Wealth Mapping Your 30s | The Early Middle Years
- Adam Herod
- Sep 18, 2018
- 6 min read
Updated: Jan 2, 2019
You've hustled and set yourself up in your 20s. Now let's look at the key moves you can make as life gets a little faster! #thewealthmap #money #whattodo
Once you hit your 30s it feels like someone is pressing the + button on the treadmill.
It feels like if you don't start sprinting you'll fall off.
The truth is, your third decade presents numerous opportunities for wealth gain as your salary increases; however, an analysis of your 30s would be amiss if we did not consider the mounting debt avenues for your growing salary. This is often referred to as lifestyle creep. Pay attention below.
Here are the key moves you can make as you enter your 30s and feel the winds of time brushing faster through your hair.
1. Kill Remaining Debts
So you didn't quite hit all of your marks in your 20s, or maybe you fell victim to the new car smell.
Either way, you want to create the smallest window of time to finish things up. Debt free by 32? Go for it! The numbers show you won't be debt free until 37? Grab a side hustle and make no excuses!
The goal here is to make sure you are not 35 and still owing Mom and Dad a check every month.
That vehicle you just had to have? It's time to figure out your amortization schedule and add a little bit on the top to decrease your total interest owed. You could cut off an entire year of vehicle payments just by adding $100 or more to every month's payment.
Find out how much you could save by using this free calculator from Bankrate.com.
2. Stuff Your Emergency Fund
If you didn't get started on an emergency fund in your 20s, you'll hopefully have enough breathing room to get yourself a nice security net should any unexpected event occur.
Experts vary in their suggestions for how much you should save. Some of the most conservative experts suggest saving enough money to cover at least nine months of expenses, and that's where I'd try to land you.
You never know when the air conditioner or refrigerator will go bust, so you can shoot for six months of expenses; however, what if one of those big ticket items goes?
In a matter of a single appliance breakdown you could all of a sudden be down to five months of savings.
That's why I suggest shooting for nine months.
Savings Tip: Keep your emergency fund in an account that offers 1.5% APR growth or higher. Many of the large banks have poor % APR offerings, since they have to upkeep their brick and mortar banks. Look for online savings accounts that are FDIC insured up to $250,000, and your emergency fund can grow at a much better rate than it would at your local bank.
Spending Tip: If one of those big ticket items does go down, try to stay away from any payment plans. Remember, the goal is to not owe anybody anything. Take it from your hefty emergency fund and pay yourself back over time.
3. Hit the 15-20% Mark on Your Retirement Funding
There have been numerous discussions on whether or not to factor in social security when planning for retirement.
Don't.
The good news is that as long as there is a federal tax system social security will not go away.
But laws change and so do financial factors. There is already talk that anyone too young to receive social security now will not receive the same percentage in terms of calculated funds. Worse yet, you may have to wait longer to qualify for social security anyway.
That's why I think any solid retirement plan negates social security, not because it won't be there, but because it is difficult to factor in just how much you should count on.
Any money that does come in from social security will be a nice little add on to your already stuffed plan. Now how does that sound?
The industry standard recommends 15%, but again it would be a huge boost to get you to 20% overall.
Sacrifice a little for investing now, or double your sacrifice later. Early and easy, or later and lugging.
Remember, every time you invest in your retirement you are buying years off of your career. Invest very little and you'll need to work very long, unless you have a nice inheritance or lottery windfall; invest a lot and you'll work only need to work for so long. Then you can do some of the work you'd really enjoy while not having to worry about your financials!
4. Start a Brokerage Account, 529 Savings Plan or Roth IRA
Most people have a savings goal beyond their emergency fund. If you are considering a future expenditure, such as a house or paying for a child's college, it's time to put your money to work.
Some couples in their early thirties have children or are seriously talking about having children. There are three options when it comes to planning for future expenditures, and I'll explain each one in brief detail below.
Brokerage Account - ideal for intermediate to skilled investors who want the freedom to choose their own funds; no limits on what the money could be used for in the future; great for growing your money to go on a vacation, or buy a vehicle or home
529 Savings Plan - ideal for those who plan to send their children off to college; must be used for tuition, books, etc.; great for tax advantages in deferment of funds and allocation of funds
Roth IRA - ideal as a tax diversification vehicle in retirement; has some freedoms in withdrawals but could incur penalties for early and unqualified withdrawals; great for retirement and allows for one-time withdrawals for the purpose of buying a first home or paying for education
A brokerage account is a good way for you to begin investing after-tax dollars. You will have the option to buy individual stocks (riskiest), mutual funds and ETFs (lower risk to higher risk), and bonds (lower risk). This is recommended for those who have done their homework and don't mind picking their own investment vehicles. The benefit here is that your money has a chance to grow as the market grows, and you'll only pay taxes on capital gains. You can then use the money for just about anything you want, without having to worry about required minimum distributions and early withdrawal fees.
A 529 savings plan is a tax-advantaged account designed specifically for college savings. Every state sponsors a 529 and there are two different types to be aware of, including:
a prepaid tuition plan
and an education savings plan
A prepaid tuition plan allows you to buy credits with participating universities that are usually public and in-state. An education savings plan is an investment plan that will allow a parent to pay for tuition, mandatory fees and room and board.
Make sure to understand the types of investments offered by your state and any associated fees.
A Roth IRA is a great retirement option that investors use to invest after-tax dollars. I will always advise people to look into a Roth IRA, especially if they determine they will be in a higher tax bracket in retirement.
One of the best parts of the Roth IRA is its ability to act as an emergency fund, while allowing you to diversify your tax situation for your golden years. Once you have invested in the Roth for 5 years, you may take out your contributions for any qualifying purpose.
The best part is Uncle Sam won't get a cut, as long as you meet the qualifying dispersal criteria.
Buying your first home? Go for it! Investing in your child's college? Sure!
This is my favorite option, since I do not have a crystal ball on my child's academic future. Save for retirement, first, then position yourself to help your children.
The Roth allows you to take whichever turn is presented down the road.
5. Advance Your Career and Maximize Your Earning Power
The key to remember here is that it's not how much your accounts earn in average APR - it's how much you invest.
As employees, we should always strive to push to greater heights and earn a greater income. If you can increase your hourly rate, you can reach your financial freedom even sooner by putting more away sooner.
All of a sudden 10% of your retirement contributions at $55,000 per year goes from $5,500 to $7,500 at a $75,000 salary.
Over a 30-year career that could lead to an increase of $400,000+ in your retirement account.
6. Stave Off New Debts and Avoid Lifestyle Inflation
As your salary increases and you begin earning more it will be important not to fall into the many traps businesses and banks have designed to entrap thirty somethings.
I've heard numerous stories of people earning six figures and barely getting by. They go after the vehicles and timeshares, and accrue all sorts of credit card debts from lifestyle spending and big vacations.
What that tells me is that people don't have a sense of the long term goal, and that they enjoy too often and too fast.
Certainly, we want to enjoy our hard-earned money; however, it shouldn't come at the cost of your daily sanity and especially not our futures.
Your house should be your only debt. Most of us need a vehicle to get to and from work, so a reasonable car is an understandable expense.
Otherwise, don't jump into payment plans simply because you can afford to pay it on future dollars.
For more follow @thewealthmap on Instagram and Facebook.
You can message Adam at wealthmapblog@gmail.com.
Comments