Climbing the career ladder, perhaps buying a home and starting a family – the 30s are an exciting stage of life. However, the decisions made now can make a big difference to future financial wellbeing, and with so much going on it is understandable, even inevitable, that the best decisions won’t always be made. So what are the common financial mistakes that 30-somethings should be alert to?
1. Buying an expensive car
New cars plummet in value when driven off the showroom floor, and the higher the price tag the greater the fall. Buy with borrowed money and you’re paying interest on an asset of diminishing value.
Settling for what you need in a car, rather than what you want, can add hundreds of thousands of dollars to your future nest egg.
2. Living on plastic
If you don’t pay off your credit card balance in full each month you’ll be paying a high rate of interest on the carryover balance. Over time, the growing interest bill makes it increasingly difficult to clear the debt. If not used carefully, buy-now-pay-later schemes can also become something of a debt trap.
It might sound boring, but the antidote is to save up for the things you want to buy, and to avoid going into debt for consumer items.
3. Forgetting to save
A rule of thumb is to save at least 10% of your income, but saving even a small amount is better than doing nothing. And in your 30s you have time on your side.
For instance, when Nicole turned 30 she started to put away $200 per month at an interest rate of 5% per annum (after tax). By the time she’s 60 her savings will grow to $166,452. If she waits until she is 40 to start her savings plan she will accumulate just $82,207 – less than half!
4. Focusing only on the money
On the other hand, it’s possible to be too fixated on the money – working too hard, snapping up investment properties like it’s a competition. This may be a hard habit to break, but working on some current lifestyle goals and finding some balance can deliver a different type of reward.
5. Getting caught up in investment fads
Tulips, alpacas, ostriches, the tech boom, crypto-currencies. Investment fads have come and gone, making fortunes for a few, but big losses for many. It pays to heed tried and true rules such as only investing in things you really understand, and diversifying investments to reduce risk.
6. Not insuring your most important asset
No, it’s probably not the house. For most 30-somethings your biggest asset is the ability to earn an income. Most health-related absences from work are due to illness or non-work related injuries – things that are not covered by workers compensation. Income protection insurance can replace much of the income lost due to accident or illness. However, it’s a complex product so seek expert advice.
7. Still feeling bullet-proof
Sadly, death and disability can strike at any age. Now is the time to make a Will. Investigate powers of attorney and health directives. If the worst happens, these documents will make it easier for your loved ones to settle your affairs.
8. Being too hard on yourself
Let’s face it. We’re all human, and we all make mistakes. Unfortunately, if we beat ourselves up about a mistake we have made it may compound the problem. The sour taste of a bad investment, for example, might put us off making a good investment.
That would be a pity because the 30s is a decade of huge potential. Good advice now can help you unlock that potential. To find out more, talk to us at Priority1.