Financial Tactics for 30 Somethings

Financial responsibilities often increase once the 20s have ended. The average first-time homebuyer is in their 30s. Parents frequently begin to save for college tuition during this decade. It’s a great time to be calculated and deliberate with finances.

Start here:

Cover Your Bases

Insurance coverage can be an essential part of protecting yourself and your loved ones. Because it minimizes risks, insurance is a key component of financial planning.

Given the number of options, from auto, home, property, health, disability, and liability, to life, umbrella and long-term care, ensuring you have the best combination for your specific circumstances can become complicated.

Although at times daunting, having coverage is crucial, since in one instant everything that someone has worked so hard to achieve can be wiped away. Without a safety net in place, one incident may have catastrophic consequences.

Leave a Legacy

It’s important to have an estate plan in place. When you open new accounts or take out policies, be sure you designate beneficiaries. Be sure to formalize your wishes through a last will and testament and advanced medical directives.

What do you want to have happen in the event of your passing? In addition to decisions about guardianship of children, and whether you’d like to be buried or cremated, ponder your legacy.

Besides assets and belongings, consider what lessons and values you hope to pass on, and how you’d like to be remembered…

Spread the Wealth

As you become more financially stable you may want to diversify your investment portfolio. Diversification is a way to reduce, minimize, or manage risk. It may involve casting a wider net within or between asset classes, or adding fixed-income investments, such as Certificates of Deposit (CDs), Treasury bills and notes, or bonds.

In the stock market, someone may diversify across sectors and industries by adding international securities, Exchange Traded Funds (ETFs), Index Funds, Mutual Funds, or Real Estate Investment Trusts (REITs). One can hold small-cap, mid-cap, large-cap, and mega-cap companies (a designation based on size and value).

Alternatively, one could invest in real estate, peer-to-peer lending, venture capital, or private equity, just to name a few.

Get Focused

It may be time to revisit the goals you set in your 20s, to ensure they still align with your circumstances, values, and priorities.

Take the time to sit and list all of the items that come to mind. Revisit the list, asking yourself WHY you want to reach each goal. Be sure that your motivation is internal. It’s easy to mistake what we feel we should want for what we actually want.

After you pair the list down to what matters most, categorize your goals as either short-term or long-term.

Next, make your goals SMART(ER)

Specific Is your goal too vague to be of use?
Instead of “I want to save more money.”
Try “I’m going to move at least two hundred dollars into my savings account on the first of each month for our annual vacation.”
Measurable How will you know you’re moving in the right direction?
Instead of “I want to save money for retirement.”
Try “I will raise my 401(k) contributions each time my income increases, so that 10-15% of the money I earn continues to go toward my retirement.”
Attainable Could factors beyond your control impede progress?
Instead of “I want to make a 15% return on my investments.”
Try “Minimally, 25% of my investments will be in safer, less volatile asset classes.”
Realistic Is your goal possible?
Instead of “I would like to double my emergency fund and contribute $10,000 to each of the children’s college savings plans this year.”
Try “I’ll allocate 20% of my monthly savings to my emergency fund and divide the other 80% equally between the children’s 529 accounts.”
Time-Bound Does your goal have a deadline?
Instead of “I would like to create an estate plan.”
Try “I’ll have my advanced medical directives and a last will and testament in place by October 1st of this year.”
Evaluate and Revise periodically

Having clear objectives will point you in the direction of your desired financial destination.

Find Balance

The 30s often bring competing financial concerns. You’d like to fund your retirement, pay down debt, save for a house or your child’s education, and build an emergency fund. This can leave you feeling stretched too thin, and not knowing what to prioritize.

Because the ability to weather storms is such a high priority, it’s essential you build an emergency fund first.

It’s also crucial to begin funding retirement while you have a long time horizon.
Why? Compound interest.

When you invest money, your interest will begin to earn interest. If you invest $1,000 at a 5% annual rate of interest, you’ll have $1,050 at the end of the first year, $1,102.50 at the end of the second year, and $1,628.89 at the end of the tenth year.

The rule of 72 is used to estimate how long it will take money to double, based on the rate of return. At a 10% rate of return, which is roughly the average for the stock market (over long periods of time), money will double every 7.2 years.

Someone who begins saving in their 30s will likely see their initial investment double 3 or 4 times prior to retirement, whereas someone who begins saving in their 50s may only see their investment double once.

Put another way, someone who starts to save later will have to save much more to retire with the same amount.

As far as your other financial goals, it can help to categorize them as short vs. long term. Some prefer to rank them, then tackle one at a time. Others will divide their savings proportionally between each of them.

Although less common, saving now and deciding what you saved for later is another viable strategy. Your plans may shift over time, but what won’t change is the need to fund them.

When you think of finding balance, don’t just consider how much to allocate toward each of your future priorities, consider how much to spend right now. After all, today is where life is lived, relationships are nurtured, and memories are made!

Ready for the next decade? Check out Strategic Financial Moves for Your 40s

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