By Patrick Amey
Turning 30 means different things to different people. I have heard some say it’s the quickest decade of your life, mostly due to all of the changes that happen. People move, get married, start and grow families, buy homes, change careers etc. Below are 5 common mistakes made by those in their 30s:
1) Saving inconsistently – Income and expenses change annually for everyone, so figuring out how much to save at the end of each month can be difficult. Get in the habit of paying yourself first. Allocate a part of each paycheck to 401(k)s, Roth IRAs, Brokerage accounts, and bank accounts. Where you save is less of a concern (but important) than getting into the habit of saving first. There are many rules of thumb on how much to save. My personal favorite is 70%/10%/10%/10%. Spend 70% of your take-home pay, save 10% to long-term goals, 10% to short-term goals, and give 10% to charity. Again, the habit of saving is more important than the amount.
2) Not building an emergency fund – Once you have established the habit of saving, it is crucial to establish some form of cash reserve. Dave Ramsey is a big fan of the $1,000 emergency fund to get out of debt. I think that $1,000 is a little lean, but his premise of having some type of reserve to keep us from turning to credit to finance the unexpected is spot on. We need to have a buffer when something goes wrong – a job loss, a roof replacement, the hot water heater goes out – they all have the same effect. They interrupt our monthly cash flow, so we need to come up with a quick solution. An emergency fund allows us to finance life’s disasters on our own terms. How much should you have in your emergency fund? We recommend at least three months of fixed expenses. Talk to your financial planner about what is reasonable, and make a plan to save toward that number.
3) Being House Poor – Historically low interest rates and a suppressed housing market has made the dream home a potential reality for many young families. However, the burden of this larger house payment can set us back in terms of achieving our long-term objectives. If an emergency happens, or one person loses a job, it is easy to fall behind on payments. Statistically, Americans move homes every 5 years.* It is very difficult to build equity when the interest is most of your payment during the first few years of the home loan.
4) Failing to manage your human capital – We see human capital in two lights – your career and your passions. Establishing a written career plan in your 30s can set you up to be a big-time wage earner in your 40s and 50s (our highest earning years). Invest in your education and training to be sure your name is called when it is time to take the next step. Our passions are what keep us going each day. We all have them, even if we have to dig deep for them. These can get lost in our 30s as we work long hours and raise families. It is important to continue to make time for the activities that keep us moving forward.
5) Undefined or uncommunicated goals and objectives – Whatever your goals are, financially or personally, write them down, share them with your partner, get help from a mentor, and meet with a financial planner. Our goals require time and thought to develop and require some outside perspective to help break them down into increments that can be achieved. Being financially independent by 50 may seem daunting, but saving 10% of your income this year, and increasing it by 1% for the next 10 years is more achievable and may lead you to achieving your goal. However, we need help from our partners, friends, and experts when defining our goals and objectives.
If you would like help getting one or more of these issues under control, schedule a meeting by clicking below, contact Patrick Amey –pamey@makinglifecount.com, or call (913) 345-1881.