So, you’ve graduated from your carefree 20s into your responsible 30s. While you’ve matured over the last decade and gained some valuable experiences, you’ve still got chances to take and mistakes to make—some of them costlier than others.
You’re likely thinking about your relationships, your career, buying a home, or even starting a family. It’s an exciting time, but it’s also a critical time for money management. A new decade brings new challenges, so we’re here to spell out some financial oversights that can keep you down for the count. Here are ten money mistakes people make in their 30s and how to avoid them:
1. Not planning for retirement
Retirement seems like it’s 100 years away. You’ve started to climb the corporate ladder or have just taken the first step towards making your first million. The secret to saving for retirement is recurring contributions and compounding—small deposits that will grow over a long period. Be sure you take advantage of your company’s retirement plan and maximize the company match, or open a traditional or Roth IRA and commit to regular investments. Consider this: If you invest $1,000 at age 30, make monthly deposits of $100, and earn 7% interest over the next 35 years, you’d have more than $192,000 when you reach age 65. Amazing, right
2. Diversify your savings: don’t put all of your eggs in one basket
Your retirement account is not the only place you should invest your money. Another mistake many people make is not diversifying their savings. In your 30s, there are sure to be some big-ticket items, like paying for a wedding, buying a home, or a new car. Open a savings account or brokerage account and determine your long-term and short-term financial needs. Diversify your assets among stocks, bonds, mutual funds, and cash to reduce risk and be strategic with liquidity.
3. Doubling down on debt
Your 30s are the prime time for promotions. You’re earning more and likely spend more, too. You can afford nice things, but sometimes this can be a slippery slope. “Keeping up with the Joneses” is a real thing. Once you get caught up in that world, it’s hard to get out.
Using a credit card is an easy solution, and it can help when money is a little tight or you need to make online purchases. When you can’t pay it off at the end of the month, however, you need to reevaluate your budget and spending. Credit cards are a tool that can help establish your credit score, but when you’re paying astronomical interest on your purchases month after month, you’re creating a burden that can wreak havoc on your finances.
Consider a personal loan if you need to consolidate debt or pay for significant expenses. Personal loans offer significantly lower interest rates compared to credit cards, which will help you save big in interest in the long run.
4. Setting yourself up to be house poor
Now that you’re making more money, you might consider buying a home. Hopefully, you’ve saved some money for a down payment and have analyzed your monthly expenses to determine how much you can realistically spend. Don’t make the mistake of not accounting for other home-related expenses, like PMI (if you put less than 20% down), property taxes, home insurance, and more. A mortgage is a long-term commitment—sitting on the floor eating ramen noodles so you can “afford” the biggest house in the best neighborhood is no way to live. How can you save for your future if all your financial efforts are spent on paying your mortgage? It’s not a purchase you can return easily, so shop smart. You’ll be happier in a home where you can live within your means.
5. Living on the uninsured edge
Insurance can feel like a waste of money, especially if you don’t have to use it. When you do, however, it pays off big time. No one wants to think about a health issue or a home disaster, but it happens. Generally, insurance in your 30s should include health, disability, life, home (or renter’s), and an umbrella policy. Insurance is largely personal, so talk with a trusted advisor to help determine your needs. Keep in mind, too, that the younger you are, the less you’ll pay for life insurance, and the healthier you are, the less expensive your health coverage will cost—buying insurance now can save you money in the long run.
6. Delaying discussions about money
When you’re dating, finances are not a fun topic, and when you’re engaged, no one wants to ruin the excitement by talking about money. Financial differences between partners can be a serious issue if it’s discussed too late in the relationship. If you’re already walking down the aisle, it’s easy to say you’ll figure it out later, but it’s the number one reason couples argue and a path that can quickly lead to divorce.
You may come from different financial backgrounds or have different ways of making financial decisions. While they don’t have to match perfectly, you should be able to decide on a mutually agreeable system to budget your household finances. Once you merge your assets, it becomes a more difficult conversation. Don’t bring it up on your first date, but start thinking about it before you fall head over heels.
7. Splurging on your firstborn
Everyone parent wants their child to have the best of everything, but too many times that translates to a house full of toys, clothes, accessories, and top-of-the-line items. We get it—with all the excitement and lack of sleep, it’s hard to make smart financial decisions. But, if you don’t take the time to check your spending and your savings, your sanity will be gone before you know it.
Do you need the elaborate carriage-style stroller or the designer footie pajamas? Should you order the custom bedding? Think about the necessities, how long you’ll use them, and what your budget can handle. Your little bundle of joy will be loved no matter how much you spend.
8. Giving into the need for a new car
Years ago, people used to keep their cars until they ran them into the ground. Now, many make the huge money mistake of buying a new one every two or three years. While you can rationalize it all you want, it’s still a depreciating asset, and making a purchase every few years leaves you with a never-ending car payment. Today’s experts recommend spacing your new cars ten years apart. Buy a new car, pay it off in five years, and for the next five years, start saving for your next car’s down payment. If you take good care of it, you may even get a few bucks when you trade it in.
Given the frequent turnover rate of cars today, you might also consider a used or “pre-owned” car (if that makes you feel better). It’s already depreciated at someone else’s expense, and if you buy from a reputable dealer, you could save some serious cash. Before you head out for a test drive, check Kelley Blue Book to get an idea of how much you should pay.
9. Looking at your career in the short-term
You probably have more than ten years of work experience by now. If you don’t love your job or there’s no long-term growth opportunities, now is the time to switch gears. With your knowledge and experience, it’s the opportune time to update your resume and see what else is available. Chance are you’ll be more valuable to the competition and should be able to negotiate a higher salary and more responsibility.
This is the time to position yourself for your peak earning years. With new job offers, consider the company’s benefits, like health insurance, life insurance, a dental plan, and a 401(k) plan. Do they offer telecommuting, a flexible schedule, or a car allowance? While your salary is important, your entire compensation package, which includes your benefits, should be the real measure.
10. Not having an emergency fund
People lose their jobs, homes need expensive repairs, and family members get sick. No one expects those things to happen, but they do. You need to be financially prepared for emergencies. A few hundred dollars won’t cut it these days, so make sure you have a plan. Experts say that you should have at least six months’ worth of living expenses tucked away in a place where you aren’t tempted to withdraw unnecessarily.
Everything you’ve worked for could easily be swept away during a crisis, and recovering financially may not be easy. If you haven’t been saving for something like this, start now. It may be the most important thing you do to protect yourself and your family—and could help avoid a costly mistake.
The time to get serious is in your 30s. You’re getting ready for a lot of life changes, and you need to set yourself up well. Surround yourself with people you trust who can advise you and keep you accountable. Avoid the pitfalls by keeping your finances in order and focus on the future.
