Your 30s are a make-or-break time when it comes to your finances. If you want to make the most out of this period, then you need to be aware of some of the top financial mistakes you need to avoid.
Why is this Such a Crucial Time?
Your 30s is when a lot of the magic begins to happen. You may find that you can build your net worth and it is also the time when you will be moving towards paying off a lot of the debt from your younger years, such as your student loan. Now may also be when you begin contributing more to your retirement assets.
As if that wasn’t enough, you may also find that you’ll gain some traction with your career and that you can master your trade a little more. It may even be that you are moving into management at work or have rocketed your income potential. If you want to avoid sabotaging all of this productivity, this guide will help you find out everything you need to know.
Financial Mistakes you Have to Avoid
If you want to avoid some of these mistakes, then you need to be mindful of your financial position and you also need to make sure that you do not fall into some of the many pitfalls that so many people experience.
Cashing Out your Pension
It can be tempting for you to cash out your pension or your 401K whenever you leave your job. After all, if you leave your job and you see that you have on average $4,000 in your 401k, then this could really help you to pay off your debt. That being said, if you are the age of 30 or over and you choose to keep this money, then it will soon become $64,000 by the time you retire. All you have to do is leave it alone.
Not Saving
Do not make the mistake of viewing your retirement as being some kind of far-away concern. The sooner you begin saving, the more time and money you will have in the later years. Not taking advantage of your company’s retirement plan is also a mistake. Your employer will match your contributions most of the time, so you have to make sure that you take things like this into account. It could make a huge difference to your future after all.
Not Converting
Speaking on the topic of retirement, the account that you have will also make a big difference. If you have retirement accounts that have been built on a pre-tax basis, then you have to make sure that you are Roth-converting them. A Roth IRA is a retirement account; you will contribute money to it after paying your taxes.
You will not experience any tax benefits when you do this, but any contributions you make will be tax-free and you can withdraw them when you retire. You will be leaving money on the table by not using this to your advantage if you are in your 30s. if you want to make the most out of your future then don’t be afraid to hire an estate planning attorney. When you do, you can then count on them to work with you to make sure that you are making the most out of every decision you make in regards to your personal possessions.
Not using a HSA
If you do not use an HSA, which is a health savings account, then you will be making a huge mistake; the great thing about this is that it helps you to put money to one side so you can cover any medical expenses. One benefit is that you can do this tax-free, and if you do not do this, then you will be missing out.
Medical bills can be very expensive, and if you do have an insurance plan that allows for this, you should be using it. It gives you the chance to save your money before tax, and it also helps you to spend it tax-free too. Depending on your tax bracket, you could be saving up to 34% on your bills, which is vast, to say the least.
Having Debt
The debt from a student loan can be heavy. When you combine this with things like buying a home or even starting a family, you may find that you end up experiencing a lot of expenses. Sometimes daycare can also cost you, it’s not uncommon for it to be the same, if not more, than your mortgage. It can also cause a lot of issues with your cash flow too.
For this reason, keep your credit card debt at bay and also make sure that you only ever take out mortgages or car loans that you know you can afford. Your mortgage payments should never be more than 33% of the income you have on a monthly basis. Your student loans, car loans, credit cards, and even mortgages should also not be more than 40% of the total income you have. If you are higher than this, then you may find that you are open to more liabilities and that you also have way less financial freedom. Use your credit wisely if possible as you never know when you are going to be in need of any extra cash flow.
Being House Poor
You will want to ensure that you do not buy a house you cannot afford. Many people tend to go for a place at the top of their price range so they can find a lender that will approve everything for them. A lot of them end up being house poor and this will take up a lot of their income, especially when you look at house insurance payments, property taxes, and general maintenance. When the bulk of your money is being put into the house, you end up having less to save for in the future, and you may also find that you end up spending it on other lifestyle activities.
Poor Life Insurance
Finally, the last mistake that you have to avoid when you are in your 30s is not having any kind of life insurance. Having life insurance is essential because you never know if you are going to need it. It’s simple really, because if you have people who depend on you for your income then this is essential. Your life insurance should be one of the most important bills you will pay monthly.
Now, what happens if you do not have any dependents? You can save yourself the monthly payment, sure, but if you have a spouse or intend to move in together, you may want to take it out anyway so you know that they will be covered in terms of the bills.
You also know that you won’t have to worry about a thing if you end up being in hospital for a long period of time because in most instances, life insurance comes paired with critical illness cover. This means that if you do end up coming down with something like cancer, or a long-term illness, you know that you are going to be covered and that you do not need to worry about money in the long term.
Decisions like this are crucial and your 30s are the best time for you to be sitting down and having those kinds of conversations.