Your 30’s make up an exciting decade in your life. This is often a time when most people experience a series of life-changing events. You may get married, buy a house, have children and excel in your career. And along the way, you’ll have to make big financial decisions that will lay the foundation for your financial future.
Here are 5 financial mistakes you should avoid in your 30’s, to help start your 40’s with a bang!
1. Living beyond your means
One of the biggest financial challenges we face is to live within our means. That simply means you live within your budget without taking out a loan or using a credit card to help pay the bills.
When you live within your means you are supporting yourself entirely from your salary.
How do you do that?
You manage your spending. Will Smith said, “too many people spend money they don’t have, to buy things they don’t need, to impress people they don’t like.”
We live in a society where spending money is rewarded. We feel good about ourselves for buying the latest iPhone, even though our current phone was working just fine.
Avoid spending your money on things you want, instead focus your spending on the things you need.
2. You don’t have an emergency fund
Building an emergency fund is crucial in building a strong financial portfolio. An emergency fund helps you protect yourself in case of an illness, injury, unemployment, or any other large unexpected expenses.
When you have to deal with an unexpected payment, you should rely on your emergency fund instead of your credit card.
You can start building your emergency fund by setting up scheduled payments from your main bank account. Start adding as much money as you can to your savings account. This will help you save automatically as quickly as possible.
3. You don’t have a budget
No matter what your age is, you need to know how to budget your money.
You will struggle to make important financial decisions without a budget. Creating a budget can be the difference between achieving your financial goals or not.
Your budget really does not have to be an over the top spreadsheet. All you need to know is how much money you’re spending and what you’re spending your money on.
Use the 20/30/50 budgeting rule to create a simple budget for yourself.
- 50% goes towards necessities like mortgage/rent, car payments, debt payments, food, childcare, etc.
- 30% goes towards lifestyle spending. These are things that make you happy or relaxed like eating out, new clothes, toys for your kids, entertainment etc.
- 20% is for long-term savings. This is for your emergency fund, investments, education etc.
Click here to help you build your own personal budget, we’ve included a free downloadable budgeting spreadsheet.
4. Not saving for retirement
Saving for retirement is one of the most challenging financial decisions you can make. But the sooner you start, the more money you’ll have when you retire. That’s all thanks to compound interest.
Compound interest rewards you the longer you keep your money in a retirement savings account.
There are various retirement vehicles that allow you to store your money for retirement. We recommend saving your money with a tax-free savings account (TFSA) or retirement annuity (RA).
Read more about these retirement savings here.
5. Carrying too much debt
Over the past 2 years, many of us had to rely on our credit cards and personal loans to help us pay the bills. However, these financial decisions come with their own risks and it is easy to lose track of how much debt you’ve made over the past few months.
Pay off any debt that you have as soon as possible. If you do use your credit card, pay it off as soon as you receive your paycheck.
If you have other debt accounts, create a debt repayment plan.
The debt snowball method is a good strategy to help you off your debt as quickly as possible.
- List all your debt accounts from the smallest account to the highest.
- Continue paying the minimum repayment on all your debt accounts.
- Add as much extra money as you can towards the smallest debt account.
- Once that account is paid off, transfer that repayment amount to the next account.
- Continue this process until you’re debt-free.
For a detailed explanation of the debt snowball method, click here.
Most people start taking their journey to financial independence more seriously in their 30’s. Establishing your financial goals, having tough financial discussions with yourself and sticking to your savings plan is the recipe for financial success.
Avoid making these financial mistakes and you should be on your way to financial freedom in no time.
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