By Jeff Rose
From a financial standpoint, your thirties are really the most critical decade of your life. You’re past the feeling-your-way-around decade of your twenties, but you’re still young enough to implement the kinds of financial strategies that can radically improve your financial situation in the future.
There are probably 20 or 30 money mistakes to avoid in your thirties, but I’ve narrowed it down to what I think are the 10 most important. If you can get past at least most of these, your finances will improve noticeably with each passing year.
Running Up Credit Cards
If you got into the credit card habit in your 20s, getting out of this trap can be a serious hurdle. You may have become accustomed to using plastic to pay for what you’re income wouldn’t cover. That might have made sense for your younger self, but you’re older now and it’s time to break the habit. The sooner you do, the better life will begin treating you.
But that’s a big part of the problem with credit cards. They’re very convenient to use, and they do provide certain tangible benefits. But they don’t call them revolving debt for nothing. At the core, they’re set up to keep you in debt. Sure, you make your monthly payment, but the balance never seems to go down.
You and Your Significant Other are on Different Financial Paths
This can be a serious financial deal breaker. While one partner is working to build a better financial future, the other may just be living the good life. One will wash out the other.
Like every other major aspect of a relationship, you and your significant other have to be on the same page when it comes to money. Better still, if you’re both working toward the same goal, you’ll double your effort and get there faster.
“A good idea might be to sit down once a year, and see where you are on the financial spectrum, as well as discuss future plans.” Forbes contributor Ginger Dean recommends.
Running Up Credit Cards
If you got into the credit card habit in your 20s, getting out of this trap can be a serious hurdle. You may have become accustomed to using plastic to pay for what you’re income wouldn’t cover. That might have made sense for your younger self, but you’re older now and it’s time to break the habit. The sooner you do, the better life will begin treating you.
But that’s a big part of the problem with credit cards. They’re very convenient to use, and they do provide certain tangible benefits. But they don’t call them revolving debt for nothing. At the core, they’re set up to keep you in debt. Sure, you make your monthly payment, but the balance never seems to go down.
You and Your Significant Other are on Different Financial Paths
This can be a serious financial deal breaker. While one partner is working to build a better financial future, the other may just be living the good life. One will wash out the other.
Like every other major aspect of a relationship, you and your significant other have to be on the same page when it comes to money. Better still, if you’re both working toward the same goal, you’ll double your effort and get there faster.
“A good idea might be to sit down once a year, and see where you are on the financial spectrum, as well as discuss future plans.”Forbes contributor Ginger Dean recommends.
Buying a Car You Really Can’t Afford
This is the same basic idea as the housing payment strategy, but on a smaller scale.
One of the best ways to do this is by buying a used car. New cars typically lose about 50% of their value within the first three years. So instead of buying the brand-new car for $50,000, by the three-year-old version at $25,000. You’ll still be driving the same car, but with only half the monthly payment.
Spending Too Much on the Good Life
Part of the problem here is there are so many different spending categories.
Even with a relatively high income, that’s still a big chunk of money.
Control this expense by setting a budget. For example, if you’ve been spending $1,000 per month on entertainment, cut that in half, and work with it. Then develop the discipline to save and invest the difference.
Running with Expensive Friends
This mistake is often closely linked to #5. If you keep company with free spending friends, you’ll probably be tempted to get caught in the game of trying to keep up. But this is one of those games if you win, you really lose – at least from a financial standpoint.
Work to steer your social contacts toward less expensive activities. It can help them too. But if they refuse, it may be time to get more frugal friends.
Not Investing or Not Investing Enough
If you’re making any of the mistakes on this list, you’re almost certainly not investing enough money, or not even investing at all. This is one mistake that has to change.
The time value of money is a critical dynamic, and you need to get it working in your favor. For example, if you begin investing $10,000 per year at age 30, with an average annual rate of return of 7%, you’ll have over $1.4 million by the time you reach 65.
But if you wait until you’re 40, you’ll only have a little over $650,000 at 65. Put another way, by investing just $100,000 during the decade of your thirties, your portfolio will be larger by more than $750,000.
Don’t wait to act on this one – the clock is already running!
Investing Too Conservatively
People often play it too safe when it comes to investing. Afraid of losing money in volatile markets, they hold too much money in conservative investments, like bonds and certificates of deposit.
That’s a mistake you can’t afford to make, especially in your thirties.
The average annual return on stocks as measured by the S&P 500 has been around 10% for the past 100 years. The current rate on safe, interest-bearing investments is only in the 2% to 3% range. If you have too much money in safe investments – or worse, all of it – you won’t get the kind of return on your portfolio you need to get.
Not Taking Full Advantage of Your Retirement Plan
If you’re not participating in the 401(k) or 403(b) plan at work, you’re missing what might be the single biggest wealth building vehicle available.
For starters, the maximum 401(k)/403(b) contribution is $19,000 for 2019. And the contribution is nearly always tax-deductible, while the investment earnings are tax-deferred. This is like getting free money from the government to save for your retirement.
But employer-sponsored retirement plans often come with another freebie, and it’s huge. It’s the employer matching contribution.
Even if you don’t max out your own contribution to your plan, you should make sure you contribute the minimum necessary to get the largest employer matching contribution.
Not Setting Creating a College Funding Plan for Your Kids
Kids really do grow up fast. And when the time to go to college starts getting close, it’ll seem even faster. College is expensive, and getting even more so. The more you can salt away now to cover the cost, the less you and your children will need to rely on crippling student loan debt.
You have a chance to avoid that fate, but you must begin to act now.
One of the best ways to do this is through 529 plans, which are specifically set up to fund a college education.
They work something like Roth IRAs in the following ways:
- Contributions to a 529 plan are not tax deductible.
- Earnings in the plan accumulate on a tax-free basis.
- Withdrawals taken from the plan are not subject to tax as long as the funds are used to pay for qualified higher education expenses.
From a tax standpoint, you gift money to a 529 plan, much as you would if you gave money directly to your child. You can contribute up to $15,000 per year to the plan without triggering the federal gift tax, though it is possible to contribute even more and still avoid the tax. According to Forbes contributor, Bob Carlson you can avoid the tax by filing IRS Form 709 if you exceed $15,000.
This is a lot like saving for retirement, except that the need for the money will come much sooner. And when those expenses begin to hit, it’ll be like a tsunami.
Final Thoughts
Any one of these mistakes has the potential to create a financial black hole in your finances. But if you make several, it can put you in the poor house by the time you reach retirement age. Remember Warren Buffett’s rules about not losing money, and do your best to avoid making as many of these mistakes as you can.
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