When you reach your 30s, you’ve likely been working for a while and may have seen a decent increase in your annual income. But there are several big life events that often happen around this time that require a good chunk of savings. You may have already experienced them or are preparing for them now. Marriage, having children and buying your first home are common for people in their 30s.
It’s also a good time to think seriously about your retirement plan. Maybe you didn’t save as much during your 20s and are looking to boost your savings or just ramp things up from their current level.
“You’re living the lifestyle you want to live, and building a family,” says Tim Kenney, certified financial planner at Seawise Financial in the San Diego area. “And you’ve found that you’ve got a little bit of extra money laying around or your check’s a little bigger than it used to be. And you’ve got places for that to go.”
Here are seven tips for saving and investing in your 30s and taking advantage of perhaps your highest-earning years to date.
1. Solidify a financial plan
Your 30s are a good time to make sure you’ve got a solid financial plan. There are always unexpected things that come up, but you should know your short- and long-term goals and have a plan to get there. Short-term goals might be planning for kids or buying a house, while long-term goals typically focus on retirement.
If you don’t have one already, make sure you have an emergency fund saved for any major unexpected costs that may arise. This includes hospitalization, loss of a job, unexpected home repairs, sudden automobile expenses and any other unplanned expense. Experts suggest having at least three to six months worth of expenses saved.
2. Get rid of debt
If you don’t have debt, that’s great. But if you do, paying this off should be a priority. Odds are, debt is going to be at a high annual percentage rate (APR). Even if it’s a “low” APR, paying interest should be avoided because it’s money that could go toward savings down the road.
People often want to know which investments will lead them to financial freedom, but paying off high-interest loans is a more certain path than hoping investments turn out exceptionally well.
3. Get your employer’s retirement plan match
At a minimum, you’ll want to be contributing enough to any workplace retirement plan offered by your employer to receive a matching contribution, if available.
For example, you might need to contribute 5 percent of your pay to receive the maximum matching contribution from your employer, which might consist of a 100 percent match on your first 3 percent and a 50 percent match on the next 2 percent, for a total contribution of 9 percent. The amount of the match varies by employer, but you’ll want to make sure you’re receiving the full amount because experts think of this as “free money.”
Many employers require you to work for a certain number of years before their contributions are vested. If you leave your job before then, you could lose what they’ve contributed to your retirement plan. Some employers take a gradual approach to vesting, where you’re 20 percent vested after one year of employment, with that increasing steadily until you’re 100 percent vested after five years.
4. Contribute to an IRA
If you don’t have an IRA, consider opening one to diversify your investment portfolio and take advantage of its perks, which can include reducing your taxable income. You could also contribute to a Roth IRA, which doesn’t come with an immediate tax benefit, but your withdrawals during retirement will be tax-free. You can also withdraw your contributions at any time without penalty.
You’ll also likely get more investment options in an IRA account than you would from an employer-sponsored plan such as a 401(k). You’ll probably have a handful of funds to choose from in a 401(k), but you can invest in ETFs, mutual funds and even individual stocks in an IRA account.
If you have an old 401(k) from a previous employer, you may want to roll it over into an IRA. If you’re going to open up an investment account for a 401(k) rollover, you may be able to earn a bonus for opening that account. Bankrate tracks the best brokerage account bonuses for you.
5. Maximize your retirement savings
In the 2021 tax year, the maximum contributions for a 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan are capped at $19,500. Your 30s are a good time to max out your contributions so that your money can compound for a few decades leading up to retirement.
“A good rule of thumb is saving 10 to 15 percent of your income in either your 401(k) at work or if you have IRAs, Roth IRAs, that sort of thing,” says Crystal Rau, certified financial planner at Beyond Balanced Financial Planning LLC. “And then if you aren’t hitting that gauge, then you need to focus on maybe cutting back on the spending, and getting a budget in place if you’re having trouble with that.”
6. Stick with stocks for long-term goals
In your 30s, you still have time on your side to make up for market losses. Over the long run, stocks have returned about 9-10 percent annually on average for investors, but that return doesn’t come in a straight line. Volatility is part of investing in stocks and you’ll want to be sure you have the risk tolerance for it.
But a big benefit of investing in your 30s is the amount of time you still have for money to compound before you reach retirement age. Use this long time horizon to your advantage and consider investing in stocks through ETFs and mutual funds.
“If you can do it, if you can stomach it – be as aggressive as you can because your timeline is literally 30-40 years,” Kenney says.
7. Potentially build wealth by purchasing a home
If you rent instead of owning a home, you’re not building equity. For most people, a home is the largest asset that they own. So purchasing a home may be able to help you earn equity, and save for the future by having an asset. Even though mortgage rates have gone higher in the past few months, they are still near historical lows.
Keep in mind that home ownership is not for everyone. Make sure you’re ready to embrace the good and the bad that comes with owning a home and are ready to tackle maintenance issues that you may be used to having a landlord take care of.
How much should you be investing in your 30s?
The exact amount will depend on your individual situation, but saving and investing 10-15 percent of your income is generally a safe bet. Remember that money you invest during your 30s should be worth more than the money you save in your 40s and 50s because it will compound for longer. If you’re able to keep a tight budget during your 30s, you will likely reap the rewards in later decades and during retirement.
Learn about investing: How to get started
It can be intimidating to dive into the investing world. Here are a few investment options if you’re just getting started.
- ETFs. Exchange-traded funds are a great way to own a basket of stocks at a low cost, even if you don’t have a lot of money to invest. The funds trade similarly to stocks and you can invest in a broadly diversified portfolio of companies or a narrow sector of the economy.
- Mutual funds. Like ETFs, mutual funds give investors access to a basket of securities. Index funds are a popular way to own a group of stocks that track an index, such as the S&P 500, for almost no cost. These funds have tended to outperform other funds that attempt to identify superior investments and charge high fees.
- Robo-advisors. Robo-advisors are a relatively new offering, but can make sense for many people who want a simple approach to their investments. After answering a few questions about your goals and risk tolerance, an algorithm will identify a portfolio of investments and manage the account for you. You’ll pay an annual fee, but it’s usually less than that of traditional financial advisors.
- Stocks. For most people focused on long-term goals, stocks should be a good place to invest. You can get exposure to a basket of stocks through ETFs and mutual funds, or you can choose individual companies for your portfolio. Make sure to thoroughly research any company before investing and understand that concentrating your holdings in just a few stocks will likely be more volatile than having a diversified portfolio.