Table of Contents
1. Monitor credit scores
2. Boost emergency savings
3. Evaluate long-term goals
4. Start a retirement account
5. Pay off debt
6. Maximize earning potential
7. Avoid lifestyle creep
8. Get the right insurance
9. Assess risk tolerance
10. Consider enlisting help
The bottom line
Jun 21, 2022
7 min read
Wondering how to build wealth in your 30s? Here are 10 steps that may contribute to lasting wealth over time.
With higher wages and more advanced career opportunities, individuals in their 30s are poised to begin building wealth for their future, including retirement.
According to the U.S. Bureau of Labor Statistics, the highest earning years in life are between 35 and 64. A recent report also suggests that college-educated workers tend to experience salary growth throughout their 30s before it starts to peak—for women, in their early 40s, whereas men’s plateau near their 50s. This makes thirty-somethings well-positioned to begin building wealth for retirement and other financial goals as they advance in their careers.
Of course, there’s no shortcut to get there. Long-term investing typically requires a solid plan to achieve a fully funded retirement.
Wondering how to build wealth in your 30s? Here are 10 steps that may contribute to lasting wealth over time.
As people navigate their 30s, they’re likely to finance bigger purchases such as a home or a new car. Credit scores play a major role in qualifying for these loans and securing the best interest rates possible.
A higher score results in a lower interest rate—which is important because even a fraction of an interest point can add a lot to the cost of a loan. For instance, a $350,000 mortgage with a 3% interest rate would cost about $181,221 in interest over 30 years—on top of the purchase price. With a 3.5% interest rate, the same mortgage would end up costing nearly $216,000 in interest.
Monitoring one’s credit score will help ensure a lower rate when shopping for financing.
An emergency fund is crucial for managing unforeseen events, whether it’s an expense or a loss of income. At the start of the Covid-19 pandemic, for instance, 40% of people with an emergency fund dipped into those accounts, and more than 73% used up more than half of their savings.
Since it’s common for one’s lifestyle to increase alongside one’s salary, 30-somethings may also want to keep tabs on their budgets and make sure their emergency fund could cover 3 to 6 months of their current expenses in case of a job loss. A simple annual or biannual financial check-in can reveal if an emergency fund fits their needs.
Another consideration is how many people that emergency account needs to cover. Individuals in their 20s may only have themselves or a spouse to worry about, whereas growing families may need a bigger emergency fund to cover an array of surprises, sometimes in the same month.
One major component of how to grow wealth is creating a financial plan. There are a number of goals a 30-something may be saving toward at this stage of life, such as retirement, college for children, or buying a home. In addition to savings goals, 30-somethings may also decide to pay off student loans or credit card debt. Listing priorities can help with decision-making, especially when there’s an unexpected windfall such as an inheritance.
Opening a tax-deferred account and making regular contributions are the first steps towards saving for retirement. Workplace plans are one place to start, especially if an employer match is available. Retirement accounts are also available outside of the workplace. A traditional individual retirement account, for example, allows for a tax deduction on qualifying contributions.
Starting early is key to success. Say a 35-year old starts investing $500 a month in a traditional IRA until they turn 67. Assuming an average annualized return of 8%, that account would be worth nearly $1 million by retirement. By contrast, a 45-year old who starts investing the same amount each month would only have an account balance of $390,000 by the same retirement age. That’s a huge lifestyle difference.
Paying down debt, particularly balances with high interest rates, is an important financial move for those in their 30s. First, credit scores typically go up as balances go down, which opens the door to lower interest rates and the savings that come with them.
Additionally, a lower debt-to-income ratio allows individuals to qualify for higher loan amounts when it comes time for big-ticket purchases such as a home. Many experts recommend paying off high-interest debts first, since it saves money over time. It may also make sense to refinance to a lower rate on certain types of loans.
Higher income impacts one’s ability to save and spend. Asking for a raise or working on a certification that allows for a higher salary may lead to more earning potential. For instance, the typical medical coder earns $41,000 a year. By becoming a certified coding specialist, the average salary jumps to $57,000. That’s an extra $16,000 to save and invest each year.
Having multiple streams of income is something many wealthy people have in common. Some ideas to start earning money from several sources include launching a side hustle and setting up passive income streams such as dividend-paying investments.
A common mistake people make when their income increases is increasing their spending at the same time. But too much lifestyle creep can quickly impede the ability to build wealth for the future.
One solution is creating a savings budget based on a percentage of income rather than a dollar amount. That way, individuals continually increase their rate of savings as they earn more. Instead of someone contributing a flat $8,000 per year to a 401(k) when they earn $80,000, for instance, they could view it as a 10% contribution. If a salary increase takes them to $88,000 the next year, they could increase their annual retirement contribution to $8,800 to build even more wealth.
There’s no point in being a 30-year-old millionaire if that wealth isn’t protected. Appropriate levels of homeowners insurance and auto insurance can prevent people from dipping into their savings because a policy didn’t provide enough coverage. For those with dependents, a life insurance policy ensures there’s plenty of cash on hand to cover final arrangements and outstanding debts in case of an early death.
As an individual’s net worth grows, it may also be a good idea to look at increased liability coverage. A strong umbrella policy protects personal assets in case of a lawsuit. A $1 million umbrella liability policy only costs between $150 and $300 a year.
Thirty year olds may be reaching a new level of maturity in life, but they still have plenty of time before retirement. That’s something to consider when creating an investment plan with an appropriate level of risk for those individual life circumstances. Plus, rising inflation each year can devalue cash savings over time.
Investors who take on more risk early in life have a longer investment time horizon to ride out fluctuations. And over time those bigger earnings could compound into significant wealth. As an individual gets closer to retirement age, they may consider moving their assets into less risky investments.
As wealth begins to accumulate more quickly and life gets busier with work and family, 30-somethings may want to get professional help managing their finances. There are several options to consider:
A registered investment advisor focuses on directing and managing your investments. Investment advisors typically either make investments on your behalf, or offer research and recommendations on which securities to buy and sell. An investment advisor can be an individual or investment advisory firm, like Titan.
Working with a financial advisor provides investors with a personalized plan and ongoing access to advice whenever money decisions come up. They might help with setting up a will, 529 college savings plans, and mortgages. They may also offer investment advice.
This is an automated approach to investing with a personalized strategy based on a questionnaire completed by the investor.
As a 30-something juggling increasingly greater demands, it takes commitment to grow enough wealth to retire in style. But it’s entirely possible, especially with a multipronged approach that not only makes retirement more enjoyable but provides financial security throughout all of life.
At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.
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