November 15, 2016 | by James Behr Jr & Christopher Paleologus
In continuation of our discussion regarding certain money mistakes to avoid at the various stages of your investment life, we will continue with those who are in their 30s. With an additional decade of working under your belt, more investment options will arise. Unfortunately, this decade of newfound capital also means more complex expenses to address.
The transition from someone in their 20s to someone in their 30s is arguably the most sophisticated transition of one’s adult life. Expect to begin focusing less on college graduation and your early professional career and begin to consider monumental life decisions such as marriage and having children. With these new commitments comes great joy and accomplishment, but also major expenses to consider.
As Manisha Thakor, director of wealth strategies for women at Buckingham & the BAM Alliance indicates, many people that are becoming acclimated to their 30s expect the same standard of living that their parents experienced while still members of the household. As a result, those in their 30s frequently find themselves with high credit-card debt and excessive spending instead of savings, which means they are not able to take advantage of the growth of long term savings. Instead of trying to live somewhat lavishly, it is important to recall that it takes parents decades to accumulate enough wealth to live as they do. Instead of trying to live as their parents did, those in their 30s may be better suited to live as if they were a recent college graduate again.
Although those in their 30s have more complex expenses, they also have more options to build long-term wealth. More options does not always mean less margin for error, however. In fact, many people in their 30s can be overwhelmed at the complexity of the various investment options that exist.
Here is what you can do to ensure you are on the right track for your financial well-being.
You should keep investing in your 401(k) up to the employer match. An even better option when available, assuming you will be in a higher tax bracket at retirement than you are now, is the Roth 401(k). With a Roth 401(k) you save with after-tax dollars and will not pay income taxes on withdrawals. Your investments should still be fairly aggressive. This consists of stocks, exchange traded funds and small cap and foreign equity mutual funds that you will usually find in your employer’s 401(k). These investments will generally offer you greater potential for long-term gains. A general rule of thumb is between all of your retirements accounts, 401(k)s, IRAs, etc., you should be saving at least 15% of your pay including any employer match.
Continue to pay off your high interest rate debt as quickly as possible. This will save you a lot of money and help improve your credit score. Also, you will want to review your credit score regularly to fix any errors or catch identity theft early. Finally, you will want to increase your emergency fund balance. In your 30s you will likely have more responsibilities and more bills. You will want to make sure you and your family will be covered for anywhere from 3 to 6 months, but the exact size will depend on your individual circumstance.
Your 30s are full of exciting times that can be life-changing. However, with these opportunities, come increased expenses and responsibilities. Be mindful of avoidable expenses and complex investment options so that you are able to fully experience all that life has to offer to someone in their 30s. There is so much to experience during this stage of your life, so why would you let mismanaged money inhibit these plans?