We spend a good deal of our childhood wishing our youth away. We tell ourselves, “I can’t wait to be an adult so I can do whatever I want!” By the time we reach our 30’s we’ve come to learn that with the power of choice, comes the burden of responsibility.
So, as you prepare to traverse this pivotal decade, here are a few areas to focus on to set yourself up for future financial flexibility and freedom.
1. Ignore whatever the Joneses are doing
While it is incredibly tempting to compare ourselves, even subconsciously, with our friends, neighbors, peers and family members, trying to keep up with others’ spending is a recipe for financial distress. Just because someone buys that new car, big house or goes on that fancy European trip doesn’t mean they can afford it. Perhaps they can, or maybe they are up to their ears in debt. Instead, focus your spending on what you can afford and what is a priority for you.
2. Increase your earnings or your earning potential
You spent your 20s learning a marketable skill, now it’s time to take a step back and take stock of your career path. This is your time to pivot! Whether that means gaining additional education, moving to an area with better job prospects, shifting your role to something you are more passionate about, or simply finding a company that better aligns with your values, now is the time to make your move.
Successful leaders often follow a winding path to their final destination. Don’t be afraid to veer onto a new course, it may be the adjustment you need to propel yourself further.
3. Protect what you’ve built
You’ve likely increased your net worth over the last decade, so it is now time to ensure you are adequately covered by your homeowners, renters and/or auto insurance policies. Contact your insurance agent for an in-depth review of both your property and liability coverages on those policies. The worst time to find out you don’t have adequate coverage is when you submit a claim.
Consider increasing your deductibles to save on premiums. Now that you have a larger net worth, you can likely afford a higher deductible. Insurance is best used to cover catastrophic loss, not for the $500 or $1,000 hit.
Additionally, if you have loved ones who depend on your income, consider adding long-term disability insurance and term life insurance to your insurance portfolio. Many employers offer these policies, as well as professional associations of which you may already be a member.
4. Invest for the long-term
After protecting your assets it’s now time to focus on growth. Let’s assume you’ve already created the habit of contributing regularly and significantly to retirement savings. It’s now worth reviewing all of your investments and matching your time horizon to your level of risk for each “bucket” of investment assets.
Any account that is invested for retirement has a long time horizon and can therefore withstand short-term volatility. A higher allocation to growth assets like U.S. and international stocks is appropriate.
Any account that is earmarked for short or medium-term goals like a house down payment or wedding should be invested more conservatively with a larger allocation to high quality bonds and cash.
If you have young children, consider opening a tax advantaged 529 account to save for future educational expenses. Get your kids involved in the process through open discussion and even consider the concept of teaching them to save by letting them allocate a portion of their allowance, birthday money or earnings to their own college fund.
While this all may seem a bit daunting, I encourage you to look at financial planning as a slow, iterative process. Focus on accomplishing one step at a time and you’ll slowly build a stable financial house that will protect you and your loved ones from life’s storms for years to come.
Additional Contributor: Daniel Morones-Garcia (2022 Summer Intern)