Though most people begin to consider investing during their 20s, the 30s is when gears start to shift.
This is the time most people tend to take stock of their life and do away with youthful indiscretions. The realization that your youthful years are behind you and you are slowly approaching retirement is a rude awakening to most people.
This forces people to evaluate their financial situation and begin to channel more energy towards achieving their financial goals.
One thing about investing in your 30s is that while you are planning for yourself, you also have to factor in your children and other dependents in the equation. This entails that you have less spare cash to go play with.
However, though your investment time horizon seems to be shrinking, there is still time to make up lost ground. Here are some investment tips you can apply if you are in your 30s.
At 30, you are approaching midway to retirement.
With your docile years on the horizon, increasing your retirement contributions is a very good idea. See if you can increase your contributions to your retirement accounts. Generally, financial advisors recommend contributing 10% to 20% of your salary toward your retirement fund.
Be sure to put enough money into your 401(k) account to match whatever your employer is contributing.
For example, if your employer contributes 6% of your income to your 401(k), try and also contribute another 6%. If your employer does not provide a 401(k) plan, you can consider contributing to an individual retirement account such as a conventional or Roth IRA.
To know how much you would need upon retirement, you can use a retirement calculator.
Student debt is a significant factor of household debt and is now the second-largest slice after mortgages.
The burden of paying off student loans has forced many millennials to postpone the achievement of life milestones like buying a car or a house. Planning for your kid's college tuition early would give your kids a nice head start financially.
While their peers would be burdened by huge loans, they would be able to consolidate their financial situation with their finances.
Starting a college fund in your 30s also implies you pay less for your kid’s education because you avoid interest payments that would accrue if you had taken out a loan. You can consider contributing to a 529 plan to help fund your kids’ college education.
This offers tax-free withdrawals when the money is taken out to pay for college. You can also claim state tax benefits each year if you contribute to your 529 savings account.
At 30, you should be ready to take the gloves off and go all-in when investing. You may have lost some ground in your 20s, so this is the time to make up for it.
However, a caveat must be added here.
Aggressive investing does not imply reckless investment in high-risk assets such as junk bonds. Rather, you should consult your due diligence and double down on the investment when an opportunity comes.
You can consider assets with high yields that have an equal balance of risk. U.S equities and emerging markets are examples of assets that can generate high yields for investors in their 30s. Whatever investment approach you decide to use, it should be aligned with your risk appetite.
Debts are the worms that eat the fabric of financial independence.
They are impediments to achieving your financial goals. If you are serious about achieving financial independence in your later years, then you need to start doubling down on your debt payment. Start by paying off the debts that have the highest interest rates and work your way downwards.
Paying your debt early saves you money because you pay less in interest.
It also allows you to focus on other financial goals, thereby turbocharging your fiscal independence. If your loans do not have a prepayment penalty, then you can capitalize on this feature by making extra payments towards the servicing of the loan.
On the flip side, if the loan has a prepayment penalty, you may want to see the loan to the end of its tenor.
Alternatively, since you can make extra contributions on such loans, you can use the extra cash you would have contributed to paying the loan to invest in other cash-generating assets to offset the interest that would accrue on the loan.
Let's face it, not all your extra income would be channeled towards investments.
You would need to save some money to act as a buffer in case of emergencies or short-term needs. Rather than putting your money in a traditional savings account, you should consider a high-yield savings account.
This type of account offers an interest rate much higher than a traditional savings account. It is also easily accessible which means you can withdraw your money anytime that you need it.
Combining a high-yield savings account with an investment portfolio is a viable way of boosting your net worth.
Life is full of twists and turns, with many of us not knowing what awaits us around the corner.
Unforeseen events can set us back financially if we do not plan for them. It can range from a natural disaster that destroys your property to the death of a loved one.
Having an emergency fund prevents you from dipping into your investments, savings, or even retirement accounts. It also sets your mind at ease because you know that in the case of any eventuality, you have the financial firepower to see yourself through.
In your 30s, it is misleading to think that you do not need insurance.
This misperception stems from the fact that you believe you are healthy with many more years ahead, so you do not need insurance. However just as was explained in the section for emergency funds, you never know what life decides to throw at you.
Having insurance provides the necessary backup to determine any situation that might occur. Especially when it comes to health-related issues or business losses. The money provided from your insurance premiums can help offset bills when you are in dire need.
One of the most overlooked factors in personal finance is self-improvement and development.
Most of us get blindsided by the pursuit of investment and savings to the neglect of personal development. The fact is, you can only operate according to the level of your knowledge and experience.
Some experts say your bank account is a reflection of how much you know. As such, investing in oneself is a sure way of not only attaining financial dependence but also maintaining it.
If you neglect one aspect of your life in the pursuit of financial independence, you would pay the costs later on.
It is not worth it, having a ton of money only to spend it on health issues or divorce. Pay attention to other aspects of your life. Investing in your education, your health, and your relationships give you a balanced approach to life.
Not everyone can replicate Warren Buffett who started investing before his teenage years, let alone consider building a financial portfolio in their 20s.
Investing in your 30s may not give you a decent head start above your peers, but if done consistently, would definitely keep you on track to reaching your financial goals.
You have about 3 more decades before you hit the official retirement age, which is a sufficient amount of time to reach your investment goals. It doesn't matter what age you start investing, the key point is consistency. Those who sacrifice the pleasures of today would reap high returns in the future.
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