Turning 30 is a kind of watershed moment in most people’s lives. It sort of marks the end of young adulthood and the real coming into your own as a person. You will likely have new responsibilities including maybe even marriage and children but regardless of this the number one thing on your list should be your finances. This is especially important if you’re married, as conflict over money is the number two reason why couples end up divorcing.
What do you need to achieve financially by the time you turn 30? Here are 11 financial things you should have done or be working on. As you might imagine these goals are not for everyone and all eleven may not be feasible for you. But it’s important to keep them in mind at least as general guidelines.
Be prepared for large expenditures
Big expenditures will be coming your way and you should be saving up, anticipating and preparing for them. As an example of this, you may soon be buying a house, having children and other comparable major expenses. If necessary you will need to alter your lifestyle to be prepared for these expenses so that you will be able to pay for them without having to go into debt.
Have an emergency fund
In the event you don’t now have an emergency fund you need to start building one so you will have money available to pay for unanticipated expenses such as a serious illness, an auto accident or if you were to lose your job. Experts generally say you should have the equivalent of six months worth of living expenses banked and, of course, a year would be even better. If six months seems out of reach try for the equivalent of at least three months of your living expenses.
Live within your means
By the time you hit 30 you should know how to live within your means but be able to also enjoy life. You should know your priorities or what it’s worth spending money on and how to save in other areas to pay for those guilty little pleasures like your morning latte. It’s acceptable to splurge on yourself periodically so long as you’re cutting costs aggressively on other items. And understand that what other people are skipping on may not be anything you would want to give up.
Automate your finances
By now, you should know about automating your finances. For example, you should be sending a part of your paycheck automatically to your savings account every month so that you’re paying yourself first. If you’ve already built up a fairly nice emergency fund, you might send the money to your broker for investing. The simple fact is that most people don’t miss the money when it’s taken out of their paycheck before they ever see it. This just makes saving money a lot easier.
Max out your 401(k)
You should now be maxing out or at least meeting your employer’s match for your 401(k). When your employer matches your contribution to your 401(k) this is like free money and many financial experts say it’s the average person’s best friend. The money you put into a 401(k) is pretax meaning that it doesn’t count against your income. If times get tough you could borrow against your 401(k) and when you pay back the money, you’re basically paying interest to yourself. Be aware that if you do borrow from your 401(k) you need to start paying back the money within six months or it will be treated as ordinary income and taxed accordingly. And of course, you will have to pay taxes when you begin withdrawing the money at age 70 ½. In the event your employer does not offer a 401(k) you should be putting money into a conventional IRA
Have a Roth IRA
The money you put into a conventional IRA is also pretax like a 401(k). But it’s good to also have a Roth IRA. The reason for this is that the money you put into it is treated as taxable income but it’s tax free when you begin withdrawing it.
Make a will
I understand that its tough to think about your death when you’re only 30 years old but accidents and illnesses do happen. Even if you’re single you need to have a will so that you will have control over what happens to your money and physical possessions. Of course, this is even more critical if you’re married and have children.
Prioritize and pay off your high-interest debt
If you still have high-interest debt you need to get to work paying it off. Most experts say that the best way to pay off high-interest credit card debt is by using a technique called snowballing. It’s where you prioritize your debts from the one with the lowest balance down to the one with the highest. You then focus on paying off the one with the lowest balance. When you get it paid off you will have “new” money available to begin paying off the card with the second lowest balance and so on. This is called snowballing your debt because as you get each one paid off, you should pick up momentum to pay off the next one just as a snowball picks up momentum as it rolls downhill. If you think this technique might help you, watch this video from Dave Ramsey for more information.
If you have federal student loan debt you can’t snowball it but you could change repayment programs so that you would have better terms and lower monthly payments.
You were probably put in 10-Year Standard Repayment after you graduated from school. This means you have a fixed term of 10 years and fixed monthly payments. Another program such as Graduated Repayment or Pay As You Earn Repayment could be a better option. If you would like to know more about these options go to the website https://studentaid.ed.gov/repay-loans/understand/plans.
Improve your credit score
Like it or not, that little three-digit credit score is what rules your credit life. It was invented by a company that was then known as Fair Isaac Corporation but is now simply FICO. If you don’t know your FICO score you can get it on the website www.myfico.com. You can also get it from any of the three credit reporting bureaus – Experian, Equifax and TransUnion or from an independent source such as CreditKarma.com. If you find that you have a low credit score of, say, less than 600 you need to get to work to improve it. One of the components that make up your score is your debt-to-credit ratio. This is calculated by dividing your debt by the total amount of credit you have available. For example, if you have total credit card limits of $10,000 and have charged $2000, your debt-to-credit ratio would be 20%, which would be very good. If you find your ratio is above 40%, you will need to either pay down some of your debts or get your credit limits increased. Do this and your credit score should improve at least somewhat. Beyond this, you need to check your credit reports to see what’s dragging down your score. If you have missed payments, skipped payments or defaulted on payments, you will need to get to work to correct these issues.
Know something about negotiating
It’s important to be able to negotiate successfully over things such as salary and with service providers. By now you should at least understand the elements of how to negotiate successfully.
Have read a few books
Finally, by the time you reach age 30 you should have read a couple of books about personal finance. Two of the best of these are Your Money Or Your Life and Dave Ramsey’s Total Money Makeover.