Story provided by Business Insider –
Time is still on your side in your 30s. If you manage your money well, it can mean huge financial gains in the future.
That’s easier said than done. Plus, many of us tend to assume that we’ll have more money in our 40s and have plenty of time to tune up our finances, which can lead to some poor money decisions.
Here are 12 of the worst, and how to combat them.
1. Not taking advantage of work benefits
If you’re not taking full advantage of your employee benefits, you’re leaving money on the table. Some of the more overlooked, yet incredibly advantageous, benefits include:
Healthcare flexible spending account: This type of account is a pre-tax benefit account you can use to cover a variety of healthcare products and services, from acupuncture and physical therapy to vaccines and over-the-counter medicine. You can put up to $2,550 of tax-free money into this account in 2015, and save about 30% on healthcare expenses with the tax break, WageWorks reports.
Dependent-care flexible spending account: If you have young children, dependent-care FSAs are worth considering. This account works similarly to the healthcare FSA, in that you can contribute pre-tax money, but is specific for dependent care services, such as preschool, summer camp, daycare, or before- and after-school programs.
Commuter benefits: These are often overlooked, but they can save you over $600 each year,WageWorks tells The Wall Street Journal. The concept is simple: Employees can use pre-tax money from their paychecks to cover mass-transit passes — including the train, subway, bus, ferry, and parking.
It’s worth it to research and talk to your human-resources department to understand the scope of what’s available to you, as these benefits could save you thousands of dollars each year.
2. Not increasing your 401(k) contributions
In your 30s, one of the greatest things you have going for you is time, and the more money you can save at an early age, the greater the dividends will be down the road. You should already be contributing to your employer’s 401(k) retirement account and taking full advantage of any available company match program, but if you get a pay raise or bonus, increase that contribution.
Also, get in the habit of upping your contribution at the end of each year, even if it’s just 1%. Check online to see if you can set up “auto-increase,” which will automatically increase your contributions every year.
3. Only putting money toward a 401(k)
By the time you’re in your 30s, you should be considering other investment vehicles beyond your 401(k) plan. A good next step is to put money toward a Roth IRA, another retirement-savings vehicle that offers tax benefits and is particularly well-suited to younger people who earn less than the income cap — $116,000 a year or less for individuals, $183,000 or less for married couples filing jointly.
Contributions to this type of fund are taxed when they’re made, so you can withdraw the contributions and earnings tax-free once you reach 59 1/2.
If you still have money left over, you can research low-cost index funds, which legendary investors Warren Buffett and Jack Bogle recommend, and look into the online investment platforms known as “robo-advisers.”
4. Not setting aside money for big, upcoming purchases
Your 30s are bound to be filled with big purchases — a home, car, and kids, to name a few — that require diligent savings.
The best way to prepare for these expenses is to start by creating savings goals, and then set aside money as early as possible. Mint, LearnVest, and You Need a Budget are online tools that allow you to create savings goals and see your progress.
It’s important to contribute money toward a retirement fund, but don’t forget about and neglect other major expenses. You’ll want to have savings if you’re planning on having kids — theaverage cost to raise a child is about $245,000, and that doesn’t include college — or looking tobuy a home, which often requires significant savings just for the down payment.
5. Neglecting disability insurance
One type of insurance that gets neglected more so than others is long-term disability insurance — which provides income should you become disabled and can’t work — but not having it can be risky. Particularly in your 30s, one of your biggest assets is your ability to work and earn a living over your lifetime, so protecting against the possibility of becoming disabled is important.
“A lot of people will pick up group life insurance, which will cover you if you die,” explains Michael Egan, a certified financial planner and partner at Egan, Berger, and Weiner. “But they don’t think about the disability — especially if it’s not paid for by the company — and that’s your bigger risk. You’re not dead, but you can’t work, so now you have to watch yourself go broke.”
If you are traditionally employed, you should be able to secure a policy through your employer, while people who are self-employed will have to take out an individual policy. You can alsosupplement your employer’s policy by buying private policies, which some people prefer to do, particularly those with dependents.
6. Neglecting life insurance
Life insurance, like disability insurance, is meant to replace your income for those relying on it should something go wrong. It’s also highly underused. According to nonprofitLifeHappens.org, over 40% of the American population doesn’t have it.
Life insurance is most crucial for those with dependents — such as minor children or a spouse who doesn’t work — so it applies to many 30-somethings, who have recently started a family or are about to.
