You spend your 20s learning, experimenting, and making mistakes. It’s when you get closer to the big 3-0 that you really grow into who you are and become older, yet wiser. Even so, one area of life that can be confusing no matter how old you are: money.
Many people learn about money by making mistakes – there’s no Welcome to Adulthood guidebook that gives you all the answers to managing money in your 30s. But don’t worry. In this post, we’ll go over the 10 personal finance principles you should master by 30 so you don’t have to find out the hard way.
1. The value of your dollars
To rock money in your 30s, you should have an idea of how much you actually make and what that can afford you.
It’s easy to look at a nice, hefty gross salary and think you’re doing fine. However, it’s key to look at your salary after taxes and deductions to get a true financial picture. In other words, how much are you actually bringing home? Knowing this will help you be realistic about your goals.
For instance, ask yourself how many hours you have to work in order to buy that daily lunch out.
I was introduced to the concept of measuring spending by hours worked through the great personal finance book “Your Money or Your Life.” I realized my lunch out was costing me a whole hour of work. And dinner and happy hour? I was wasting over half a day of work.
Thinking about purchases this way will give you a clearer picture of how your income and spending are related and can shift your spending habits to prioritize larger goals.
2. How to budget
By the time you’re approaching 30, it’s important to have at least a basic understanding of budgeting.
I know, I know – budgeting can feel boring and restrictive. At the end of the day, though, it’s simply about making sure you spend less than you earn and have a purpose for every dollar.
Even if you’re not a strict budgeter, tracking your expenses and allocating money towards specific spending categories can help you gain control over your finances and make saving money in your 30s easier.
3. The impact of interest
The power of interest can either make you money or cost you money. Regardless, you should be clear on the impact of interest when it comes to all of your financial choices.
For example, how much is interest really adding to your loans? Though I borrowed $81,000 in student loans, with interest I ended up paying closer to six figures. Ugh.
On the other hand, I’ve been saving for years and have seen firsthand how interest can work in my favor. Aside from knowing the impact of interest on your debt as well as your savings, it’s key to understand the magic of compound interest. Compound interest is essentially like interest on top of interest and it can do wonders.
Let’s say you invest your $3,000 tax refund and don’t add another dime for the next 35 years. Under a seven percent return rate, your tax refund would balloon up to $32,029.74.
4. How your credit score is calculated
Your credit score is one of the most important numbers in your life. It determines whether or not you get approved for a mortgage or apartment, credit card, car loan, lower interest rates, cheaper insurance – maybe even a job.
Knowing how your credit score is calculated can help you keep it healthy.
“The majority of a credit score is comprised of five key factors,” said Katie Gampietro Burke, CFP at Wealth by Empowerment. According to Gampietro, those factors include:
- Whether or not you pay your bills on time
- Credit utilization (how much of the credit you have available is actually being used – ideally, you do not want to carry a balance more than 20 percent of your available credit, 30 percent maximum)
- Length of your credit history
- How often you apply for new credit
- Types of credit (a mix of mortgage, student loans, auto loans, revolving credit, etc.)
Your payment history — whether you make payments on time or not — is typically the largest contributing factor to your credit score. Make sure you’re paying your bills on time; if you’re prone to making late payments, consider setting up auto-pay so you never miss a bill.
5. Investing 101
By 30, you should have a grasp of basic investing terms and understand how investing works — and hopefully be investing!
Do you know the difference between a Roth IRA and a Traditional IRA and the various tax benefits? Do you know the differences between stocks and bonds? Most importantly, if you are already investing, do you know how much you are paying in fees?
While learning about investing can often feel like learning another language, it’s one that becomes easier with a little practice. And once you become familiar with how things work, you can invest and build wealth for the future.
When it comes to money in your 30s, investing should be a key player in your financial plan while time is still on your side.
6. When to say no
When you start to make any kind of money in your teens and 20s, it can feel like a rite of passage – you’ve grown up and can spend money on whatever you want.
Spending your own hard-earned money is liberating, but it can also lead to excessive spending because YOLO. If you’re like me, you’ve probably wasted some money on things that leave you shaking your head later.
By the time you get to 30, it’s important to have learned when to say no to things you don’t want to do, you don’t want to spend money on, and that aren’t in your budget. “No” is your friend; use it wisely. Saying “no” when appropriate and understanding your values when it comes to money can make saving money in your 30s easier.
7. How to write a will
Okay, so 30 isn’t exactly old, but it is time to start planning for the future and write a will. While no one likes to think about their own death, not having a plan in place can lead to confusion and trouble if you’re no longer around.
Saul M. Simon, CFP at Simon Financial Group, recommends having both a simple will and a living will.
“If you die without a simple will to distribute your property, your loved ones will be put in a difficult legal position. A living will can help them make medical decisions if you become seriously ill,” Simon explained.
8. Rent or buy?
As you get closer to 30, you may start to think about buying a house. But is it the right choice for you? Though owning a home is a major financial goal for many people, it’s not always a great investment.
Seriously ask yourself if you’re happy with renting or if you really want to own a home. There are no right or wrong answers, but if you want to buy a home, it’s key to start saving for a down payment — at least 20 percent – to avoid paying expensive private mortgage insurance (PMI). Plus, depending on where you live and your lifestyle, it might actually make more financial sense to keep renting.
Don’t forget to factor in additional fees, repairs, taxes and insurance to the overall cost when deciding if homeownership is truly for you.
9. Your insurance needs
At this point, you probably have health insurance (thanks, Obama!). As you get older, however, you’ll want to assess what level of insurance you need in various areas of your life and try to find that Goldilocks balance of just right.
For example, renters insurance can protect your items in the case of theft or if there’s an incident at your apartment. You may also consider life insurance if you have a family or are the primary income earner.
“Imagine the situation a 29-year-old who has just started a family, or with large student loans co-signed by parents, or who just purchased a house would leave if they passed away tomorrow,” said Matt Hylland, a financial planner at Hylland Capital Management.
Now is the best time to look at your insurance needs, as you are most likely young and healthy and can get low rates.
They key is to understand what insurance coverage you have, what coverage you need, and fill in the gaps — just enough to be prepared, but not too much where you are wasting money on expensive premiums.
Money in your 30s should be about building and saving to prepare for your future. And sometimes that means thinking about the not-so-sexy financial things like insurance.
10. The importance of a money mindset
You’ve probably been in and out of a few romantic relationships and some of your friendships have come and gone. It happens. But one area you can still focus on building a solid, long-term relationship with is your money.
Your money mindset affects how you build wealth and how you prepare for the future. Think about some of your long-held beliefs about money and how they may be holding you back from success.
For example, I used to think I’d never get out of debt or make a lot of money, but those were simply things I told myself. Once I changed my money mindset, I started taking action instead of making excuses.
To enhance your money mindset, let go of some of your past mistakes, keep learning, and prepare for your future. Realize that just because you may think you are “bad with money” doesn’t mean you have to actually be that way. Having a positive money mindset is important in reaching your financial goals.
What else would you add to the list? What personal finance principles did you master by 30?
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