Last week, we talked about saving and investing in your 20s. This week, it's your 30s, which come upon you faster than you think. Because of that, many of us aren't quite financially ready. Here's your check up:
Kick the Debt
The first five or seven years out of college are largely spent getting on your feet and establishing a career, or at least a focus. You generally don't have a ton of financial responsibilities, but you also don't have a ton of income, so you may have racked up a bit of debt. Now's the time to wipe it out once and for all.
"If you're carrying a lot of debt, you're really putting yourself in a bind. If you need a high income just to meet your fixed expenses, you're making yourself very vulnerable," says Marina Goodman, a financial planner and investment strategist with Brinton Eaton Wealth Advisors in New Jersey.
Paying off that debt not only frees up money for other things -- like investing -- but is an investment in and of itself: If your credit-card interest rate is 14%, you can keep that money in your pocket by paying off the debt completely. If you don't have any credit-card debt, keep it that way by making sure you have an emergency fund (I discussed this in detail last week).
Make a Wish List
There are likely a lot of demands on your wallet right now -- maybe you want to buy a house, start a college fund for young children, save for a vacation next summer and put away money for your retirement. It can feel like your wallet is being pulled in a million directions, so it helps to get your goals on paper and then prioritize them. Maybe you can't save for a vacation and a house at the same time, so you skip next year's trip to the beach.
Money for short-term goals, like that house, should be in a money market or savings account, or CD (just don't lock in for longer than six months or a year, tops -- interest rates are going to go up at some point, and you want to be able to catch them). Money for longer-term goals should be at least partially invested in the market.
And in my book, retirement comes first. Which brings me to...
Get Serious About Saving for the Future
Ask yourself what your time horizon, risk tolerance, and magic number is, and then figure out a plan to satisfy all three. Your time horizon should be fairly easy -- at this age, you have several decades of investing in front of you, which means you can get fairly aggressive as long as you're comfortable with it.
Goodman recommends having 10% to 15% in fixed income, 20% to 35% in alternatives like commodities and real estate, and 50% to 65% in equities, including a mix of small- and large-cap shares and stocks in emerging markets. If the thought of that keeps you up at night, you can avoid alternatives, which tend to be fairly volatile.
And if all of this is making your head spin, consider a target date retirement fund, which will do most of the dirty work for you based on when you plan to retire. Just keep in mind that these funds are not created equal, so you need to do a bit of research. I wrote about this in detail here.
As for knowing that magic number -- how much you need for retirement -- I like to use this calculator from Choose to Save.
Part of your financial plan should include having insurance in place, so you're prepared if the unexpected happens. You should have disability insurance -- "your ability to earn a living is your most valuable asset," says Goodman. If someone depends on your income, you should also have life insurance (if you're a stay-at-home parent, and your partner would have to pay someone to take care of the kids if you were to pass away, you need life insurance as well).
A term life insurance is fairly inexpensive at this age, and most employers offer at least some form of disability coverage. Just fill in the gaps with a policy of your own.