You can calculate your coverage needs at LifeHappens.org. Again, many people will be able to get coverage through their employers, but not always as much as they need. Some expertsrecommend replacing up to 10 times your annual income.
7. Trying to keep up with the Joneses
While living up to your neighbors’ or coworkers’ standards can be tempting, it can also be detrimental to your finances.
“You have to monitor your spending and limit aspirational purchases,” emphasizes Mark Avallone, a certified financial planner and president at Potomac Wealth Advisors. “Just because you see other people enjoying a certain level of a lifestyle doesn’t mean you can, or should be doing the same.”
The best way to avoid this pitfall is to create a written financial plan to outline your budget and savings goals.
“Without a written financial plan, there’s no destination in mind, and there’s no tangible concept of how much is needed to be saved,” says Avallone. “But if you have structure in your monthly budget, you know what you can and cannot afford.”
The more you can save, the better, but it’s important to include some personal luxuries in the spending plan, Avallone notes: “Everyone’s budget should include the essentials, but it should also include fun items. Otherwise, the savings plan will not work. It’s very similar to a diet that doesn’t allow the person to have a few treats and special meals. If they’re not allowed to enjoy those aspects, they’ll get off the diet entirely.”
8. Not determining who pays for what when you get married or set up a household
Discussing your personal finances, spending patterns, and financial plan with your partner is crucial, and one of the most important conversations to have is about who will be paying for what.
“Spell out who’s responsible for paying which bills,” writes David Bach in his book “Smart Couples Finish Rich.” “You shouldn’t assume that both you and your partner are somehow automatically on the same page when it comes to the question of how you are going to organize your finances and who is going to be responsible for what. If you haven’t already done so, the two of you need to sit down together and specifically work all this out. The alternative is chaos and potentially major strife.”
It can be helpful to have a joint account to provide the funds for the household bills, Bach recommends, but it’s also important for each partner to have their own money.
“Regardless of whether or not you both work, each of you should maintain your own checking and credit-card accounts,” he writes. “It’s not a matter of hiding anything; it’s that we all need a certain amount of privacy.”
9. Overspending on the first kid
When the first kid comes along, what tends to happen is that new parents will overspend on top-of-the-line cribs, bottles, clothes, and nursery accessories, says Brandon Moss, a certified financial planner and VP of wealth adviser management at United Capital.
“Spending issues that we tend to see in 20-somethings will level out until the kids come along,” he tells Business Insider. “And then it explodes.”
You want to raise your child in a comfortable environment, but check yourself before dropping a couple grand on that fancy stroller and draining your savings, as there are bound to be unexpected costs that arise. To get an idea of what you might need to cover, read about thecosts new parents didn’t see coming.
10. Not contributing toward a college-savings plan
In many of America’s top colleges, the total cost for the academic year tops $60,000, and is only getting more expensive every year. Like most financial goals, the earlier you start saving, the better. Plus, time has a way of flying by, and before you know it, you’ll be responsible for a hefty tuition bill.
Rather than splurging on pricey strollers and designer baby clothes, redirect that money into a529 savings plan, a state-sponsored, tax-advantaged investment account.
These plans allow a parent to contribute up to $14,000 per year — $28,000 for a couple — for each of their children’s college educations. It also allows anyone — a grandparent, godparent, or particularly generous neighbor — to contribute to the fund.
11. Going to graduate school for the wrong reasons
Graduate school comes with a hefty price tag, which is why you want to be positive you’re going back to school for the right reasons, especially if you’re paying for it out of your own pocket.
It should definitively aid your career track, Egan says. He gives the example of getting your MBA: “If you don’t know what you’re targeting to do after you get the MBA, that’s not the right path. If getting your MBA will help you secure a position that you want for your long-term career, then it’s a perfect solution.”
He also recommends treating graduate school as a second job, and not taking time off work to earn your degree, if possible.
12. Not revisiting and adjusting your investments
You can’t just “set and forget” your investments forever. Life happens, and there are times —particularly big life changes — when it’s smart to make financial adjustments.
For example, if you decide to retire early, you’ll need to readjust your time horizon and the amount of risk you choose to take in your portfolio.
As your money grows, and as you get closer to the end of your time horizon, the original portfolio you created may no longer suit your needs. Revisit it every year and adjust it to fit your current situation, if needed.