7/3/2014 3:15 PM ET|
10 financial commandments for your 30s
After establishing a solid financial foundation in your 20s, use the next decade of your life to keep building and protecting your wealth.
Your finances might have felt like a plague in your twenties, but thou shalt thrive throughout your thirties and beyond.
Our list of Financial Commandments for your 20s helped you find your financial footing and establish a solid foundation. Now that you're older and (hopefully) wiser, this list of goals will help you continue to build your wealth and blaze a path to financial security.
No. 1: Advance your career
In your 20s, you developed a marketable skill. Now it's time to apply that skill to increase your earnings.
Research potential career paths for workers with your skill. Identify the types of jobs and companies where you might fit. Consider whether you should go back to school for an advanced degree (or if some free online courses can help boost your career). You might even consider moving to a city where you can find more opportunities in your field.
Sharp career turns can be worthwhile but also risky. You'll need a financial plan to keep your budget steady while you're changing course.
No. 2: Rethink your budget
You established a budget in your twenties and perhaps accumulated some savings. But your income and expenses, as well as your needs, wants and dreams, will likely change from year to year. Your budget will need to adjust to life changes such as getting married, having kids or starting your own business. "It's a balancing act," says John Deyeso, a financial planner in New York City, who works with many young adults (and is himself 37 years old). "Once you get into your 30s, you have more money and more goals, so how do you spread that around?"
You may need to cut spending in some areas to reallocate elsewhere. For example, when I got pregnant with my first child, I slashed spending on the "going out" line item—and added costs to my budget on a new "baby supplies" line item. (Happy hours were off the table anyway.)
If you've recently gotten a raise (congratulations!), you might consider ramping up your saving for emergencies (see commandment No. 5) and retirement (commandment No. 6).
No. 3: Adjust your insurance coverage
As your assets grow, you may need more insurance to cover them. Maybe you rent a bigger or more private space now. (Learn more about renters insurance.) Maybe you're buying a house (and need home insurance) or car (and need auto insurance). Maybe you have some loved ones who depend on you financially (and you need life insurance to make sure they're taken care of if anything happens to you). All of these situations call for additional protection.
Even if your situation hasn't changed, you should periodically reshop your insurance policies to make sure you're still getting the best deal. To compare auto insurance rates, try InsWeb and Insurance.com. For life insurance, you can check rates at Accuquote and LifeQuotes.com. If you're changing jobs, be sure you understand your new benefits and how your health insurance premiums will differ from those at your old job.
No. 4: Pay off nonmortgage debt
In your 20s, you came up with a debt-repayment plan. Stick with it throughout your thirties, so you'll enter your forties focused on building your nest egg for the future—not paying off bills from your past.
No. 5: Increase your emergency fund balance
Remember, your goal is to maintain three to six months' worth of living expenses in your emergency fund. As your income and expenses go up, so should the amount in your emergency fund. Worried that all that liquid cash isn't compounding as it might if invested in the stock market? Consider these ways to earn more interest on your savings.
No. 6: Save at least 15 percent of your income for retirement
When you started saving for retirement, you may only have been able to contribute enough of your paycheck to earn your employer's 401k match. Or maybe you've allowed your 401k's auto-enrollment policy to dictate the percentage that you save—typically 3 percent.
But experts recommend saving 15 percent or more of your gross income for retirement. The good news: Your employer's 401k match or contribution counts. So if your boss gives you 4 percent, you just need to save 11 percent on your own. Every time you get a raise, bump up your nest-egg contributions. If you get a bonus or extra cash as a gift, consider saving it for Future You.
Also start thinking about tax diversification, Deyeso suggests. Generally, if you benefit from a tax deduction now for contributing to a traditional IRA or 401k, every dollar you withdraw in retirement will be taxed at your ordinary income-tax rate—currently as high as 39.6 percent. By contributing or converting funds to a Roth IRA or Roth 401k, you'll enjoy some tax-free income in retirement.
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For a traditional IRA or 401k, you are saving taxes today at your marginal rate, which for most households is 15% or 25%. When you withdrawal, you pay your effective rate on the distributions. For a couple, your first $20k+ is tax free due to a standard deduction and 2 personal exemptions, then your next $18k is only at 10%, and next $55k is taxed at 15%. That makes the effective rate on your first $94k worth of taxable income less than 11%... Why pay 15% or 25% now to dodge for most people what will be under 10%?
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~ Senator Barack H. Obama, March 2006
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