Do you know what the most transformative decades of your life are? Yes, it is your 30’s. We start to mature in this decade, responsibilities increase, and we start to understand the meaning of a career with our job. We urge for a home, a family, and many other goals. We seriously start to think positively about good financial habits for our future. And not to mention, this is the high time when financial mistakes can impact your long-term financial well-being.
Mistake #1: Are you competing with peers?
Are you “keeping up with the Joneses.”? We often get biased with the social status of others, whether it could be family members or peers. So we go beyond our capacity. We often forget that a big mansion cannot be made in a single day. It needs savings and sacrifice, which may your parents have done lifelong. Another dangerous habit is comparing your assets with your peers. It is one’s financial obligations and income that decide how much one can save. If you can’t recognize this on time, it leads you to overspend, and you will live beyond your means.
Always remember that everyone’s journey is unique, and he should enjoy it in his own way. Besides, you should have responsible financial planning.
Mistake #2: Having no Budget
You should have clarity on how you are spending your money. Know how much you can spend as well what you spend on your money. First, know where you stand and then decide how much capable you are of spending money- be it purchasing a house, a car, or spending on a fancy vacation. If you have a budget for everything, then you are not far from your long-term goals and financial savings. Maintain a simple excel worksheet for this purpose, or use modern applications like Nerdwallet.com if you wish.
A simple way to create a budget is to record all cash inflows as well as track all expenses. Review actual expenses and set them with your budget. At this step, you can compare whether your expenses exceed your income or not.
Mistake #3: Not Having an Emergency Fund
You do not know when a financial catastrophic like unemployment, illness, etc. can hit you unexpectedly. So, you should be well funded prior to face that situation. So, you must have emergency savings account ready as an emergency fund. It is always better to have an automatic sweep from your checking account. This account must be able to cover at least 6 months’ expenses. Also, you need to grow your emergency fund as your expenses grow.
Mistake #4: Overspending on a Home or other assets
In our 30’s we likely get settled down, and purchasing a home and car are the parts of it. Some of you may upgrade these assets. As these assets become more expensive so become their maintenance too. Overspending on these things can increase your debt and limits your savings. So, the thumb rule is to spend 28% of your income on these assets.
Mistake #5: Using Credit card causing High-Interest Debt
Credit cards are simple to use and easily available. So, especially young people love to use them as they can spend excess through it. Sometimes you lose track of how much you have to spend for shopping or dine out! Another trap that comes with a credit card is it offers you a pay minimum monthly payment instead of the entire balance at once, causing debt in the end. Also, there is an interest rate behind it that you need to pay. Your $1000 purchase can turn into $1500 if you don’t pay it off in full.
So if you are a credit card holder and have that bad habit of spending lavishly, then address your spending habits by paying your credit card balance every month on time. Another option is to use a no-interest credit card and create a budget.
Mistake #6: Being conservative in investment
Investment is always for the long-term, no matter you are starting to investing or adding to your portfolio. Usually, we work for 30 years and spend 20-30 after retirement. So, if you become conservative on savings, inflation will erode your living status once you don’t have an inflow of money.
You should have clarity on your time horizon. You should be conservative on short-term purchases and more aggressive with a long-term horizon. How much volatility you can withstand is dictated by your risk tolerance. Depending on this, you can mix your assets in your investment portfolio.
We have discussed in detail in the following blog on this – Investing for Beginners
Mistake #7: Lack of Financial Discussion
We hardly discuss about money with others. One of the main reasons behind it is finance is a significant reason for relationship conflict. But we are not always wise enough to do financial plan without the help of other. So, it is always advisable to establish a healthy financial relationship with your close partner. The following points are essential to discuss with your financial partner:
- Whether you prefer to have joint or separate bank accounts?
- Do you want to incur debt or want to live debt-free?
- Your investment risk tolerance?
You can take advice from a certified financial planner and develop a comprehensive financial plan for this discussion.
Mistake #8: Not Having the Right Insurance
We pay for insurances hoping that we never need it. So, you may consider as a luxury or burden. But when we want to protect our loved ones, it is an essential one. Whatever insurance policy you will do, be it for home, car, or medical insurance, you must be aware of the policy details, coverage, premium, etc. Also, life insurance is essential as you start a family.