The Ultimate Guide to Investing In Your 30's
Welcome to the Invest By The Decades series! Every Wednesday, I'll break down how members of each decade should be managing their money to set themselves up for sustained success with their cash. This week, we'll be looking at your 30's and how to solidify your financial foundation to succeed for the rest of your life. This article is for entertainment purposes and should not be interpreted as investment advice. Each situation is different, so please contact a professional for your own individual needs.
You made it! Welcome to your 30's. Your 30's are all about transition. You could be in a new job, a new career, you could have a new partner or marry an old one. You could move house, have kids, move cities, and on top of all of that, you're supposed to have time to figure out your finances? Seriously? Well that's what I'm here for! Amidst this time of intense transition, finances can serve as the stability you need in your life. So let's dive into how to make that happen to make your 30's the time where you seriously thrive and set yourself up for life.
1. Keep Building On Your 20's Habits
For this exercise, I'm going to assume you read my piece on investing in your 20's. If not, go read it! It's pretty good. Anyway, if you did read it and live it, then you're already rocking a 401(k) and maybe even a Roth IRA. The good news here is that you can keep on keeping on. Keep contributing to those accounts and let compounding interest do its thing. One note here: try to bump up your 401(k) contributions if possible. That little 1% bump will be basically unnoticeable in your paycheck, but will make a HUGE difference over the course of your now-30+ year investing journey to retirement.
The other account I touched on in my piece on investing in your 20's is an HSA. Now that you're in your 30's, you're going to want to solidify that health insurance through your employer, or via the public option if you're in the United States. Many employers offer plans that include either a Flex Savings Account (FSA) or Health Savings Account (HSA). While both accounts are meant to be used solely for medical expenses, there are huge differences between them:
An FSA is a pre-tax contribution up to $2,875 per year, but it has an expiration date at the end of the year. You use it or lose it at the end of each year.
An HSA is a pre-tax contribution up to $3,500 per year with no expiration date, meaning this amount rolls over each year. Additionally, you can invest the money in your HSA account after your account balance exceeds $1,500.
Wait...you can invest money meant for healthcare? Yes! And there's another added benefit: the account is triple-tax-advantaged. The money is contributed pre-tax, lowering your taxable income. Any money invested in the account grows tax free, and then it can be withdrawn in retirement without taxes. HSA's are incredibly powerful tools for those in-the-know, so consider yourself part of the secret society now.
So why would anyone have an FSA over an HSA? Plans that include FSA's tend to be cheaper in terms of the annual insurance premiums and out-of-pocket costs. So while I would advocate for you to start an HSA account, it may not be feasible for your specific situation. And that's OK! Just as long as you are setting aside some cash for your medical future, and both accounts are great ways to do that.
2. Consolidate Your Accounts
Chances are, you have come a long way in your career and have had a couple of different jobs. According to Zippia, between 25 and 34 you're likely to have had nearly 5 different jobs, which also means you probably have quite a few retirement accounts sitting around out there. Allow me to introduce you to the concept of "the rollover."
Rolling an account over means that you're taking your old retirement account from your previous job(s) and are putting it into an account that you own, rather than your employer. While it sounds daunting to move that money over, it's actually quite easy. Any brokerage you can think of (except good old Robinhood) can execute a rollover, and many include a personal concierge to assist in the process. You'll want to do this for a couple of reasons:
You don't want to forget about that money! That's your money, so you don't want to just light it on fire when you head to a new job.
Compounding interest is still at play here. Even if it was just $1,000 in the old account, that could be worth a lot more when you hit retirement age.
I personally use Titan Invest for my rollovers. They have a dedicated concierge to help you with every step of the process, and don't charge you a rollover fee like some of the bigger brokerages. The best part? Once it's rolled over, you're into Titan's proprietary investment strategies, which have beaten the market each of the last three years. Use this link to sign up today!
3. Watch Out For "Early Debt"
We'll cover what "good debt" is in the next section, but I wanted to chat a bit about what I call "early debt." This is debt that you take on before you take on other, more necessary debt in your life. Early debt could be credit card debt, extreme student loans, medical debt, margin loans or anything of the kind. This is any kind of debt that puts you in a hole that's really tough to get out of without going to extreme measures like cutting out your avocado toast.
