Seven Financial Steps to Take in Your 30s
This article was written on the heels of a similar post titled, Four Financial Steps to Take in Your 20s.
I’ll spare you a lengthy explanation and recap but suffice to say this is a hypothetical list of things I would emphasize to myself if I could step back in time and provide a little financial direction to a 30-year-old me.
1) Drop the Debts
The 30s are an important decade for saving and investing. The money you’re able to save at this age still has plenty of time to grow with the incredible tailwind that’s provided through compounding interest.
However, attempting to do this while carrying and servicing significant debt would be akin to sailing while dragging around an anchor.
An anchor. Now there’s a very fitting metaphor for debt.
It’s heavy. It ties you down. It stops you from moving. It prevents progress.
Now, it’s not unusual for most 30-somethings to still be carrying debt from their 20s, but this is the decade that you should make it a priority to eliminate all consumer and student debt.
In fact, by the time you reach 40, a mortgage is really the only acceptable debt you should have barring some unfortunate natural disaster or major medical event (i.e. – emergencies).
Yes, that means student loans and car debt too.
There’s a proverb from the Bible that says, “the borrower is the slave of the lender.” (Proverbs 22:7)
Slavery. There’s another fitting analogy for debt. A bit extreme perhaps, but the relationship between a borrower and lender isn’t all that different than a master and bondservant.
The bottom line is saving and investing for your own future is difficult or impossible to do if you’re also obligated to service a variety of debts.
Every dollar sent to Visa, the Department of Education, or General Motors, is a dollar that isn’t yielding 8% or more each year in investment returns.
Time is short. Run from debt in your 30s.
2) Be A Pro
What do you want to be when you grow up?
I first recall being asked this when I was in kindergarten.
If you’re normal, you probably had a variety of answers to this question as you aged. (My first answer was a fireman, btw.)
The great thing about growing up is that life is a blank slate. While it may not be completely true that you can be anything you want to be, there’s certainly no shortage of options in our economy.
But now that you’re 30, it’s time to choose a profession and be a professional in that role.
The reason is our 30s are typically when we move from a basic, working knowledge of a profession to a level of expertise that is accompanied by significant increases in income.
Coming out of school you had some knowledge that presented a high degree of potential, but as you know, until that knowledge is cultivated with experience it is of limited value.
Leaving your 20s you have probably accumulated enough experience that you are or could be uniquely useful to your employer or another one.
Your 30s is the time to lean into that fact and capitalize on the true market value for your skillset.
Check out this graph from CNBC that illustrates growth in pay for Americans beginning at age 22.
As you can see, the income climb is most significant in your 20s and 30s. The trajectory begins to lose steam in your mid to late 30s and tapers off quite a bit in your 40s.
Of course, this is an average. You may see significant pay increases in your 40s too, but odds are your 30s are the time to make hay.
This isn’t a career counseling website but find ways in your thirties to press into more income. Maybe there are professional certifications or other credentials you could obtain to justify a pay increase.
Perhaps you could take on more challenging work to create more value for your employer or yourself. Or maybe you could just have a long overdue conversation with your supervisor about your market value.
Whatever your strategy, have a strategy. Become indispensable. Get paid.
3) Ramp Up Investing
We’ve already covered the importance of reducing debt. The natural consequence of that step is you should have more money to invest.
Generally, I recommend that you save 10%-15% of your income if you start saving in your 20s, 15%-20% if you start in your 30s, and 20%-25% or more in your 40s.
Again, the reasons you can save less in your 20s are twofold: 1) you probably have less money available to save, and 2) because compounding interest has more time to do its glorious work to make you wealthy.
Now that you’re in your thirties and you’re gradually eliminating those debts while your income has been increasing, it’s time to capitalize.
To be completely honest, all the math I’ve done (and my personal experience) seems to indicate that you could start saving 10% of your income in your early 20s and will probably have plenty to retire with by the time you reach age 65.
That’s for a 43-year career, beginning at age 22 and retiring at age 65.
I for one, do not want to “have to” wait until age 65 to retire. So, I save more.
And the older I’ve gotten, the higher my income has gone, allowing me to redirect a growing percentage of my income toward saving and investing.
My goal is to pull my possible retirement date up as early as possible. I may not actually retire at that point, but at least I will be in control.
Why not do the same thing for yourself?
Even if you have no aspirations to retire early, you should do this as a safeguard against an unforeseen early retirement. After all, on average, Americans retire 4 to 6 years earlier than they expected to.
Did you know that 56% of people retire due to a circumstance that is beyond their control? Only 20% list “being financially able” as their primary reason for retiring.
Think of a full nest egg as early retirement insurance. Hopefully, you won’t need it, but if you do, imagine how relieved you’ll be.
Finally, I’ve never heard a single retiree lament the fact that they save too much for retirement.
Sadly, I have heard many say they wish they had saved more.
By pushing yourself to save more now you are effectively taking control of your retirement saving at a time in your life when options are still abundant, instead of putting it off to an age when options for income are less and less common or realistic.
4) Buy That House
Nothing has done more to drive up household wealth in America than home ownership.
In 2022, homeowners enjoyed a median net worth of $396,200 versus $10,400 for renters. That’s 38 times the total net worth!
Of course, one could easily make a chicken or egg argument here that higher incomes lead to home ownership, so the higher net worth is just a symptom of a different cause.
I suppose that’s fair, but I also know that a mortgage is an agreement to slowly acquire an asset through debt, while rent simply reserves one a place to lay their head from month to month.
A mortgage payment is also typically the same for the term of the mortgage, while rent is often subject to increase over time.
