Finance By the Decade - Your 30s

THIS IS a continuation OF LIFTOFF’S FINANCE BY THE DECADE SERIES, IN WHICH WE DISCUSS GOOD FINANCIAL PRACTICES BASED ON YOUR AGE. TODAY, WE LOOK AT YOUR THirties.

BY DAVID GORHAM, LIFTOFF FINANCIAL PLANNING

    Turning thirty is a huge milestone in life. You’ve left behind your twenties, and are embraced as a ‘full’ adult by society. If you’re so inclined, you can become a U.S. senator, and in five more years, even the president! Though most of us don’t have such lofty political aspirations, it is widely agreed upon that thirty is a major turning point in life.

    Financially speaking, your thirties can usually be described as a grind. You are likely finished with your professional training or education, are several years into your career, and/or have settled down and started a family (or are in the process). While there are certainly changes that occur in your thirties, it’s probably nothing like the whirlwind of your twenties. Life is less about exploration, and more of a focus on the passions and projects that you have chosen. The purpose of this article is to boil down to five financial pieces of advice that apply to almost everyone in their thirties, so they can maximize their financial success. Without further adieu:

1. Confirm your direction

    By the time you’re thirty, you’re probably married and several years into your career, so it’s crucial that you take a moment and evaluate. You have spent 30 years, approximately one third of your life, working. It is absolutely crucial that you sit down by yourself and separately with your spouse to make sure that you still believe in the goals and dreams that you are chasing. We have precious little time in this world, and there are few things more tragic than chasing after something that you will regret. Take the time to evaluate where you are headed, which should include:

• Family goals: if you’d like to raise a family, your thirties are a great time to start. While you’re not as young as you used to be, you are almost certainly more financially stable, and hopefully wiser.
• Education: while many complete their desired educational courses in their 20s, your 30s are becoming more popular to finish up terminal degrees, and to pursue other certifications. If you’d like to get the most out of a résumé line item, do it now!
• Travel: you may not be pursuing it right now, but this is a good time to chart a course for your future. If you really want to go to Rome, write it down and make it a goal that you will pursue. If you want to sip piña coladas on a beach in Grenada, it should be something you are intentionally aiming for (and you have a lot in common with me).

Take the time to check your trajectory, because this is widely regarded as the peak of your life!

2. Advance your career

    You have probably been working in your career for several years, and are becoming skilled. If you jumped in while you were particularly young, you may already be regarded as an expert! Regardless, your thirties are the time to dig in and crush your career. Take those special projects, get that extra certification, and keep your ear to the ground for new opportunities.

    There is a common conception that ‘advancing your career’ means climbing some sort of a hierarchy so that your salary, prestige, or title increases. I find all of that to be empty. When I talk about advancing your career, this is what I mean: endeavor to position your work life so that it is more in sync with your desired life overall. If you desire to work 70 hour weeks in a high-paced and high-stress environment, then more power to you. I’m glad that people like you exist. If you desire to have a steady 40-hour work week that lets you get home to your family, then by all means, pursue it.

    The reason I advocate taking on all of the additional tasks in the first paragraph of this section is simply to give your job more security. The more valuable you become to an organization, the less likely they are to dispense with you. Spend your thirties working to be someone who is competent, respected, and invaluable. By pursuing those objectives, you will gain the ability to shape your work life such that it matches your personal goals.

        3. Maximize your savings

    Ideally, you spent your 20s learning to save. Many typical budgeting articles give arbitrary metrics, such as saving 10% of your income, or the 50-30-20 rule (for housing and bills, entertainment, and saving respectively). I’m not a fan of any of those, because an arbitrary number is unlikely to be ideal for your given financial situation.

    In a nutshell, every dollar you save is a dollar that should grow over time. Further, every dollar that you save in a tax-advantaged account is one that has not one, but two multipliers. Not only can that money compound over time if invested, you are getting a guaranteed benefit due to tax advantage (and this gives you a tremendous amount of planning options for retirement). As a rudimentary example; say you max out an IRA at $6,000 for tax year 2019. If you make those as ‘traditional’ (that is, pre-tax) contributions, you will have 6,000 less in taxable income for the year. Assuming that you are in the 22% tax bracket for the year, that contribution of $6,000 also gives you $1,320 savings from your taxes owed for the year. That’s $1,320 that you can use to pay down debt, invest, or otherwise have working for you until retirement age. While there is far more complexity given the interplay between federal and state taxes, traditional vs. Roth contributions, etc., it boils down to a very simple rule:

    “Save every dollar you can. If you don’t fill up your tax-advantaged savings every year, you are leaving an approximately 12-37% discount on the table.” (for calendar year 2019, and avoiding the complex interplay of taxation)

    I get it. It can be hard to carve money out of your budget, and saving is far less fun than almost anything else you would do with that money. But ultimately, every year that you don’t save as much as you can, you are burning a discount coupon on your taxes that expires on December 31 in most cases. Please, work to maximize your savings however you can.

4. Eliminate debt

    A sad reality is that a majority of the U.S. population carries debt for most of their lives. We borrow money (typically in our twenties), move through life, and wake up in our thirties with a pounding financial hangover. As the (hopefully fun) fog of the previous decade clears, we recognize that a tremendous portion of our paycheck is going to paying off debts that may last well into our forties or fifties if we make the minimum payments.

    I’ll level with you: though I do a lot of traditionally cool things like martial arts, hunting, and farming, I’m also a tremendous fan of role-playing. Dungeons and Dragons, Rifts, Pathfinder. . . I’ve spent a ton of time at the table nerding with the best of them. The only reason I share that in this article is to help you see debt the way it needs to be seen. In your thirties, debt is the dragon that needs to be slain. It is dangerous, it is powerful, and statistically it is huge compared to your finances. Do not think that you can chase your dreams and goals easily without eliminating your debt, and mounting its head on your wall.

    In our previous article, we covered how important it is to minimize debt, and how it should only be taken on with a high chance of good return on investment. Now, in your thirties, it is crucial that you understand that when compound interest is working against you (that is, the interest on your loans), you are trying to advance your financial position while some of your line items are moving in reverse.

    I’m not going to cover the different methods to pay off debt, because it has been discussed to death. The avalanche is mathematically optimal, the snowball method is great psychologically, and it doesn’t matter much either way if you would just get serious about the situation and eliminate your debts. You can do it, and you will feel like a new person when they’re gone.

5. Stay the course

    One of the primary reasons that people don’t chase after their dreams is that they seem so far away. The idea of working to pay down debt, saving, and enduring a sometimes awful work environment causes many people to throw up their hands. While certainly not an iron rule, your thirties seem to be the ‘make or break’ of financial supremacy vs. financial despair.

    My encouragement to you is this: You probably have far more life ahead of you than behind you. While being debt free, owning your home, and obtaining the ideal job may seem far away, this is the time to work toward your goals. Take the time, determine what you want to achieve in life, and continue working toward it. Remember, financial independence is not an end goal, but rather a means to an end. Once you have checked and double checked your course, continue moving forward!

    Working through your thirties is more of a marathon than a sprint. Ensure that you are heading in the direction you desire, and understand that pacing is the name of the game. Use your 30s to move ever closer to your goals, understanding that every bit of progress now will pay dividends in the future!

Please feel free to reach out to us with your questions and schedule a free 30 minute consultation here!