I used to think that by the time I turned 30, I’d be financially set. I sort of glamorized the fourth decade of life like Jenna from the film 13 Going on 30. Like, I graduated from college EIGHT years ago. I’ve got legit work experience, and I need anti-aging skincare! I deserve nice things and an awesome vacation, right?
Eh, maybe-maybe not. Movie characters in their 30s live in Manhattan apartments WAY too big for their movie character jobs (have you ever noticed that?), drive expensive new cars, sit on designer sofas, and are professionally styled.
What don’t 30-something movie characters do? Debt-busting, 401K investing, emergency-fund building, sinking fund saving, and all that other stuff that doesn’t make a glamorous movie. But it does make you REAL rich, instead of fake rich.
So if you want to be rich in REAL LIFE and not pretend rich like a movie character, avoid these major money mistakes in your 30s.
- Letting those college loans hang around like a bad roommate
Guys, I hate to say it, but college was over a decade ago. It’s time to get rid of the school loans, along with the ratty college t-shirts shoved in the back of your dresser. Minimum payments feel manageable, but debt isn’t something to “manage,” it’s something to annihilate. The interest you’re paying just isn’t worth it, and imagine what you could do with that extra cash if it weren’t going toward paying off debt! As retirement expert Chris Hogan says, “Interest you pay is a penalty. Interest you earn is a reward.”
- Buying a house before building an emergency fund
Owning a home was THE DREAM for me. We did apartment living for a LONG time, and I was sooo sick of it. I get it! I want you to own a home, too. It’s tough being confined to cramped living quarters, especially if you have kids, and especially when it seems like all your friends are buying houses and decorating with the Pottery Barn catalog.
But most people jump into the housing market before building an emergency fund of three to six months of living expenses, and this is a huge mistake! I can’t tell you how many clients in their 40s and 50s come to me with debt disasters primarily because they didn’t have the money to make emergency repairs and replace broken appliances. The last thing you want is for your house to be a financial burden. I know renting for now feels like a waste, but buying a house without an ample emergency fund is asking for serious trouble.
- Not investing in a Roth IRA
We all know we should take advantage of our employer’s 401K match, but you’re giving up a major tax break if you’re not investing in a Roth IRA. With a traditional IRA, you get to invest tax deferred money, which is awesome for the current tax year (since the amount you invest is deductible), but you have to pay income tax when you withdraw the money in retirement. With a Roth IRA, you invest after-tax money (so no tax deduction this year), but it’s nontaxable in retirement. Including all the interest that’s been accruing for the last 30-some years. YAY! Ideally, you want to invest 15% of your gross income. Start with the percentage that your employer matches, then contribute the $5,500 max to a Roth IRA. If you’re still not at 15%, top off the rest with your work’s 401K.
- Increasing your lifestyle with every raise
Yeah, you’re 30 and flirty and thriving (we are friends if you know the reference), but that doesn’t necessarily mean you can afford to spend more every time you get a raise. If you’re debt-free, have a full emergency fund, and are contributing 15% to retirement, then it’s totally appropriate to save for a vacation, buy a nice piece of furniture (with cash), or increase your restaurant budget. Just don’t go crazy and forget to save for medium and long-term goals, like your next car and the kids’ college funds. If you’re in debt or haven’t been able to invest 15% for retirement, then use raises to ramp up hitting those goals first.
- Financing Large Purchases
A “good deal” is NOT based on monthly payment. Seriously, this monthly payment nonsense is getting out of control. The average car loan is now SEVEN YEARS. But I digress… suffice it to say this is not the time to get in the habit of financing appliances, cars, lawn mowers, mattresses, or anything else, even if it’s 0% down for a billion years. It’s easier to establish good habits now like saving up and buying with cash than it will be to clean up a mess later. Don’t tie yourself down to monthly payments other than your regular bills. Don’t you have enough bills already?
Instead, create a sinking fund for upcoming purchases. Simply divide the amount you need to have saved by the number of months you plan to save, and set aside that amount each month in a savings account. This works for everything: cars, Christmas, vacations, furniture, anything that’s a bigger expense than you can work into the monthly budget. A little delayed gratification and planning goes a long way in saving you money and the stress that a litany of payments inevitably causes.
If you’ve already made some of the mistakes on this list, it’s not too late to turn things around! You have a long time to invest and today is the perfect day to start making progress on your financial goals. A little discipline and commitment to a debt-free lifestyle will set you up for success for the rest of your 30s and will pay off big time for all the decades ahead.