Starting Out
10 Financial Commandments for Your 30s
You know the basics. Now build on that foundation to secure your financial future.
By Erin Burt, Contributing Editor, Kiplinger.com
January 22, 2009
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Life moves fast. You think you have all the time in the world, then suddenly your twenties are over and you're, like, a real adult.
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Welcome to your thirties. The past decade was all about life's changes and getting to know yourself -- and your finances (see 10 Financial Commandments for Your 20s). You know the basics for managing your money. Now it's time to build on that foundation and secure your financial future.
Here are ten principles that should be carved in stone for every thirtysomething:
1. Pay off your nonmortgage debt. Your thirties bring financial responsibilities you may not have had in your twenties, such as a mortgage or a family. Nothing frees up cash to meet those obligations like getting rid of your debt. We hope you paid off your credit cards in your twenties (if you didn't, make it a top priority). Next, focus on getting rid of student loans and other nonmortgage debt, such as auto loans.
2. Kick the debt cycle altogether. What good is it to pay off your loans only to take out another one and rack up more debt? An easy way to save for big-ticket items -- and avoid going back into debt -- is to put money you would have used for monthly debt payments and interest charges into a savings account. For instance, after you make that final $300-per-month student-loan payment, keep making an equal payment to yourself. After one year, you'll have $3,600 saved. See When Is It Worth Going Into Debt? to learn more.
3. Get serious about retirement. Your twenties were the time to start investing. No matter how little money you had to spare, it gave you a great head start. Now it's time to look at your goals and set a plan in motion to reach them. We have a handy calculator that'll help you crunch the numbers.
Basically, you need to figure out when you want to retire, how much money you want to have by then and how much money you'll need to sock away now to reach that goal. Time is still on your side -- use it! Get serious now so you can have a comfortable retirement without sacrificing too much in the meantime. Wait until your forties or fifties and saving could become downright painful.
Don't be tempted to save for your kids' college expenses instead of saving for retirement. Make sure your own plans are on track first. After all, there are loans to pay for college, but not for retirement.
4. Diversify your investments. You want to make sure your money is spread among different types of investments to protect yourself in case one sector of the market tanks.
Generally, you should aim to allocate 50% to 55% of your portfolio to large companies, evenly split between growth and value; 20% to 25% to small companies, evenly split between growth and value; and 25% to foreign companies. Check out our sample long-term portfolio for fund recommendations. Or, use Kiplinger's Fund Finder to zero in on funds in each category that meet your performance criteria.
See The Five Keys to Investing Success to take your investing skills to the next level.
5. Continue to learn. Don't stop investing in yourself once you land a job. "Keep your earning power growing through continuous education, training and personal development," advises Knight Kiplinger, editor in chief of Kiplinger.com.
6. Protect your assets. Even the best-laid financial plans can be derailed by an unexpected cost. So it pays to be prepared for the "what ifs" in life. For most thirtysomethings, that means having adequate homeowner's (or renter's) insurance, health insurance and disability insurance.
It also means having an ample emergency fund. You started stocking your fund in your twenties, but by your thirties, you should have the full stash of money to cover three to six months' worth of expenses in case of a job loss, medical emergency or other surprise.
7. Live simply. Deferred gratification may not be fun, but adopting a simple lifestyle is one of the surest ways to meet today's needs and still reach your long-term goals. Take a look at your spending to identify areas you could trim the fat (see Save Money on Practically Everything). Small sacrifices can, indeed, add up to big rewards.
It's easy to get jealous of friends and family who are living larger and seem to be doing much better than you. Remember, keeping up with the Joneses is a losing game. Someone else's success may be a facade. Tune out the financial peer pressure around you and focus solely on what you know for certain: the state of your own personal finances.
8. Make your will known. A will ensures your wishes are carried out should the unthinkable happen. Many assume that wills are for people who are old, rich, married or have kids. But everyone needs a will to spell out their wishes in case they die or can't make medical decisions for themselves (see Wills for the Young, Single or Broke).
If you do have children, make sure your will designates a guardian to care for them should something happen to both you and their other parent.
