6 Money Mistakes You Need to Avoid in Your 30s
As you enter your 30s, you have probably experienced the transition in life from a single, carefree college grad to getting serious about your future by “settling down” to start a family and paying your dues at work to get the next promotion. While you hopefully avoided these money pitfalls in your 20s, there is another batch of money mistakes to dodge in your 30s!
Sound money management is not always easy when you want to start a family, grow in your career, and still enjoy the money you work so hard for. There will be choices you need to make that can affect the short term and long term viability of your money. While these aren’t comprehensive, here are six money mistakes you need to avoid when you’re in your 30s.
Not Saving For Emergencies
Pitfall: Too many Americans, regardless of age, can barely afford a small emergency.
During your 20s, you might have focused on paying off your student loans or maintaining a social life. If you changed jobs recently, you probably had to dip into your savings to pay the bills during the transition. The adage that life is full surprises still rings true. Do your best to prepare for life’s curveballs.
Solution: Make a plan to save at least $500 in a separate bank account that you only use for unexpected emergencies. BBVA is a good place to open a fee-free bank account. If you already have $500 saved, great, try to bank up six months of monthly expenses. After you have built your emergency fund, invest your extra income.
Not Saving Enough for Retirement
Pitfall: Studies show only 58% of Millennials are saving enough for retirement.
Millennials, the age group now entering their 30s, are a mixed bag when it comes to investing. Those who have started saving for retirement started at age 23 and others that have delayed saving stated they plan to start at age 33. And, 60% of Millennials have less than $10,000 saved so far.
Solution: When it comes to investing, your greatest asset is time. Take small steps like matching your employer 401k contribution or contributing 10% of your income to an IRA if you do not have access to a 401k plan. Using a service like Personal Capital makes it easy to track your net worth and calculate exactly how much you need to contribute every month to reach your retirement and non-retirement goals.
If you need to start investing, but aren’t sure how to do it, check out services like Betterment or WealthFront. These investment services make it much easier and easy for those who don’t want to worry about all the lingo and just want to invest.
Overemphasizing Graduate School
Pitfall: More and more young professionals are pursuing a graduate degree when the advanced degree isn’t required.
Millennials are the most educated generation in American history as an increasing number earn undergraduate and graduate school. What many might not realize is their graduate degree might be focused on the wrong specialty for their long-term career aspirations. Or, a graduate degree only yields a small salary increase despite costing as much as $100,000.
Solution: Advanced degrees are required for certain career fields like law, medicine, and science. It can even be required for certain business and technology positions. Know why you want to go to graduate school. Contemplate if the career rewards are worth the investment of time and money. Can you continue working and earn a similar salary without having to go back to school?
Not Talking About Money with Your Spouse
Pitfall: Couples get married and know very little about financial habits.
This money mistake applies to all generations entering a relationship. Before you tie the knot, take the time to talk money goals and spending habits with your loved one. Money issues are the third leading cause of divorce.
Solution: Having a successful marriage is more complex than money management, but, merging finances can be a challenge at times in the early years of a relationship. Make financial goals together and have regular conversations about monthly spending and bills. Managing joint finances can take years to perfect, so be patient and be willing to make compromises if you both view money differently.
Not Having Life Insurance
Pitfall: While most adults live a long, decade-spanning life, surprises do happen that take away a parent unexpectedly.
While nobody plans to die early, you need to prepare for the unexpected. If you are the primary income earner and were not to come home tonight, could your family survive the transition financially? If not, you might consider purchasing a low-cost term life insurance policy to help your family in this time of mourning. The best insurance policy is the one you never have to use and term life is an affordable “financial hedge” for your family if the unexpected happens.
Solution: Purchase a term life policy for you and your wife. Policies can start at $20 a month for $50,000 worth of coverage for a 20-year term. You can purchase additional coverage for a slightly higher monthly premium. Ensure you have enough coverage to cover any outstanding loans (i.e. mortgage, student loans) and money to cover several months living expenses if your wife needs to find a new job to fill the income gap.
Check out Haven Life or Policy Genius for great places to find insurance. Both offer the ability to apply right online and they streamline the process for you.
Keeping Up With the Joneses
Pitfall: Many households have high amounts of consumer debt and live outside their means.
Maybe you grew tired of living like a poor college student even after you landed a full-time job. After repaying your student loans, you decided it was time to finally splurge on yourself by buying your dream car, a sports boat, or taking exotic vacations every year. If you are like most people, you have to borrow money to “keep up with the Joneses” and most, or all, of your disposable income goes directly to the bill collectors.
Solution: Make it a goal to be free of consumer debt by 40. It’s possible by living within your means and saving for large purchases instead of immediately walking into the finance office to fill out a loan application. You will be much happier and less stressed knowing you don’t have to keep working a monotonous job because it is the only one that pays you enough to pay the bills every month.
If you have a home mortgage, this one change can save you $22,000 in house payments! Think of all the other things you can do with $22,000 besides giving it to the loan company because you keep doing what’s “normal.”
Life starts to get a little more serious in your 30s as you have more responsibility placed on your shoulders at home and work. By focusing on living within your means and having a plan for the future, you can accomplish anything, financially and mentally. Just remember that the single greatest asset you have is time. You still have decades to make up for any pitfalls you might step into on the journey known as life.
Hi Josh – Good tips. I wish I had read this when I was 25 before I went to law school (I’m 41 now), although we live in a different time now. It’s especially important to lock in a 20 year term life insurance policy while you are young (early 30’s). The cost savings between that and when you turn 40 are substantial. And by the time you turn 50, you shouldn’t need the policy anymore.
My only exception to that is if you don’t have any dependents. It really isn’t necessary unless you have someone that depends on your financially.
Great article. Another money mistake to look out for is starting a family without a plan in place. Being a parent can be stressful enough without the added burden of financial shortfalls. If you’re not creating a monthly budget at least make sure you’re aware of where every dollar from your paycheck is going. Avoiding all the mistakes that you mentioned is ideal but if you do have a financial setback, the most important thing would be to learn from such mistakes.
Great tips. I think Life Insurance is important especially if your debt outweighs your net worth- so that you don’t have to give the burden of paying off the mortgage to your spouse or loved ones. For me, I don’t have life insurance but I do have it provided through work.
As long as you have enough coverage through work. I used to have the same thing until I realized they only provided enough to cover my yearly salary, which wasn’t anywhere near enough coverage for my family.