8 Financial Steps Every 30-Something Should Be Taking
Your 20s were a time for discovery, learning, and developing your skillset. But now that you have some experience under your belt and you've advanced in your career and your pay range, it's time to get serious about planning for your future—and that means a lot more than contributing to your 401(k). From resolving your credit to making more sophisticated investments, here are eight financial tasks you should tackle in your 30s.
Your credit and your credit score can greatly impact your ability to borrow money—be it for a home loan, a business venture, or what have you—as well as your ability to rent an apartment, buy insurance, and even get a job. Before you make any of these big life purchases, it’s important to make a dedicated effort to improve your credit score. This means paying down debt, contacting collectors, paying bills on time, not carrying large balances relative to your credit limit, and so on.
You should also be reviewing your credit report to ensure there are no inconsistencies. Per the Fair Credit Reporting Act (FCRA), bad debt and most negative items must be removed from your credit report seven years from the first date of delinquency. So if you’ve been dinged in the past, check to see that the record is wiped when it should be.
As you advance in your career, it’s tempting to spend more, be it by renting a pricier apartment, taking extravagant trips, or buying material things. But now’s the time to resist and pay off your credit card debt and student loan debt instead—before you take on additional major expenses such as a mortgage, children, or your children’s college tuition.
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If you haven’t become a homeowner already, the thought will cross your mind in your 30s. When you buy a home, typically, your mortgage (what you borrow from the bank) is combined with a down payment (the amount you spend upfront to purchase a home) to cover the total purchase price of the home. For first-time buyers, making a 20% down payment will increase your chances of qualifying for a loan, and if you put down less than that amount, you will have to buy mortgage insurance, which is an additional cost. So 20% is the standard you should aim to save for.
Not sure where you can save? The Washington Post offers some sage suggestions.
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At this point, you’ve advanced a bit in your career and likely had a few different roles under your belt, so you should have a good sense of what you want out of your career and your personal life. Have a talk with yourself and decide what your short- and long-term goals are professionally, financially, and personally—you can always pivot if you change your mind.
Do you want to be an executive by the time you’re 40? How many people should you be managing to make that happen? What sales goals do you need to hit? Do you want to move to a new city? What are housing costs like there? Could you afford to buy a house there? Do you want to have children in the next two years? What are the realistic costs associated with that? Do you need a bigger home?
Figure out what your goals are and the changes you need to make to get yourself there. The only way you will is with conscious planning.
There are some things in life that, no matter how much you have tucked away, you can’t plan for: sickness, death, disability, theft, and even natural disasters. So to protect yourself and your family, it’s essential you review your insurance policies and confirm that you’re signed up for health insurance, life insurance, disability, and homeowner’s or renter’s insurance that will cover you and your family in an unplanned event.
If you’re married and/or have children—and even if you are single—you should make sure the correct beneficiaries for all of your accounts are up to date, as well.
Retirement may feel light years away, but where your money is concerned, it’s just around the corner. Assuming you’re already contributing to your workplace savings account or another retirement account—which you should be—you should consider increasing your contribution amount. Contributing 15% to 20% of your income now may not make a huge impact on your lifestyle, but thanks to compound interest, it can drastically improve your quality of life later on.
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If you’re married or have a partner, now’s the time to have the talk, if you haven’t already. You may be surprised to discover that you both have different financial or personal goals that require financing, so it’s important to get on the same page. It may be more likely that you have shared goals, which you haven’t planned for yet too.
Do you want to hire five new employees in your personal business in the next couple of years? Does your husband want to open a new office in a different city within five years? Do you both want to send your children to private school? Does one of you want to downsize to a smaller home? All of these kinds of questions can significantly impact your cash flow as well as your lifestyle, so you should discuss them now and set yourselves up to achieve your goals.
While you likely began to contribute to your 401(k) in your 20s, your 30s are the time to introduce more sophisticated investment options and strategies, such as stocks, bonds, and mutual funds. If you haven’t already, meet with an investment professional to discuss the different approaches that you can take with your money.
Determining the mix of investments in your portfolio is consequential, but generally a more aggressive asset allocation is advised for someone in his or her 30s. The old rule of thumb is to subtract your age from 100 to find the percentage of your portfolio you should keep in stocks (which can provide a higher ROI than other investments). So if you’re 30, maybe 70% is the magic number. Speak with an investment professional to find the right balance and guide you through the process.
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What would you add to this list? Tell us in the comments below.
Opening photo: Adam Katz Sinding of Le 21ème