Are you wondering how you can set yourself on the path to financial stability?
Here are six critical financial mistakes I’ve seen folks in their 30s make and why you should avoid them:
1. Not having an emergency fund
Having an emergency fund is vital to avoid debt later in life when retirement goals should be front and centre.
This amount should cover three to six months of living expenses so you can ride out any unexpected events such as a job loss or costly medical issues.
This amount should also be put in a savings account and not an investment account. A savings account ensures that you can access your funds immediately and not have to worry about a downturn in the markets affecting the money you have managed to save.
2. Being underinsured
Many people don’t like to buy insurance because it means paying for something they hope never to use.
But the consequences of being uninsured are so enormous that they can wipe you out financially. One medical emergency or accident on the job, for example, can change your financial trajectory.
The types of insurance that people don’t have to buy, but that I highly recommend, are:
- Term life insurance replaces your income for a spouse or kids in the case of death.
- Health insurance ensures that a significant medical bill doesn’t force you into bankruptcy.
- Disability insurance ensures that you and your family can maintain your standard of living if you are injured or unable to work.
- Renter’s insurance, if you don’t own your home, so you can replace your belongings in case of theft or damage from a fire, flood or other catastrophes.
3. Making minimum payments on high-interest debt
If you have high-interest loans, you have to pay them down as aggressively as possible before focusing on low-interest-rate loans.
It makes sense to make the minimum payments on lower-cost loans until you get rid of the high-cost loans. The faster you can pay those off, the more money you’ll have to put towards other financial goals that become increasingly important as you progress in your 30s.
4. Spending too much on a house
Given the increase in house prices this year, the temptation to stretch and take on a bigger mortgage than you expected is high. Still, you need to make sure that your housing budget makes room for things like unexpected repairs and maintenance. If you start a family, potential changes to your future income are something you must consider before making any big real estate decisions.
Homeownership is gratifying and can lead to wealth creation, but that’s not guaranteed. However, what is guaranteed is that you’ll have to spend a lot more on your house than just the mortgage payment.
5. Not aggressively saving for retirement
When you’re in your 30s, retirement can seem far away. But every cedi you save for retirement now will have 10 to 20 extra years to accumulate compound interest than money saved in your 40s and 50s.
If you work for an employer with a retirement plan, save enough to get the employer match. It’s the only guaranteed return on your savings you’ll ever get. If your job doesn’t offer an SSNIT contribution plan, set up private insurance that will automatically move money from your bank account on payday.
If you aren’t maxing out the contributions you can make, promise yourself that you will increase the amount you save every time you get a raise.
6. Saving for your kids before saving for yourself
Once you become a parent, it’s natural to want to put your kids’ needs in front of your own. But saving for your children’s education before your retirement is a huge mistake.
There are many ways to pay for university education, such as scholarships and choosing less expensive schools or loans, but no other way to pay for retirement other than saving.
