Once you hit your 30s, you and your friends may be falling into very different circles. Those include the married friends with kids, the divorcees, the workaholics, the collectors, the world travelers, the marathoners, the socialites, the hobbyists, and the people just hanging out at home with their pets. If you’re a single person in your 30s, no matter what your lifestyle looks like, there are eight financial moves you should be making.
Understand Your Goals
This may seem a bit basic, but to achieve financial success, you need to define what that looks like to you. Take some time to reflect on what financial goals are important to you and be very specific. Here is an example of a financial goal I sometimes hear: I’d like to be a millionaire. While the dollar amount is specific, this goal lacks some very important things.
Would you like to have $1 million in liquid cash or does that include illiquid investments like real estate? Is this pretax or after-tax dollars? By when would you like to be a millionaire? What would having $1 million allow you to achieve? What is the why behind that goal?
A better goal example is: I’d like to retire by age 55 with $10,000 in net income per month from passive sources. This states why you’re saving, when you’d like to achieve the goal by, how the goal is after taxes are applied, and how you’d like to achieve it. From there, you can work out savings amounts and appropriate investment vehicles to support that goal.
If you have multiple financial goals, list them out and rank them in priority order. This is how you know where to prioritize your resources today.
Enlist Accountability Partners
You are 45% more likely to achieve your goals with the support of an accountability partner than if you choose a goal, commit to achieving it, and decide when and how to accomplish it on your own. When searching for someone to help you achieve your goals, you should seek a person who is a great listener, nonjudgmental, can put you first, and has relevant education and experience. If you do not have someone like that in your personal life, it may be time to seek out a qualified financial professional.
Get Into Healthy Debt Habits
In your 20s, you may have accumulated some debt, whether it was from student loans, credit cards, housing, business loans, or any other source. In your 30s, you likely have a higher reliable income source and can start implementing healthy debt habits. Here are some steps to follow:
- Understand the terms of each of your loans, along with the applicable interest rates.
- Create a budget to find out how much money you can dedicate to debt repayment.
- Prioritize paying off high-interest debt first.
- Only purchase items that fit into your monthly budget or that you can pay for with savings.
- Once debt is manageable, pay off credit cards in full every month.
- Keep your old credit lines open to maintain your credit history.
- Before taking on new debt, make sure you understand the terms, interest rates, and how they will impact your budget.
- Do not allow your debt servicing payments to creep above 36% of your gross monthly income. If you make $6,000 per month, your mandatory debt payments should not exceed $2,160.
Depending on your goals and the consistency of your income, you should hold three to six months of your expenses in emergency reserves. If those expenses are $5,000 per month, you should have no less than $15,000 and no more than $30,000 in cash reserves.
An exception to this rule occurs when you are planning to make a major purchase within three years. If you have an upcoming home purchase, auto purchase, business purchase, major trip, wedding, or you’re planning to take significant time off work, keep the amount needed for those in liquid reserves as well.
Invest The Rest
If you haven’t heard this by your 30s, let me be the first to share the truth: A diversified stock portfolio beats all cash and cash alternatives over the long run. Large company stocks, like the S&P 500, have averaged a return of 10.3% since 1926, Dimensional Fund Advisors notes.
If you invested $100,000 in a large company index by age 35 and didn’t save a penny more for the rest of your life, you’d have grown to just shy of $2 million at age 65. If your savings account gave 1% interest payments, the $100,000 would have grown by closer to $30,000 in those 30 years.
Use Tax Advantages
If you have a goal like saving for retirement, using tax-advantaged accounts like retirement plans will allow you to grow your money more quickly and efficiently than nonretirement investments.
You can also save tax money by saving in a Health Savings Account for medical expenses if you have a high-deductible health plan. You receive a tax deduction when you save, then you can use the funds tax-free for qualified expenses.
Find The Right Insurance
As a single person in your 30s, you may not have kids or others currently depending on your income. So, insurance may not be top of mind. Here are some insurances you may need and why:
- Homeowner’s and Auto Insurance: There may be a big difference between policy minimums to satisfy local requirements and what you may need if your house burned down, someone became injured on your property, or you got in an accident. Work with your insurance agent to find the happy medium between price and coverage.
- Life Insurance: There are a few reasons a single person in their 30s may want life insurance coverage. For starters, going through underwriting to qualify for insurance today can lock in your health rating, allowing you to continue coverage if you became ill in the future. In permanent policies, life insurance cash value accumulates tax-free so the earlier you start, the more growth opportunity you have. If a family member or business partner is relying on you for income, the need for a death benefit may also come into play.
- Umbrella Policy: If you’re worried about lawsuits or anything that could cause serious financial harm above $1 million, consider an umbrella policy to enhance your existing coverage.
- Long-Term Care: While long-term care events usually occur later in life, the actual care need is so costly that some states have already passed laws mandating coverage, either through a state program or private insurer. Long-term care is defined by needing someone to help you perform basic activities of daily living, like feeding yourself, bathing, toileting and moving around. Getting insured while you are young and healthy could significantly reduce lifetime costs.
- Disability: Disability Income insurance insures your ability to earn an income. If something were to prevent you from being able to work, a policy like this would pay out a portion of your income (usually 60%) and allow you to keep up with your bills. Many large employers offer this as part of their benefits packages but if yours doesn’t, it may be worth considering.
Create An Estate Plan
You may be thinking that your 30s are too early to start talking about dying. The reality is that estate planning is for more than just making sure the process is smooth when you pass away. It is about making sure your wishes are met in the event of incapacity or death. Let’s say you are estranged from your parents and get in a horrible accident. You have no medical directive or power of attorney on file, and you end up in a coma. In that case, it would likely fall to either your parents or the court system to decide your fate. With a plan in place, your personal wishes would be followed.
Conclusion
In your 30s, it is critical to start making moves to achieve financial security. Understanding your goals, enlisting accountability partners, developing a healthy relationship with debt, keeping the right amount in cash reserves, investing, using tax advantages, finding the right insurance, and creating an estate plan can all support your financial future.
This informational and educational article does not offer or constitute, and should not be relied upon as tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article.
Cicely Jones (CA Insurance Lic. #: 0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-6657847.1 (6/24)(Exp. 6/26)
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