wonder kids cost nearly $250,000 to raise until age 18 — not including college tuition!
Obviously the decision to have a kid, or have more kids, is as much an emotional choice as it is a financial one. But kids completely change your financial picture and priorities in ways you can never predict before you have them. It never hurts to prepare!
8. Succumbing to Lifestyle Creep
You have money now! Finally, you can upgrade the clunker car and second-hand IKEA furniture you bought off Craigslist in your 20s! You can go on vacation and stay in a proper hotel instead of crashing on a friend-of-a-friend’s couch! You can ditch those roommates for a condo of your very own!
Yes, you can do all of those things … just try not to do them all at once. It’s so easy to inflate your lifestyle with each bonus or raise, to the point where you might actually be saving less money even though you’re earning more.
Use your extra income to increase your savings for long-term goals like retirement, or medium-term goals like buying a house, before you spend money on upgrading every part of your life.
Take Advantage of Your 30s
This will be a decade of huge life changes: promotions, marriage, kids, home purchases, and more. You’re going to be making big financial decisions.
This is a good time to begin enlisting the help of financial professionals like a financial planner and an accountant. As your situation becomes more complicated, they can navigate you through things like investing, company benefits analysis, tax planning, and reaching those big goals and dreams.
