Now that I am in my thirties, I want to be on full throttle at building wealth and prepare to reach Financial Independence and Retire Early (FIRE) community in our forties.
Some of the financial advice that experts recommend for your thirties we have completed and others we have not. But you can never be too prepared so I wanted to write about six pieces of financial advice that people wish they knew in their thirties.
1) Being Debt Free to Avoid Paying Interest
We have achieved being debt free when we both finished paying off our student loans in our late twenties. But as this one of the most common debts that people have, I wanted to add it to my list.
In order to start building wealth which is starting from $0, you first need to get yourself out of the negatives by being debt free. This can be a large debt you've incurred in your twenties like student loan or high-interest credit card balance.
Regardless, each year you delay paying off your debt, the harder it will be due to the interest you're accruing.
This also means avoiding getting into additional consumer debt you worked so hard to get out of. Credit card should be paid in full each month and big purchases should be considered carefully to determine if you can really afford them.
Start Saving for Different Accounts (Emergencies, College, and Retirement at a minimum)
When reaching the 40s, you will undoubtedly have more responsibilities while having less flexibility to make the drastic changes to your life. Having an emergency fund to cover unexpected expenses will ensure your family's continuity without having to make big changes.
College fund is another account people wish they started in their 30s. Using the power of compound interest and automatic deduction from payroll each month, this will grow by itself. (read: Setting Up 529 Plan). In Dave Ramsey's 7 baby steps, he recommends saving for children's college fund in step 5, after paying off all your debt (except the house).
The last account that people wish they saved in their 30s is the Retirement Account. Because your retirement accounts cannot be touched without being penalized, you can forget about having it and will be a fallback option when all else goes wrong.
Living Within Your Means
The 30s is when a lifestyle creep occurs which is a phenomenon where discretionary consumption increases as the wages you earn increase. You feel secure in your current financial situation and you start to normalize buying an expensive home, or a nice car because everyone else is also doing it. However, this is all relative and you should stick to a lifestyle that you are comfortable with.
You should vision what YOUR 40s will look like. You could choose to live debt free because you purchased a modest home, or you could be living in a nice home still carrying a big mortgage. The choice is yours but you should not compare your financial purchases to others and decide what will work best for you financially.
Our plan is to purchase a modest home with a monthly payment to not exceed 25% of our take-home pay. Additionally, with a big down payment and aggressive paying plans, we plan to pay off our primary residence prior to our retirement in our 40s.
Not Contributing Enough to Your 401K to get the Maximum Match
A 401K is a great investment tool as it is automatic, and with compound interest, you will grow it to a large amount by the time you need it. And best of all most employers match up to a certain percentage of your 401K contributions. Essentially this is free money and by not contributing the maximum amount to take advantage of this, you are leaving money on the table.
Diversify Your Income
When you're in your thirties, things have settled down a bit which may be a good time to consider diversifying your income stream. With more responsibilities coming your way in your forties, relying on your day job for your entire financial well-being is putting you at financial risk.
By diversifying your income through other passive income you will set yourself up for any situation when the worst comes. Even in the stock market, diversifying your account with large, and small-cap stocks, as well as domestic, international, and emerging stocks would be a great way to diversify your risk (read: Ways to Diversify your Income).
Plan for the Costs of Children
If you have a young family, or you're planning on having a family, the earlier you plan financially for these costs the better. As your children grow, they get more expensive with extracurricular activities, educational expenses, and soon college expenses. So setting aside a little bit of money regularly can alleviate many new financial burdens your children will incur.
We have created a Robinhood account for Ava that acts as a savings account in which she can use the funds when she needs them (read: Ava's Savings / Investments and Parenting Money Tips).
Comments