10 Financial Commandments for Your 30s
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.
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