How you handle money in your 30s will have a big effect on your life down the line.
You’ve been in the working world long enough that you may now have a decent salary. You may have even bought a home and likely discovered the “joys” of homeownership in the form of emergency roof repairs and new furnaces.
You might also have young kids, and the childcare costs to prove it.
But the upside is this: You still have plenty of time to get your financial picture in ship-shape before you hit the years when your income begins to decline.
To that end, here are five things you need to know about money in your 30s.
The Snowball Approach to Debt Pays Off
If you spent your 20s racking up debt, your approach to money in your 30s will likely focus on a debt reduction strategy.
How to go about it?
The most logical route is to pay off your highest interest-rate debts first.
But it turns out that’s not the best approach. That’s because psychology is more powerful than math.
It’s actually a better bet to pay off your smallest debts first, according to two researchers out of Northwestern University. This approach is often advocated by financial advisers as the “snowball plan.”
It appears this “small victory” approach to paying off a debt is more successful in the long-term than paying off higher interest debt first.
There’s something about closing out balances that motivates us all to continue to pay down debt.
Reading Up on Personal Finance Does Help
Or you may simply want to start reading up on personal finance online. A few great online information repositories—which include some great information about money in your 30s—can be found on the ModestMoney.com Top Finance Blog list.
Regardless of how you approach it, the key is to keep on educating yourself. The more you know, the brighter your financial future will be.
Now (Yesterday, in Fact) is the Time to Start Planning for Retirement
This is one cornerstone to money in your 30s: You simply must be saving for retirement.
Now is the time to sock away as much as you can, because the money you save now will have more time to reap the benefits of compound interest.
As Selena Maranjian said in The Motley Fool:
A big mistake many 30-something people are making is not contributing enough to their retirement accounts. For example, Fidelity Investments reported that in 2014 the average employee saving rate for 401(k) accounts it administered was 8.1%—which happened to be a multiyear high. That might sound good, but if you’re earning, say, $50,000, it’s just about $4,000.
That can seem like a lot of money, and in many ways it is. But here’s what 30-somethings need to know: When you’re young, saving and investing aggressively can pay off because your money will have so much time to grow. Your earliest invested dollars are your most powerful.
How to Protect Your Income with Disability Insurance
Many people know that a smart approach to money in your 30s includes a careful consideration of insurance.
That’s why many people in their 30s, especially those with families, carry life insurance. But your chance of a disability interrupting your ability to work and provide for your family is actually higher than your chance of death.
In fact, more than one in four of today’s 20-year-olds will become disabled before they retire. And the causes of disability aren’t what most people think.
The likely culprits of disability include:
- a bad back
- pregnancy complications
- heart disease
Now that you’re in your 30s, these probably seem more probable than they did when you were in your 20s.
Fortunately, disability insurance can protect your income in case you’re disabled.
Start by checking with your employer to find out if they offer disability coverage. If they don’t, it’s wise to investigate getting an individual policy to protect you and your family.
If you don’t carry disability insurance, then you’ll want to take a look at your emergency savings and know how long you can get by without an income.
Will you be OK for a month? Two months? A year?
Your Approach to Money In Your 30s
Remember, your approach to money in your 30s sets the stage for your financial well-being in your 40s, 50s, and beyond.
You can certainly spend this decade building your nest-egg. Or you could end up depleting your savings and going further into debt. The choice is yours.
Want to enjoy the debt-free life you deserve? Download Your Financial Guide to Life, a free e-book we put together to help you better navigate finances and make the best financial decisions for you.
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