It becomes more serious in your 30s. That is the point in your career when things really start to take off. It will create new chances for you, and you can use that momentum to lay a solid financial foundation for your future. And it doesn’t take much to make a big difference. In this article, we’ll look at 6 financial goals for people in their 30s that can help them stay focused and make the most of their income.
Financial goal number 1: Get Out Of “Bad Debt”
Don’t get me wrong: Not all debt is bad. A good type of debt is when you borrow money with the goal to make more money in the future. This can be a student loan or a mortgage for a house. The bad type of debt is when you use your high-interest rate credit cards to buy things that lose value over time like clothes, cars, and phones. And that’s the sort of debt that is costing you money.
And that’s why it needs to be repaid as quickly as humanly possible. And here’s why: The average stock market return of the S&P 500 over the last 100 years was around 8% adjusted for inflation and including dividends. But this 8% is not a guaranteed return. The stock market could go down or sideways for a few decades – which happened in the 70s and 2000s.
When you have high-interest rate credit card debt, you will end up paying around 20% of interest. If you pay off your debt, then you will essentially save 20% which is a “guaranteed” risk-free return, which is much higher than the average stock market return of the last 100 years.
Financial goal number 2: Upgrade your emergency fund
That’s money set aside in case you have an unexpected life situation like losing your job. You should have enough money saved up to cover 3 to 6 months of your living expenses. Living expenses can be the money that you need to pay your rent, food, utilities, or anything else that is essential for you.
An emergency fund doesn’t have to include expenses for vacations, entertainment, or eating out. You can put that emergency fund into an easy-access savings account to earn some interest on it. Ideally, you already set up your emergency fund in your 20s. But in your 30s, you should take another look at it to see if it’s still big enough.
Chances are that your living costs have increased in your 30s – and so should your emergency fund. And whilst you are at it, you can also shop around to see if you can get better savings accounts that offer you a higher savings rate. It’s so important to have an emergency fund because 40% of Americans can’t cover a $400 emergency expense.
If an unexpected event should happen, you can simply tap into your emergency fund instead of having to sell your stocks, for example.
Financial goal number 3: Avoid Lifestyle Inflation
You are probably making a bit more money than in your 20s. But what I see very often is that salary increases don’t lead to more money in your bank account. And that’s because of lifestyle inflation. It means that with every salary increase you also upgrade your lifestyle and therefore your expenses. And it’s so easy to get caught up in this:
You go to fancier restaurants, you get a bigger apartment and a new car – and that all adds up. Even with higher salaries, you could still end up living paycheck to paycheck.
To avoid that – when you are in your 30s, try to maintain your living standard from your 20s as much as you can. The last thing you want is to work hard throughout your 30s and not be better off financially.
Financial goal number 4: Overcome your fear of investing
Investing in the stock market can be a scary and overwhelming thing for some people. Keeping your money in your bank account feels much safer. But what most people underestimate is that inflation makes your cash worth less and less every year. If we look at the US, an item that would have cost $1 in 1932 would now cost over $20 – just because of inflation.
So you have to put your money to work and invest in asset classes that go up in value over the long term. Let’s go through an example to show you what I mean. Imagine you work from the age of 25 to 65, so for 40 years. Over that time, you earn the US average salary of $46,000. That’s around $3,900 per month.
If you have a savings rate of 10% and round that figure down, you have $350 dollars left every month. In scenario number 1, you don’t do anything with that money. It just sits in the bank account. That money will grow to $168,000 after 40 years.
In scenario number 2, you start investing that money into a global ETF with the first paycheck you get until 65. With an annual return of 8% – which is the average of the last 100 years – you would have more than $1m after 40 years of investing. The earlier you start investing, the sooner your money can start working for you.
This can be anything like your contributions to your retirement plans like your 401k or IRA, or it can be the money that you invest through your taxable brokerage account. Your 30s can be the prime of your investment life. Your salary can be high enough to save up money but you also have a long time until retirement.
So you can invest in riskier assets like stocks and you will be less impacted by short-term volatility because you have time by your side.
Financial goal number 5: Establish the habit of paying yourself first
So we know that not investing is no alternative. But what many people struggle with is having enough money left at the end of each month. And that’s because whenever you get paid, you first pay your rent, then utility bills, groceries, clothes, and so on. And at the end of the month, you have no money left to invest.
But what if I tell you that you can actually change the order of that? If you have a budget, you know how much money you can put aside each month to invest. And that should be the first thing to do when you get paid. That’s why this is called “paying yourself first”. If you don’t want to create a budget that’s also absolutely fine.
Then start slowly with 10% of your net income and see how much you can increase it over time. In your investment accounts, you could set up saving plans that execute at the beginning of each month. You set it up once and you never have to think about it again. Paying yourself first will give you more visibility on what you can spend for the rest of each month on non-essential things.
If you run out of money, then you cannot spend it on non-essential things anymore. What you avoid, though, is skipping a monthly investment. Think of it like a bill that you have no choice but to pay.
Financial goal number 6: Have a monthly budget date with yourself
Once a month you can sit down and check the balances of your bank, credit card, and investment accounts to calculate your “net worth”. Net worth is simply what you own minus what you owe. So the total value of your assets minus your debts equals your net worth.
Your assets can be anything like the money in your bank or savings account, your stock investments, and the value of your house. Your liabilities can be anything like a student loan, credit card debt, a car loan, and the mortgage on your house.
In this example, you would have total assets of $300,000 and liabilities of $250,000, which would get you to a positive net worth of $50,000. It’s important to track that number regularly to see in which direction you are moving. Is your net worth growing or declining every month?
What you really want to see is your net worth moving up step by step. That happens when you invest in assets like stocks or when you reduce your liabilities by paying off some of your credit card debt. And don’t worry if you have a negative net worth because most of us start off that way.
If you finish university and you start your first job, you usually have no savings, no investments, very little in your bank account, and a student loan. But if your net worth is moving in a positive direction every month, then that’s a good sign. It’s important to have that monthly budget date to see in which direction you are heading and to take action if needs be.
You can put down your net worth number on a piece of paper, in an excel sheet, or whatever you like. There are also really cool apps that help you to track and consolidate your expenses in one place like Mint or PocketGuard. Whatever works best for you.
I feel like in your teenage years and 20s, you can get away with not checking up on your finances every month. But your 30s are crucial in determining your financial journey – that’s why it’s so important to be on top of your finances.
There you have it: 6 financial goals in your 30s. A lot of things are moving and developing in your 30s and that’s why it’s important to stay focused. But what do you actually think? What did you achieve financially in your 30s? Do you have other financial goals that I haven’t mentioned in this article? As always – let me know in the comment section below.