Put succinctly, a mortgage buys an asset. Rent does not.
Assets drive up net worth. Rent does not.
That’s not to say that renting is a bad idea. There are certainly situations where renting makes perfect sense, but most people don’t fit that description.
Furthermore, most people in their 30s have “landed” wherever it is they plan to live for the foreseeable future. Many 30-somethings have started families and want living arrangements that support that growth and provide security.
Homeownership can provide that.
Combining an improved standard of living with an appreciating asset that will improve your net worth is a bit of a no-brainer.
So, if owning a home is something you have hopes for, your 30s are a great time to take that step if you haven’t already done so.
But how much house should you buy?
Personally, I don’t think any home should come at the expense of saving and investing for retirement. You have to find an affordable place to live so you can continue to build wealth through saving and investing.
I recommend that you keep your monthly housing costs below 30% of your monthly take-home pay. Any more than this and you are probably not going to have enough left to save elsewhere.
In all likelihood, this amount will probably feel a little stressful initially, but over time (as your income increases but your mortgage payment stays the same) it will feel easier.
I also wouldn’t recommend buying a house unless you plan to stay there for at least five years.
Housing and real estate go through market fluctuations too and it would be unfortunate to have to sell your house at a loss not long after you move in.
5) Get An Estate Plan Already
Hopefully, in your 30s your net worth will pass to the north side of zero.
Even if it doesn’t, you likely have assets that will need to be distributed in the event of your untimely death.
Unless you want the state to decide how those assets are dispersed (not ideal), then you’ll need a legal will or trust to ensure your own instructions are followed.
Having a will drafted, or doing it yourself, is probably easier and less costly than you’d think*. I literally drafted my own legal will, with help from an attorney, in a few hours when I found out my wife was pregnant with our first child.
Once it was drafted, I had to have it notarized but it was shockingly simple.
Arranging a trust is a larger commitment of both time and money, but if you have significant assets or unique needs that you want addressed in your estate plan trusts are a great solution.
Metaphorically, you might think of a will as a mitten and a trust as a glove. Trusts provide a more accommodating fit and greater dexterity in executing your estate.
In addition to these estate documents, you need to get a term life insurance policy if there is anyone in your life that is depending on your income to provide for them.
This would certainly include your children but even if you don’t have kids, you may need life insurance to protect your spouse if you have a mortgage and don’t want him or her to be forced to sell the house once your income is lost.
A rule of thumb for deciding how much life insurance to buy is ten times your income.
I think this is a fine place to start, but if you’re like most people your income and your family are likely to grow with time.
In my case, I initially bought a 20-year term life policy when my wife and I bought a house. Ten years later, it was only about 7 times my income and completely inadequate for my wife and our two children.
I was planning on buying another policy to supplement the existing one, but as it turns out it was cheaper for me to just start fresh with a larger 10-year policy.
Finally, be sure to keep beneficiaries updated on your retirement or other investment accounts.
The account custodians will direct those funds to whoever is listed as the beneficiary on the account, no matter what your will states.
One of the more salacious stories I’ve regularly heard from financial advisors is about those who accidentally leave a 401(k) or IRA to an ex-spouse because they failed to update beneficiary information after a divorce.
Don’t be that person. Update or check those beneficiaries frequently.
(*Note, I am not advising you to draft your own will. You should reach out to a competent estate attorney in your state of residence if you have any estate planning questions.)
6) Set Some Aside for College
From 2010 to 2022, college tuition increased at an annual rate of 12%. Over that same period, general inflation was 2.43% annually.
It’s getting more and more expensive to go to college. If you have children who you hope will receive some sort of post-secondary education, it will almost certainly be helpful to save in advance if you can.
Using a 529 plan is a great way to do that.
529 plans work much like a Roth IRA in that contributions to the account aren’t eligible for a tax deduction, but the earnings and withdrawals are completely tax-free if used for a qualified expense.
Furthermore, depending on the state you live in, you may be able to receive a state income tax deduction for your contributions to a 529 plan (usually the plan established by your state of residence).
We did list this toward the end of this post because it is not as high a priority as the goals listed above.
Having something set aside for your kid’s college education is a nice thing to have, but it is not as important as making sure you have enough for yourself first.
Two of my favorite finance quotes are as follows:
“One of the best gifts you can give to your kids is not moving into their basement one day.”
And
“They give loans for college, but not for retirement.”
Both of these ideas seem relevant as it relates to giving money to your kids, even if it’s done with the best of intentions.
7) Make Meaningful Use of Your Time
Not to get too philosophical on you, but you need to spend some time in your 30s trying to understand what you really value.
You will probably be asked to trade away more and more of your time in your 30s and it doesn’t seem to let up any in your 40s (not in my experience anyway).
You will find yourself much more satisfied if you can focus your time on the things that really bring you meaning and joy.
The same can be said for your money.
Growing responsibilities and incomes tend to invite growing expenses. By understanding what the things are that bring you the highest degree of satisfaction, you can make optimal choices for using both your time and your money.
For example, my wife and I have always enjoyed traveling. We’ve found it to be particularly meaningful when we travel with our kids.
Opening their eyes to some of the more inspiring places and cultures in our world brings me a lot of joy. They seem to like it too.
Identify the people and things that you love. Direct your time and money so that you foster them together. Pay little attention to the other stuff.
Conclusion
The thirties are a challenging decade, to say the least, but the challenge has a refreshing way of revealing the things that matter most.
Making wise choices in this decade, perhaps more than any other, will shape the rest of your life.
Good luck.
