How to manage money in your 30s
Welcome to the first in a series of posts about how to manage money in your 30s. We’ll start with an overview of what to expect as your financial life goes through changes nearly as big as those in your personal life (get ready!). Here’s a quick preview of what you can expect in coming posts:
- Getting a big new job
- Moving to a new city
- Getting married
- Having kids
- Buying a house
Before that though, there are some less specific but very important things that you should know and do to set yourself up for a successful 30s. Let’s go.
Lay your financial foundation
Here you are: you’ve just celebrated your 30th birthday with close friends and are now looking forward to the next decade of your journey.
Reflecting upon your accomplishments during your 20s, you look back fondly and with great pride at your schooling. You can see yourself moving forward in a career that challenges and engages your interests and energies. Maybe you even found that special person who you’ll eventually set down with (it’s ok if you haven’t yet, it’ll come).
Now, you start to ponder, “What’s next?” A family, a home, a move, a big job. Can you afford all of that? What about retirement, college for the kids, vacations, cars, a diamond ring? Overwhelming isn’t it? Don’t fret though. Putting yourself in a position to successfully navigate through it just starts with a little discipline.
That means a budget. Not necessarily something incredibly rigid, but a budget that both satisfies your current needs and also allows you to lay a strong financial foundation. Sounds straightforward, however, there are some important considerations to address as you build it, stick with it, and move farther along in your journey.
Avoid lifestyle creep
In your 20s you start off balancing many competing interests. Your first job, student loans, a social life, rent, and the general cost of living.
As you diligently manage all these things while climbing the income ladder, you can find yourself increasingly flush. Your debt is decreasing as a percentage of your income, and you are managing your cost of living. There’s more room to go bigger. To spend it.
Not only that, you’ll probably see some of your friends start to take more trips and buy fancy cars. It’s easy to get sucked into doing the same thing.
We’re not here to tell you not to, but we are here to make sure you keep things calibrated. That means…
Live within your means
To some this may be a trite and obvious rule to live by but “doing ok” and creating “wealth” are two very different things. If you are managing to reduce or eliminate debt from your balance sheet that’s dynamite, but what about the other side of the equation? How do you create wealth?
When setting a budget, it is always a good idea to put yourself at the head of the list. Pay yourself first. When paying monthly expenses, the first entity to which you commit your hard-earned dollars should be yourself.
One of the most influential financial decisions you can make is to start saving and stick with it.
Set a percentage of take-home pay, say 10% that you direct to your own account. Then pay your rent, utility bills, and other living expenses including food, travel, and entertainment. Invest in yourself.
The easiest way to accomplish this and maintain the discipline is to set a monthly or bi-weekly automatic sweep of extra cash into your investment account. If not that, then a recurring deposit can accomplish the same goal as long as you continue to update it to your current income.
We can’t emphasize this enough: one of the most influential financial decisions you can make is to start saving and stick with it. Saving means putting money away month in and month out. Those savings compound over time and even small amounts in your 30s can turn into big bucks over the years.
Set goals for how to manage wealth in your 30s
After establishing the sweep function in your budget, you will be amazed how quickly your cash will accumulate. Set a goal for yourself and continue to stretch that goal until you hit three and then six months of expenses. This is your emergency fund. It’s where you turn to when things get tough, and it gives you incredible resiliency that you might just need since few journeys proceed straight from A to B.
After that, start saving for those big goals you want to accomplish. When bonuses come around, celebrate your success! And also consider how much of that windfall you are going to pay yourself and put towards those big, meaningful purchases.
At first, saving may not feel instinctual. It may be a challenge. But it is no different than maintaining your fitness routine. As you succeed, each month it gets easier and easier and soon you wouldn’t miss it for the world.
And when you hit your goals, you get to set new ones, bigger goals, and expand your horizon.
Look to the financial horizon
Once you have that emergency fund down, the real fun begins. You’ll start making your money really work for you as you continue to save and optimize those savings.
You’ll want to take advantage of tax-advantaged accounts, save for those big 30s-era goals, and of course you should consider adding a long-term growth fund to invest any excess that doesn’t yet have a specific purpose.
All of these pools can be invested in powerful portfolios of stocks and bonds. While you can expect these accounts to fluctuate in value over time, you position yourself to enjoy healthy returns in excess of your emergency funds.
As you progress through your 30s, you’ll lay a solid foundation of financial fitness upon which your family will flourish. Saving and investing with purpose, with clear goals in mind, sets you up for success.
It’s just the beginning
And that’s important to remember. Because this decade is just a foundation. It’s the set up for amazing things to come. If you save and invest diligently here, you’ll be in great shape going forward.
Upon celebrating your 40th birthday, you’ll bathe in the pride of all that you have accomplished in your 30s and find yourself pondering what your 40s might look like in turn.
What are you going to do with your option grants, 401k plan, and investment accounts? How do you know whether you are on the right track to live the life I aspire to live? You’ll know that you’ve done well, but are you ready for what’s next? We’ll cover more on that in the next series.
Want to make sure you’re laying that solid foundation? Schedule time with an advisor, and we’ll help you answer these questions to allow you to see farther down your journey’s path.