David Lerner Associates: Financial Resolutions in Your 30s
In this series of articles, we will suggest three New Year’s financial resolutions that may be appropriate for each stage of life, starting with resolutions for your 30s.
Financial Resolution #1: Balance competing financial priorities and goals. For many people, the 30s often represent a time of increased earning potential as they start to advance in their careers and move up the corporate ladder, notes David Lerner Associates Executive Vice President/Branch Manager Jonathan Jarow.
“At the same time, though, they may also have started a family and assumed the many financial responsibilities this involves, such as a home mortgage, life insurance, car payments, and all of the expenses involved in raising children. So a common financial challenge at this stage of life is balancing the goals of meeting growing financial responsibilities while also maintaining consistency in savings, especially retirement savings.”
Jarow suggests creating a budget that starts with your fixed monthly expenses (things like rent or mortgage, utilities, groceries, insurance, car payments, etc.). Then add extras like entertainment, eating out, vacations and such. “Anything that’s left over should be allocated to savings, both short-term savings for emergencies and long-term savings for your children’s college educations and your retirement.”
Financial Resolution #2: Start saving deliberately, not accidentally. This resolution takes the first resolution a step further. Instead of saving whatever is left over after your fixed and variable monthly expenses, determine that you will save a certain amount of money each month regardless, and then live on the rest.
“Better yet, make a commitment to saving a certain percentage of your income every month, instead of a fixed dollar amount,” says Jarow. “This way, your savings will automatically increase as your income hopefully increases over time.”
For example, suppose you decide at age 35 to contribute 10 percent of your pre-tax salary of $30,000 (or $3,000 a year) into an IRA. Then let’s suppose that by age 40, your salary has risen to $40,000. By following this strategy, you would have increased your IRA contributions each time your salary rose and be contributing $4,000 a year, or $333 a month, to your IRA now.
Financial Resolution #3: Set your financial priorities. As noted above, it can be easy for the additional income that you might earn in your 30s to be swallowed up in your growing expenses. You might also desire to indulge in a few luxuries you may not have been able to afford before whether this is a nice vacation, fancy car or boat, or dinners at expensive restaurants.
“This is understandable, and there’s nothing inherently wrong with spending money on these kinds of things,” says Jarow. “But it’s important to set financial priorities, including planning for a financially secure retirement that is looming closer than you might realize.”
One of the best ways to make consistent retirement saving a financial priority is to make your retirement contributions automatic. “You can arrange with your bank for a fixed amount of money to be automatically transferred from your checking account to your retirement account every month,” says Jarow. “Or if you contribute to a company-sponsored plan like a 401(k), you can have your contributions automatically deducted from your pay and placed in your account.”
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC