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STARTING OUT


10 Financial Commandments for Your 30s

Stacy Rapacon

After establishing a solid financial foundation in your 20s, use the next decade of your life to keep building and protecting your wealth.



Your finances might have felt like a plague in your twenties, but thou shalt thrive throughout your thirties and beyond.

Our list of Financial Commandments for your 20s helped you find your financial footing and establish a solid foundation. Now that you're older and (hopefully) wiser, this list of goals will help you continue to build your wealth and blaze a path to financial security.

See Also: Kiplinger's Basics of Personal Finance

1. Advance your career.

In your twenties, you developed a marketable skill. Now it's time to apply that skill to increase your earnings.

Research potential career paths for workers with your skill. Identify the types of jobs and companies where you might fit. Consider whether you should go back to school for an advanced degree (or if some free online courses can help boost your career). You might even consider moving to a city where you can find more opportunities in your field.

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Sharp career turns can be worthwhile but also risky. You'll need a financial plan to keep your budget steady while you're changing course. (See Quit Your Job the Right Way.)

2. Rethink your budget.

You established a budget in your twenties and perhaps accumulated some savings. But your income and expenses, as well as your needs, wants and dreams, will likely change from year to year. Your budget will need to adjust to life changes such as getting married, having kids or starting your own business. "It's a balancing act," says John Deyeso, a financial planner in New York City, who works with many young adults (and is himself 37 years old). "Once you get into your thirties, you have more money and more goals, so how do you spread that around?"

You may need to cut spending in some areas to reallocate elsewhere. For example, when I got pregnant with my first child, I slashed spending on the "going out" line item—and added costs to my budget on a new "baby supplies" line item. (Happy hours were off the table anyway.)

If you've recently gotten a raise (congratulations!), you might consider ramping up your saving for emergencies (see commandment #5) and retirement (commandment #6).

3. Adjust your insurance coverage.

As your assets grow, you may need more insurance to cover them. Maybe you rent a bigger or more private space now. (Learn more about renters insurance.) Maybe you're buying a house (and need home insurance) or car (and need auto insurance). Maybe you have some loved ones who depend on you financially (and you need life insurance to make sure they're taken care of if anything happens to you). All of these situations call for additional protection.

Even if your situation hasn't changed, you should periodically reshop your insurance policies to make sure you're still getting the best deal. To compare auto insurance rates, try InsWeb and Insurance.com. For life insurance, you can check rates at Accuquote and LifeQuotes.com. If you're changing jobs, be sure you understand your new benefits and how your health insurance premiums will differ from those at your old job.

4. Pay off nonmortgage debt.

In your twenties, you came up with a debt-repayment plan. Stick with it throughout your thirties, so you'll enter your forties focused on building your nest egg for the future—not paying off bills from your past.

5. Increase your emergency fund balance.

Remember, your goal is to maintain three to six months' worth of living expenses in your emergency fund. As your income and expenses go up, so should the amount in your emergency fund. Worried that all that liquid cash isn't compounding as it might if invested in the stock market? Consider these ways to earn more interest on your savings.



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STARTING OUT


10 Financial Commandments for Your 30s

Stacy Rapacon

After establishing a solid financial foundation in your 20s, use the next decade of your life to keep building and protecting your wealth.



6. Save at least 15% of your income for retirement.

When you started saving for retirement, you may only have been able to contribute enough of your paycheck to earn your employer's 401(k) match. Or maybe you've allowed your 401(k)'s auto-enrollment policy to dictate the percentage that you save—typically 3%.

But experts recommend saving 15% or more of your gross income for retirement. The good news: Your employer's 401(k) match or contribution counts. So if your boss gives you 4%, you just need to save 11% on your own. Every time you get a raise, bump up your nest-egg contributions. If you get a bonus or extra cash as a gift, consider saving it for Future You.

Also start thinking about tax diversification, Deyeso suggests. Generally, if you benefit from a tax deduction now for contributing to a traditional IRA or 401(k), every dollar you withdraw in retirement will be taxed at your ordinary income-tax rate—currently as high as 39.6%. By contributing or converting funds to a Roth IRA or Roth 401(k), you'll enjoy some tax-free income in retirement.

7. Diversify and rebalance your investments.

Now is the perfect time to diversify. "Once you get into your thirties and you have the basics [such as an emergency fund and other necessities] settled, you can take on more risk overall," says Erin Baehr, a financial planner in Stroudsburg, Pa., and author of Growing Up and Saving Up. We recommend sticking with mutual funds and exchange-traded funds. They offer much-needed diversification with relatively low costs. Index funds are simple and relatively stable, making them a good choice for the core of your portfolio. Depending on your comfort level and your know-how, you might consider investing in some members of the Kiplinger 25, our favorite no-load mutual funds, too. For other specific fund recommendations, see Great Funds for Young Investors and Funds You Can Own for $500 or Less.

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At this age, you should invest mostly, if not entirely, in stocks because of their greater potential for long-term gains. Among those stocks, you should diversify between large, midsize and small company stocks, as well as domestic and international picks. We recommend putting up to 70% of your portfolio in U.S. stocks, up to 25% in stocks of developed foreign nations and 5% to 10% in emerging-markets stocks. Also, you should periodically rebalance your portfolio to make sure you maintain your chosen allocations. Doing so will force you to buy low and sell high.

8. Monitor and improve your credit.

You should check your credit report every year. You can do this free by visiting AnnualCreditReport.com (not the site with all those catchy commercials, mind you, which can wind up costing you money) and viewing a free report from each of the three credit bureaus every year. Regular reviews of your report could help you fix errors quickly, catch an identity thief at work or get on top of a potentially delinquent account. To dispute an error in your report, contact the credit bureau directly. If you notice a problem in one report, check reports from the other two bureaus as well. (See Get Free Credit Report Updates.)

Note that your free credit report does not get you a peek at your actual credit score. You'll usually have to pay a fee to see your FICO score. At myfico.com, you can get your credit report and FICO score from each of the three credit bureaus for about $20 a pop. (Your score can vary from bureau to bureau.)

9. Write your will.

Not convinced of your mortality yet? Try waking up in your thirties after a night of heavy partying—trust me, the hangover alone will convince you that you are old and going to die soon. So it's time to write a will. Without one, complete strangers will decide how to split up your estate and raise your children.

You can make out a will on your own for $70 or less at a do-it-yourself Web site, such as www.legalzoom.com. If your circumstances are at all complex, you'll need a lawyer, who will charge about $300 to draw up a simple will and $1,000 to $3,000 for an estate plan that involves a will and a trust. Be sure to update these documents periodically to account for major events, such as the birth of a child.

Several other documents—a durable power of attorney, a release-of-information form and a living will—will help loved ones manage your care and your finances if you become incapacitated. "These documents are not just for old people," says Lauren Locker, a financial planner in Little Falls, N.J. "They are critical to your life planning and well-being." Gloomy as it might be to consider, it's better that you clarify all these things ahead of time rather than leaving it to your mourners to figure out. (Learn more in 8 Smart Estate-Planning Steps to Die the Right Way.)

10. Thou shalt not covet thy neighbor's stuff.

By your thirties, it may be quite clear that your choice to major in English and become a writer has awarded you an income and lifestyle that pales in comparison with that of, say, your sister… the doctor. You may find yourself envying her big house and new BMW. But you certainly shouldn't try to keep up by stretching your budget and taking on mountains of debt. Doing so will ruin your finances. So don't compare yourself or your stuff with others. Just focus on your financial goals, live within your means and be happy with your own life. And try to be happy for your sister, too.

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