If you’re like most young adults, you spent your twenties getting
an education, launching a career and transitioning into adulthood. You probably
didn’t worry too much about your finances, figuring that you had plenty of time
to land your dream job, pay off debt, buy a home and save for retirement.
In order to better take control of your finances, here are three
financial mistakes to avoid in your thirties.
Buying Too Much House and Car
Buying a home is exciting. It’s also a huge financial commitment,
and it’s easy to get in over your head. Just because you’re approved to buy a
fancy 4,000 square-foot home with a pool doesn’t mean you should. Don’t just calculate
your mortgage, but consider all the costs associated with owning a home such as
insurance, property taxes, and maintenance. Keep in mind that the more you
spend on housing each month, the less you’ll have for other life goals like retirement
savings or traveling the world.
The same is true for buying a new car. Many experts recommend
spending no more than 30% of your after-tax income on housing and no more than
15% on transportation. Just remember the No. 1 rule of financial planning is to
spend less than you earn. Keeping your housing and transportation costs low
means having flexibility in your budget. You’ll be able to save more, have
extra money to pursue hobbies and have more financial peace of mind.
Focusing on One Financial Goal
We all have financial goals, but balancing and prioritizing those
goals isn’t always easy. I’ve seen many clients who have credit card debt put
all their resources into paying off that debt. While that’s definitely a great
goal, you should also make sure that you don’t ignore other priorities such as
having an emergency savings fund. If you have no cash saved to cover
unexpected expenses, you’ll never break the cycle of relying on your credit
cards.
Also, don’t forget to take advantage of your employer match in
your retirement account. It’s free money, and delaying retirement savings until
you’re completely debt-free may not be the best idea. As I mentioned before,
it’s difficult to balance financial priorities, so when in doubt contact a
financial planner who can help you build a strategy to reach all your goals.
Not Protecting Yourself Financially
You may have paid off debt, built an emergency fund and started
saving for retirement, but those aren’t the only elements of a solid financial
plan. Thirty-somethings often overlook insurance and estate planning because
they assume they’re young, healthy and not wealthy enough to worry about having
a will or life insurance.
If you have children, life insurance and estate planning are
crucial. You want to make sure that your family will be cared for and protected
if something should happen to you. It’s also essential for single adults
without children to have a will and durable power of attorney to
specify who would make decisions for them if they were unable to do so.
Everyone’s needs are unique, but don’t assume because you’re young
that you can wait. Talk to a financial planner who can help you determine what
you need and put you in touch with the appropriate professionals to make sure
you and your family are properly covered.
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