You're probably making good money now. You're in your 30's, flirty and thriving. But that doesn't mean you have to take multiple yearly trips to Cabo and Tulum with the girls, or rent that huge Miami house with all of your friends, especially if you're sticking it on credit cards with a "plan" to pay it back later. High-interest debt catches up to everyone, and you don't want to dig yourself deeper not only in terms of dollars, but in terms of a potential ding to your credit score.
4. Get To Know "Good" Debt
Here's why you want to make sure that credit score is clean: because you're about to enter into the "Good Debt" phase of life. If you listen to everyone's favorite financial drunken uncle Dave Ramsey, then no debt is good debt. I disagree. Some debt can be good as long as it is providing a value to your life. Purchasing a (reasonable) car with financing is perfectly acceptable if it helps you get to and from your job, because it's providing you a return on investment (a paycheck). Taking out a mortgage to purchase a home is perfectly acceptable, because it's providing you a return on investment (equity in the home). Just make sure to know your limits. Even now, after all of the guardrails put in place after the 2008 housing crash, banks still won't tell you when enough is enough. That's on you to know your budget, your timeline and your ability to repay the debt.
If all of this seems complicated, remember this: if you cannot pay the debt back, do not take out the loan.
5. Stay Aggressive (But Be Aware!)
In your 20's, you could afford to YOLO $100 into Tesla call options and ShibaFox69 Coin, because you have plenty of time to recover those inevitable losses before you retire. Now that you're in your 30's, you can still take big swings, but you have to be a little more aware. You still have a ton of time to recover any potential losses you might have, but this should be the time where you really concentrate on building the solid financial base of your investing portfolio. Index funds or target date funds should be the cornerstone of your retirement account, so make sure you nail that down first before you load up on Lucid Motors put options.
6. Get On The Equity Ladder
Your 30's are likely a time where you're thinking about settling down somewhere, beginning to lay roots and settle into a career. With this, you're likely thinking about the pros and cons of renting a place to live versus purchasing a place to live.
Renting brings with it a sense of comfort: you pay rent in exchange for mobility and reliability. Something breaks? Call the landlord. Job change? Break the lease! Want to upsize or downsize after your lease expires? That option is easily available to you. The other side of the rental coin, though, is that you aren't building to anything. Rent goes to the rental company, and to nowhere else. You're not paying down your rental into something you can sell later, which is where home ownership comes in.
With home ownership, you are building equity in something that you physically own. To do that, you need help from the bank, which is your entry into the world of "good debt" with a mortgage. My dad always called this "the equity ladder" because your first mortgage is like the first rung on your way up the climb. You outlay money upfront for closing costs and a down payment, but then you're in. You start to pay down that mortgage and (hopefully) your home price appreciates, increasing the spread you make when you sell the home and put that cash into another home. Then your equity kind of acts like a snowball. Your 30's are the time to hop on that ladder like a firefighter saving a baby from the third story.
7. Don't Forget About That Emergency Fund!
At this point, it's likely that you've started making good money. According to Business Insider, American wages actually peak in your 30's, which means that you may be spending a little more on the things in your life than you did in your 20's. This is called "lifestyle creep," or as better illustrated by Meek Mill: "the money turned my noodles into pasta. The money turned my tuna into lobster."
Lifestyle creep is an inevitable part of life. Your paychecks start to get bigger and you want the nicer apartment, you want the bigger house or the fancier car. That's fine, but again: know your limits. You probably can't afford all of that plus the nicer restaurants and to shop at Whole Foods, all the while saving money each month. Just because you make more money doesn't mean you should neglect the emergency fund. Quite the opposite actually; you need to contribute more to it. The advice of "3-6 months of expenses" still applies, but now that number is bigger. What happens if you get laid off tomorrow? Can you still afford all of the obligations you now have with the nicer car and bigger place? If you have a solid emergency fund, then it should help you bridge the gap until you get a new role. If not, you could end up like what happened to my wife and I earlier this year...
Are you in your 30's and scared shitless of your finances? Did this guide help? Let me know in the comments below, and don't forget to share this with the other 30-somethings in your life. Thanks for reading!