9. Get a life ... insurance policy. If you have children (or someone else who depends on you financially), life insurance is a must. If you were to die, you'd want to make sure they were secure. When you're in your thirties, you can get a great deal on term life insurance. You buy a policy that lasts for a certain amount of time -- say, until the kids are grown. For instance, we recently shopped for a 32-year-old nonsmoking male and found a $500,000, 20-year term life policy for as little as $275 a year.
10. Be charitable. As you become more established in life and in your finances, take the opportunity to give something back. Being charitable and socially conscious can be rewarding -- not to mention financially smart, considering the tax write-offs you get if you itemize on your return.
If the new responsibilities of your thirties have you feeling strapped for cash, give of yourself, not of your wallet. Volunteer your time or talents for a cause you believe in -- it doesn't cost a lot to make a difference. (See A Dozen Creative Donations for more no- or low-cash ways you can give to charity.)
SEE ALSO: 10 Financial Commandments for Your 20s
Reader Comments (8)
Posted by: Bob at 01/22/2009 09:41:46 AM
Live simply. That's the key to it all. Why go in debt for a $300,000 house when a nice $120,000 one would do nicely? Why buy a $40,000 car when you can buy a nice one for half that price and a good used one even cheaper? The money saved will easily pay for everything else on your list even the early retirement. AND I do not consider living simply as deferred gratification. I get great satisfaction from spending wisely and doing everything I want to do. My friends are delaying retirement while they pay off their big cars and expensive houses while I retired early and travel the world. Young people, the future WILL come. Plan wisely and it will be very rewarding.
Posted by: Carly at 01/22/2009 09:24:38 PM
What do you do if you're disabled? I would love to buy stocks and do everything suggested but I don't have $5000 per month to pay for my medication. These tips are for normal people. Tell me what to do in my situation.
Posted by: Beth at 01/23/2009 10:26:55 AM
Live in a house that is as cheap as possible, but find a happy medium so you will feel happy there. That way you have much money to save/invest. FREEDOM is having enough money to save and to spend.
Posted by: Chance at 01/23/2009 04:29:50 PM
Although I generally agree with everything stated above, it's easier said than done. No one's life goes smooth especially if you factor in a 40-year working career. Debt isn't easy to get rid of considering life takes unexpected turns including medical expenses, job layoffs, or parental/child aid. But I do agree that living below your means is the best way to save for retirement. It's not easy to do as everyone wants to spend money and enjoy their life while working. As long as people understand that if you don't save enough now you will be working into your 70's, I say go ahead and live your life how you please.
Posted by: Bob at 01/23/2009 07:58:51 PM
Carly, it sounds like you have monthly expenses upwards of $6,500 for a fairly basic level of survival and comfort. That is certainly a very unlucky circumstance that most of us do not have to deal with. Here is my input: 1) First, all of the things in this article still apply. Debt is still your enemy. Retirement is still going to be harder to fund than your current life, however hard it already is. Investing is still your only way to fund your own retirement. Education is still a good path to improve your income... etc., etc., etc. 2) You need to lower your expenses as far as possible. Can you lower your housing expenses by living with a friend or family member? Can you lower your food costs by eating staple foods like rice and beans? A diet of staples and some fresh fruits and veggies is much healthier than the average American fare. You can be healthier and spend less than the rest of us at the same time. Can you cut out incidentals like cell phones and television services? An Internet connection with a cheap computer can replace both of those fairly well if you are in a pinch. (use Skype for your phone and watch shows from the network's websites) Can you lower your long-term expenses with some smart short-term purchases? For example, are you losing money over the long haul by doing laundry at a laundromat? Friends and family may be very willing to help with expenses that have such concrete returns on investment. Sign up for a local FreeCycle email list too. I've scored things as large as a fully-functioning dishwasher from that group. Try negotiating any outstanding debt. Look for loopholes related to your disability or for hardship clauses that allow you to defer repayment. Even if there aren't any, write a letter describing your difficulties and offering to document your situation. Ask them to forgive the debt, or at least reduce it. It can't hurt to ask. If you have a vehicle, can you get rid of it? Not only can it bring in some cash, but you wouldn't need to pay for insurance or upkeep. What transportation alternatives are available? Could better planning allow you to use them instead of driving? Can you move to a state with a health coverage system you would qualify for that would at least lower the cost of your medicine? Can your husband look for a job based on the insurance coverage it offers and their handling of pre-existing conditions? If you aren't married, can someone with good coverage claim you as a dependent (perhaps simply because you are disabled)? I realize I'm making assumptions here - maybe you can't drive at all even if you wanted to - but of course I know nothing about your situation so I'm just being thorough. 