3 Smart Money Moves in Your 30s | American Funds

Creating a Financial Plan

MAY 2019

Planning for a future beyond yourself

Your 30s can be a critical crossroads. Just when your career takes off and your paycheck increases, you may be facing some major financial challenges — like buying a home or starting a family.

Here are three ways to focus on your priorities:

1. Build a foundation for homeownership.

Today’s typical first-time homebuyer is 32 years old with a household income of $75,000.* If you plan to purchase a home, start with these principles:

  • Save for that down payment. The higher your down payment, the lower your mortgage. Consider setting aside money specifically for a home, and invest it with a purchase date in mind.
  • Improve your credit score. Be diligent about paying your bills, and review your credit report for any errors. A strong credit score could get you a lower interest home loan.
  • Understand the true cost of home ownership. Budget for not only mortgage payments, but also costs like insurance, property tax and home maintenance.
  • Be realistic about what you can afford. Try to keep your future housing costs below 30% of your income, for instance.

2. Review your insurance.

If you’re among the growing number of people becoming parents in their 30s, you’ll want to provide some financial protection for your family. Research the benefits offered by your employer. If you feel you need more, consider purchasing individual policies to fill the gap.

  • Life insurance can replace your income if something happens to you, but how much do you need to provide long-term support? Experts recommend seven to 10 times your annual salary.
  • Disability insurance can keep you afloat if you get sick or injured and are unable to work. Of course, no one expects that to happen, but more than 25% of 20-year-olds will become disabled before reaching retirement age, according to the Social Security Administration.

3. Expand your investing.

By now, you should be making a solid effort to save for retirement, probably by contributing to a 401(k), IRA or both. A good rule of thumb is to aim to have saved double your income by age 35. As your income rises, try to earmark a portion of that increase for savings and investing, and look beyond retirement accounts.

  • If you have children, you may want to contribute to a tax-advantaged 529 college savings plan.
  • Once you've maxed out your tax-advantaged accounts, consider investing in separate taxable accounts as well.
  • Reduce investment risk by spreading your investments across various types of assets. Purchasing mutual funds, which pool a variety of investments in one package, can help you diversify.

In your 30s, you may be ready to focus on financial security for yourself and your family. Making financial choices now that can help provide a comfortable future is a good way to keep your eye on the prize.

*National Association of Realtors, “Quick Real Estate Statistics,” May 11, 2018.

 

What's next: 3 Smart Money Moves in Your 40s


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