Although you’ve survived the tumultuous life of a 20-something, and your life has likely become more stable, as a 30-year-old, you can face a peculiar set of financial problems.
Statistically, people often have children and buy their first homes during this time period, so your 30s and beyond can be just as expense-ridden as the decade before. Additionally, the importance of retirement preparation drastically increases as you age, and you have less room to recover from slip-ups.
There is some good news, however: Although everyone’s financial situation is unique, the roadblocks many encounter during this decade are common and avoidable.
Without further ado, here are some of the potential financial snafus you can face in your 30s, and how you can avoid them.
1. Equating success with luxury
Plenty of us see income advances in our 30s, yet very few of us tie this with increased financial health.
The culprit is known as “Golden Handcuffs,” which refers to our tendency to see increased lifestyle bloat as our incomes go up. Keeping up with the Joneses and indulging in ever-more-expensive luxury purchases might feel good in the short run, but it’s no way to build long-lasting financial happiness.
Although you don’t have to move back into your first apartment, you should keep your spending in proportion. The best way to do this is through the 20-30-50 plan: spend 20 percent of your take-home pay on investing and financial betterment, 30 percent on fun and luxury, and 50 percent on essentials. That way you’ll have a better lifestyle while avoiding the hedonistic treadmill.
2. Shelving retirement investing for later
When money is tight in your 30s, you might be tempted to procrastinate with your retirement investing. It deceptively appears to be the smart move to wait until your kids graduate or you finally land that big promotion. However, this can have drastic consequences, because you’ll miss all the time for your wealth to compound and grow.
Instead of playing retirement catch-up, invest as much as you can now — even if it’s a small amount.
3. Overpaying for your wedding
The big day is indeed important, but don’t make the mistake of forgoing your long-term financial health for it. Plenty of 30-somethings get so swept up in wedding fever that they cause long-lasting debt or throw their financial goals out the window.
The average cost of a wedding is $26,720 — which could put a serious dent in your financial future. If you can afford to do so, it’s fine to embellish on your wedding day, but remember that it’s just that: one day. You (hopefully) didn’t marry your spouse for one celebration.
4. Not talking about money with your spouse/significant other
Talking about money with your spouse (or soon-to-be spouse/partner) isn’t something anyone looks forward to. We’ve been taught that talking money is taboo, and it reveals a lot more than just numbers. Talking about money is a whole new level of intimacy, and it ties into our life goals and dreams.
That being said, it’s better to hash these issues out now than to deal with them years later when they’re major problems. For instance, if your spouse has debt, you don’t want to find that out when you’re about to have a child.
Talking about money openly and honestly with your partner is statistically linked with a happier marriage, while money secrecy and arguments are linked with the exact opposite.
5. Prioritizing your children's education over your retirement
We want the very best for our kids, so many in their 30s will completely ignore their own financial health for that of their children. While you will have to make sacrifices, it’s crucial to separate vital costs from excess wants.
College is one of the biggest expenses your child will face, but you shouldn’t sabotage your financial health for it. Airlines tell you to put on your own oxygen mask before assisting others for a good reason: you can’t help others if you don’t help yourself first. While there are numerous grants, scholarships and loans available for students, no such thing exists for retirement.
Although it might seem like you’re helping your kids, they’ll be the ones burdened with the unexpected costs of supporting you in retirement.
6. Not diversifying your investment plan
If you only dipped your toes into the investment world in your 20s, it can be a mistake to pour more money into that same plan when you enter your 30s.
Diversification can reduce risk and increase returns, while making a concentrated investment in one asset class or investment can be dangerous. Although you’re probably off to a good start with investing (like an index fund, for instance), you may want to consider diversifying your portfolio.
Prudent investors can take advantage of a blend of stocks, commodities, bonds and hard assets, and also diversify equities by style and geography to potentially increase their returns and reduce risk. International investing, for instance, can allow you to take advantage of roughly half the world’s stock market opportunities.
7. Overspending with your home
If you’re buying a home, don’t make the mistake of spending beyond your budget with the flawed thinking that it’s like your other investments. Remember, a home is an illiquid asset, so it can’t be considered in the same light as your investment portfolio. A home is a single, concentrated investment, and there’s no guarantee it will increase in value. If you do decide to sell, you still have a number of costs to consider: A house must go on the market and you must finalize and close a deal, pay the real estate agent, etc.
It’s fine to buy a home if you can afford it and it fits into your long-term goals, but don’t buy one over budget with the assumption it will provide for you financially later in life.
The bottom line
You’re likely to face a set of new challenges in your 30s (both personal and financial), but you don’t have to make mistakes. With some preparation, you can make your 30s your best financial decade yet.