3)You need more income and don't feel you can generate it on your own. That's not shocking. After all, most people can't generate that kind of income even when they are perfectly healthy. I don't want to say "you can't do this alone", but obviously your best chances involve significant aid from friends, family and society at large. In your situation I would get very creative. Let's say that you managed to reduce your monthly income requirements from $6,500 to $6,000 using some of the suggestions above. What are you able to earn yourself? Can you work from home as a bookkeeper, transcriptionist, admin assistant or phone representative? Let's say that you can get creative about work options and about creating the ability for you to work a normal day, even if it has to be from home. Let's say you can earn $1,500 per month of take-home pay. That leaves a $4,500 budget shortfall. What about putting together your story, your budget and your plan and trying to get 45 sponsors (friends, family, strangers, community groups, businesses, churches... anyone!) to pledge $100 per month to fill out your budget. If you put up a website (free... try Google Pages) and you keep everyone up-to-date on the progress toward your goal, you may be surprised how many takers you get and at what amounts. Even people who already support you indirectly might prefer helping you out this way. It puts a limit on their costs and it gives you freedom to plan within your expected income level. Of course, you may be able to improve your own income stream as well. Start a blog, offer to sell items on eBay for a cut of the profit, take jobs on Amazon's Mechanical Turk system... hopefully you are able to use a computer without too much difficulty. 4) To everyone that isn't in Carly's situation (yet): don't allow yourself to get in that situation. Buy good medical and long-term disability coverage early in life and never let it lapse. Reduce your other expenditures to make this possible if necessary. There's no other way around it, yet almost no one does these things. Also, Rule #4 (in the story) should just advise putting between 60% and 80% in a total stock market index fund and the remainder in a total bond market index fund. Anything else is worse for the average investor.
Posted by: Bob at 01/26/2009 11:28:43 AM
I'm the first Bob to submit a comment above. I don't know who the second Bob is nor am I as wordy. My only comment on his remarks is to add that I hope the disabled lady filed for disability with Social Security, applied for low income drug assistance in her state, and,if that fails, to contact the drug companies directly for price assistance. I also don't agree with the second Bob's advice on Rule #4. Check out what Soc. Sec. allows you to earn and save and still qualify to get disability benefits. I've seen too many people whose income or savings was just slightly above aid limits who then have to struggle and spend out of their own pocket ending up at a much lower standard of living than their neighbors who qualify for assistance.
Posted by: Mary Roach at 04/13/2009 04:32:14 PM
Just a couple of comments: (1) If a person cannot afford her medication, she can apply for "drug manufacturer to patient" assistance. Most drug manufacturers have programs whereby they offer free medications for patients who cannot afford them. She should ask her health care provider to check into this for her...Secondly, becoming and being an at-home medical transcriptionist is very, very difficult. A person must go through a rigorous, intensive, and often lengthy training program in order to learn this trade. It is very difficult for a new MT graduate to get a job fresh out of school (without experience), so there is that Catch-22. Also, it takes years for MTs to gain enough experience to be able to score a job working from home. Also, it is a very difficult job. Believe me, I've done it for 25 years. An MT gets paid for however much she gets done. Therefore, in order to make a good living, an MT has to fly, have great accurac, and be able to cope with the difficulties of working at home (not as easy as it seems). Anyway, Carly, keep on the right track. You are doing the best thing you can and that is to ask for help from other people. God Bless You!
Posted by: Edvard at 09/09/2009 04:06:43 PM
Another great tip to save money while studying, is studying in scandinavia where universitites and colleges are for free(!) it is true.