Financial Mistakes to be Avoided in Your 30s

As one progresses in life, there are phases where they are initially dependent on their parents, and as they start to get money, they progressively become more responsible and start taking responsibility of a family. The most important years of a person’s life are when they are in their 30s because this is the time when they are beginning their jobs, getting married, and maybe starting a family, all of which call for stability and a reliable income.

When you are in your 30s, you will be facing more responsibilities in comparison to past times in your life. Therefore, it is imperative to have a sound financial plan in place and to start investment journey as early as possible. This in return prevents financial stress, which otherwise could impair your existing lifestyle or force you to make compromises. As a result, if you are in your 30s then you should avoid making the following common mistakes:

Lack of Financial Planning

Planning is essential in all phases of life, whether it be planning for your college exams, planning for your career, or planning for your personal finances. One of the biggest mistakes people make is not planning their finances. Because, without goal-based investing, you’ll be running aimlessly without knowing your destination. When an individual begins his journey of earning, the first thing he or she should do is start setting SMART financial goals and investing money to accomplish these goals. If you have not set your financial goals yet then now is the time to do so in order to prevent any financial stress in the future.

You should allocate your funds in accordance with your financial goals, which might be short, medium, or long-term. Organizing your financial goals into categories will help you identify your goals and reach your target, whether they are short-, medium-, or long-term. Example of short-term goal could be buying a car, medium-term goal could be children’s education and long-term goal could be retirement.

When it comes to financial planning, it has been observed that married couples most frequently have their own thought processes. As a couple ideally they should work as a team not only in certain aspects of life but in every aspects of life which also includes financial planning. If you are married, you should sit down with you partner and make a list of your unique aspirations, dreams and goals which you want to achieve throughout life. Your spouse might have different opinions than you do about retirement or the schooling of your kids. When it comes to financial planning, it is crucial to be on the same page as your partner. Please don’t miss to include financial goals as part of your Couple Goals!!

Delaying Retirement Planning

Retirement planning is the most underrated financial goals nowadays. It is typically neglected because it may seem needless to invest for it at such a young age, but the fact is it needs to be a significant part of your financial plan. Retirement planning should ideally begin as soon as you start earning because it will help you build a sizable corpus that will allow you to maintain and enjoy the same standard of life in your sunset years. The majority of people disregard the need to plan now because they believe retirement is decades away, which results them to retire with little or no corpus.

Retirement planning is necessary since the country’s financial status has altered over the past few years in such a way that it will be challenging to maintain a respectable level of living using current resources. Longer life spans have also been a result of technological innovation and better medical care. If you haven’t begin planning for retirement in your 30s, you need to do so right away to avoid losing any more time. Let’s see how much corpus you would accumulate if you start your investment with Rs.5000 till the retirement age of 60 assuming 12 % rate of return in the following three scenarios:

The above scenarios adequately demonstrate the value of beginning your investing journey as soon as possible. Starting to invest at the earliest is crucial if you want to take advantage of the game of compounding.

Not Keeping Track of Your Expenses

Understanding difference between your needs and desires is critically important. Today’s youth are fascinated by the many materialistic things they see all around them, such as branded clothes, brand-new smartphones, fancy bikes or cars, etc. As a person starts earning money, he feels inclined to spend it on such luxuries and may end up spending their whole salaries on such desires. Spending carelessly and mindlessly is the biggest obstacle to building wealth. People splurge money because of peer pressure, unconscious buying, temptations due to heavy discounts or big crazy festival offers trap, etc. If you are in your 30s, you should be extremely prudent and cost-conscious. To prevent overspending, you should keep track of your cash flows and make a monthly budget for your expenses. Spending more money than you are saving puts you at danger of experiencing financial difficulty.

While creating budget, make adjustments to your spending habits so that you start spending less and saving more instead of the opposite. There is a simple budgeting rule in finance which everyone can follow and that is 50/30/20 rule. The 50/30/20 budget rule was made popular by United States Senator Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan. According to the rule, you should spend 50% of your after-tax income on needs or essentials, 30% on wants or desires, and 20% on savings or investments.

No Proper Insurance Planning

One of the most important aspects of financial planning is insurance planning. There are many risks and uncertainties that surround a person, but insurance is a tool that enables them to secure their finances in the event of an accident. Fundamentally, insurance is a way for people to cover financial losses brought on by life. An individual can use insurance as a strategy to protect themselves financially against dangers including travel mishaps, fatalities, property damage, illnesses, hospital emergency admissions, fire disasters, etc. If a person does not have enough insurance, they may experience financial difficulties. An individual has more duty in his 30s than in his 20s because he is also responsible for caring for his family throughout that time. In the terrible event that the same person passes away, his spouse and children would be left without support. Life insurance takes care of your family in your absence.

It’s also crucial to have health insurance for you and your family because, medical care is expensive. Being hospitalized can break the bank and ruin your finances. Paying a small annual premium would relieve your concern in the event of medical crises and allow you to avoid all of this.

Taking an insurance cover early in your life can make a huge difference in the premium amount that you will have to shell out from your pocket. Another factor which is equally important while buying life or health insurance is taking an adequate insurance. It’s crucial to buy adequate insurance coverage because both under- and over-insuring can be dangerous. In the event of unlucky situations, inadequate insurance can cause severe financial stress. On the other hand, having too much insurance can result in higher monthly costs, which could hurt your existing financial situation. When it comes to life insurance, adequate insurance ideally should be five to six times of your annual income and in case of health insurance, the cover amount should be at least 50% of your annual income. Out of all insurances, life insurance and health insurance are must to have for everyone.

Conclusion

In conclusion, the 30s are a time of full-time responsibilities, including paying for the family’s bills, raising and educating the kids, and taking on debt like a home or car loan. Therefore, it is important to avoid the mistakes listed above in order to avoid any financial stress.

To summarize, every individual should do wise planning when it comes to achieving lifelong financial goals or taking insurances. While taking these calls, kindly make sure you are on same page with your partner as well. Financial planning is a responsibility of the whole family and not of an individual. As a family, you should also have sound structured budget which illustrates clear differences between your expenses against needs, desires and investment. Last but not the least, to accumulate significant money that will enable him or her to easily achieve financial goals, an investor should ideally begin investing as early as possible.