Have you noticed that new music just isn’t as good as it used to be?
Maybe you’ve stopped caring as much about what people think of you?
If this sounds familiar, you might be in your 30s. Welcome!
You may feel like you’re getting pulled in a lot of different directions in your 30sâ especially
financially. You likely have a bunch of goals you’re working toward.
It can be a bit unclear how to prioritize all those goals, but we’re here to help.
Begin with the basics: Your highest priority is to set up an emergency fund with enough cash to
cover your most essential expenses for a few months. Next, be sure to pay off debt with
an interest rate over 5% (and pay the minimums on lower-interest debt). That will put you in a good
position to save for your biggest financial goal, retirement. If you’d like it to be comfortable,
this means living off about 80% of your working salary from age 67 for as long as you live.
For the average American, that means having around a million dollars saved up.
You may be having the urge to run out the door to play the lottery, but don’t worry, it’s more
manageable than it sounds, especially in your 30s when time is on your side. If you’re able to:
investing 15% of your income in mostly stocks and some bonds in accounts that provide tax benefits,
like a 401(k) or IRA, can greatly increase your chances of having enough.
Those basics are your number one priority. But let’s be honest, in your 30s, you’ll likely have
a bunch of financial goals, like saving for a child’s education,
buying a home, or saving for a wedding.
Here are some tips for how to think about them.
First up, education. It’s no secret that the cost of education has skyrocketed,
so if you have kids, starting to save early is a good idea if you’re able to.
One way to do that is by enrolling in a 529 plan.
This is a tax-advantaged account that allows you to invest for your child’s education.
Money from this account can then be used toward educational expenses at any qualified institution.
The important thing is to not put your retirement in peril to pay for college.
If you can’t afford to save for both, there’s always borrowing for school,
but there are no student loans or scholarships for retirement.
Another big expense you may run into in your 30s is buying a house. The common notion is that
you should put down 20% of the home’s overall worth, but that can be a large chunk of change.
Some retirement accounts actually allow first-time home buyers to withdraw money penalty free,
but it’s best to resist the urge to raid your retirement account to cover that big down payment.
You may have heard that buying a house is always a good investment.
On average, houses in the United States did appreciate 114% from 2000 to 2019.
But when you annualize that number and factor in expenses like mortgage interest, insurance,
and maintenance, the stock market historically has a track record of stronger growth.
Point is, money in your retirement account may have more earning potential than a house.
So, by taking funds out of your retirement now, you’re not just taking that amount out,
but its potential future growth, which could be a lot more by the time you retire.
Consider other ways to get into the home of your dreams like mortgage insurance
or certain tax credits.
Keep in mind buying a home isn’t for everyone. Using a tool like a rent versus buy calculator
can help you determine which is the better financial choice for you. But overall, it may be
better to think of buying a home as a lifestyle decision rather than a purely financial one.
What about saving up for the down payment or other big, short-term expenses like a wedding?
Putting that money in the markets is risky. If there’s a big drawdown,
there may not be time for your investments to recover before you need to cash out.
For any financial goals closer than five years out, look instead at safer products like money
market accounts or CDs. We’re not talking about that Britney Spears album at a Tower Records.
A CD is certificate of deposit. They’re low-risk savings tools because they’re ensured by the FDIC,
and they’ll earn more interest than a regular savings account.
You could also look at other low volatility instruments
such as Treasuries, a type of government bond, or highly rated corporate bonds.
Vehicles like this can help you get a little more growth than a basic savings account
while keeping your money relatively safe.. And that’s it. That’s a basic blueprint for
how to invest in your 30s. But let’s be honest, it’s not going to work for everyone. Maybe you
can’t afford investing 15% of your salary toward retirement, or have a major financial emergency
and have to clean out your savings. Think of what we’ve discussed as more
of a framework to help guide you in making the best financial choices for you and your family.
The main takeaway is to make sure saving for retirement is your top investing priority.
How much retirement savings should you have by age 40?
One rule of thumb is to have your annual salary by age 30, and three times your salary by age 40.
Enjoy your 30s! Another piece of advice, when you start thinking
all new music is quote "not as good as it used to be" don't say it out loud.
Your 30's are confusing. They're not as confusing as your 20's but getting the investments right
is tricky. So, we're here to help. Open an account by clicking the link in this window.
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