In your 30s, you’ve likely been working for a few years and may have seen a decent rise in the annual income. However, there are some life events that also happen around this time and could require a big chunk of your savings. A lot of you may have already experienced them while many others might be preparing for them now. Buying a home, getting married, and having children is common for people who are in their 30s.
This is also a time to think about your investment goals and retirement plan. Not many of us can manage to save as much in the 20s and if you are looking to boost the savings, you will need to have a plan of action. You could have the lifestyle you want to live, start a family, and may still have a little extra money. This is when you should make the right investment decisions and work towards your long-term goals. Here are some tips to help you take advantage of your highest-earning years.
Investment decisions you should make in your 30s
1. Create a financial plan
This is the time to make sure you have a solid financial plan in place. There will always be unexpected things that come up but it is important to have the short-term and long-term goals in place and a plan to achieve them.
Your short-term goals could be planning for kids or taking a luxurious holiday while the long-term goals could focus on retirement. If you do not have an emergency fund, you should start building one. It will help cover the unexpected costs that may arise. Put at least three to six months of expenses in the emergency fund.
2. Repay debt
If you do not have debt in your 30s, that’s great but if you do have, your priority should be paying it off. Debt is going to be at a high-interest rate and it will put a dent in your budget. You must try to avoid paying interest since that money could go toward saving in the long term. While you may want to know about the good investments that will lead to financial freedom, paying off the high interest loan is the first step towards it.
3. Contribute towards IRA
It is important to open an IRA to enjoy diversification of the portfolio. You can also take advantage of its perks and reduce the taxable income. When it comes to Roth IRA, you will not have immediate tax benefits but the withdrawals will remain tax-free and you can make withdrawals at any time. There are more investment options in an IRA account than from an employer-sponsored plan like 401(k).
4. Increase the retirement savings
No matter when you begin saving for retirement, it is important to work towards maximizing the same. It helps to save 10 to 15 percent of the income in IRAs or 401(k). If you are not growing your retirement savings, it is time to consider cutting back on your spending and creating a budget to ensure that you stick to the goals.
5. Focus on the long-term goals
In your 30s, you must work towards achieving long-term goals. If you have invested in stocks, you will be able to generate around 9 to 10 percent annually but it will not happen overnight. You need to stick to the stocks for a few years and understand that volatility is a part of the market. Hence, only proceed if you have the risk tolerance for it. If you own a house, understand the benefits of a reverse mortgage on https://reverse.mortgage/how-does-it-work and try to make the most of it.
Owning a home gives you equity which renting does not. A big benefit of investing in the 30s is the opportunity to ensure that your money compounds before you reach the age of retirement. With a long time horizon, you can achieve your long-term goals without taking high risks since the timeline is around 30 to 40 years.
These are a few investment decisions you should make in your 30s and the exact amount of investment will depend on your individual situation. But it is always a good idea to save about 10 to 15 percent of the income. You should keep in mind that the money you invest in your 30s will be worth more than the money you save in your 50s because it will compound and grow at a higher rate.
Those who can keep a tight budget in the 30s will certainly reap rewards in the later decades while inching closer to retirement. It may feel intimidating to dive into the world of investments and seeking the help of a professional can make a lot of difference in making the right decisions and sticking to them.