The Essentials of Financial Planning in your 30's
The decade of your 30’s is a defining decade financially – in part because it’s all about balancing growth with responsibility. Unlike your 20s, when you may have prioritized becoming independent, your 30’s are about building structure. For many professionals, this is a period of rising income, greater responsibilities, potential homeownership, household expansion, and career stabilization. Importantly, it’s a time when financial decisions can have long-term ripple effects – both positive and negative.
This financial turning point is a time where your goals expand and your life commitments grow. The habits and systems you put in place now can create stability, flexibility, and opportunity for decades to come. With so many priorities competing for your attention and dollars, having clear financial direction is crucial to ensuring today’s progress supports tomorrow’s goals. To do this, you must utilize your growing earning power without allowing lifestyle inflation or debt outpace it.
HighPoint Advisors, LLC helps individuals and families plan for a sustainable financial strategy. Located in East Syracuse, NY and serving clients throughout Central New York and across the country, we provide professional guidance in wealth management, income and tax planning, holistic financial planning, and more. Our advisors work with clients to help them feel more informed and prepared during all stages of life.
Start with an Emergency Fund
What good is a detailed financial strategy if you don’t have easily accessible cash to cover an unexpected expense? Having a financial shock absorber will help to ensure you don’t have to resort to high-interest credit cards if a crisis shows up. A cash reserve can come in handy for both big and small events – possibly ranging from a sudden job loss or home repair to smaller items like an extra medical bill or a work expense.
How much should be in an emergency fund? Most financial advisors will advise 3-6 months of your essential living expenses, but this amount might be larger for young workers with less stable employment. And make sure to keep this financial buffer account liquid and safe so it can be accessed right away if needed. Don’t invest this money in volatile or risky assets.
Saving and Investing
Professionals in their 30’s are usually making more income than they were in their 20’s, and they have a few decades ahead of them until retirement. Maximizing the dollars saved and invested in various accounts and letting those dollars grow over time creates a powerful opportunity for compound growth. Remember, the earlier you invest, the more it works for you!
It also matters where you invest. Tax-advantaged accounts like an employer-sponsored 401k plan are a great place to start, especially if your employer offers matching contributions. There are plenty of other options as well. Consider a Roth IRA to grow a part of your wealth that will be tax-free in your retirement years. Regardless of where you invest, always be sure to diversify your investments by utilizing different types of stocks and bonds, and even alternative investments where appropriate. This is the easiest way to help manage risk over time in your portfolios.
A great tip for young professionals is to be conscious of how you handle your rising income. If you get a raise at work, try to use part of that raise to increase contributions to a retirement plan account, for example.
Learn How to Manage Debt
Being in debt is a scary feeling, but not all debt is bad. Professionals in their 30’s may have now taken on such liabilities as a mortgage, student loans, credit card debt, or car loans, and knowing how to manage these debts can make a world of difference. One of the most impactful things you can do is to focus your repayment efforts on the loans that have the highest interest rates. High interest debt such as credit cards can cost you a lot in interest charges, thus slowing your progress on other financial goals. It can also be a good idea to periodically look into refinancing or consolidating longer-term debts as another option to reduce your interest payments to lenders.
Paying your debts on time and in full is a great way to maintain a healthy credit score. Generally speaking, the higher the credit score, the lower the interest rate on a new loan. This can be important as you plan for large future purchases.
Budgeting - Control your Spending
With increasing income comes increasing spending, so budgeting in your 30’s is more about clarity and awareness than restriction. Learn to be intentional with your spending. Without structure, your progress can be slowed by lifestyle inflation.
Track your spending on both fixed and variable expenses. Identify which expenses are essential and which are not. Make sure to plan for discretionary categories that matter to you, such as travel or hobbies. And don’t forget to plan for a little extra buffer in your budget for unexpected expenses.
It’s important to understand that your budget should aim for consistent progress towards your financial goals. Don’t invest every penny possible if it holds you back in other areas, and don’t blindly eliminate every debt you have at all costs. Balance is the key to a good budget, and a good budget is key to steadily increasing your net worth over time.
Take Insurance Seriously
Many people in their 30’s focus mostly on growth and investing, but protection for a growing list of responsibilities is equally important. Others may depend on you and your income at this stage of life. That makes it important to have disability insurance in place to protect your income if you were sick or hurt, or life insurance in place to replace your income if you pass away prematurely. Homeowners (or renters) insurance and car insurance will cover a few of your major assets and help protect you against financial liability exposures. Also, various types of medical insurance can help you stay healthy while covering some major costs of healthcare.
Not everyone needs every type of insurance, so be sure to evaluate which coverages makes sense to you. Also, check with your employer to see which coverages are available through their group plans. Find the right balance between employer-provided coverages and other supplemental coverages that you purchase on your own. The right protection guards the financial progress you’ve worked so hard on.
Plan Ahead for Major Life Goals
Big ticket goals such as marriage, buying property, children, or launching a business venture may come into focus at this stage of life. Looking ahead and mapping out a path towards these goals will make the process more digestible. Separate each objective into the steps required to get there, and allocate your budget accordingly to each step. Set timelines if that helps and keep making progress one small milestone at a time.
Be aware that planning for a major life goal may require you to sacrifice or pull back from some other financial priorities. For example, if you need to accumulate cash in a bank account for a down payment, that may mean you have to reduce how much you are investing each month. Working with an advisor can help you adjust your short-term priorities while staying on the path to your overall long-term financial goals.
The Decade of Structure, Not Perfection
Balance and coordination are the key concepts for financial planning in your 30’s. This is the time for building, not just experimenting, and the plans you set in motion now will have decades to grow and mature. Strategies don’t have to be complicated, but they do have to work together for the benefit of your overall roadmap. With a timeframe of potentially 20-40 years, there will be plenty of chances to adjust and tweak plans as needed. Our advisors at HighPoint Advisors, LLC have helped young professionals create and adjust plans for many years, and are well versed in how to pivot tactics in the face of changing life priorities.
The goal is to create systems that automate progress, protect against risk, and allow flexibility as life evolves. Some key pillars include consistent investing, thoughtful debt management, proper insurance coverages, and a comprehensive budget and spending plan. The financial habits you develop now will influence your financial trajectory for decades to come.
Contact us today and we’ll help you craft your plans!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The market value of corporate bonds will fluctuate, and if the bond is sold prior to maturity, the investor’s yield may differ from the advertised yield.
Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.