When you get to your 30’s, trying to balance your finances can become overwhelming. Most people find themselves juggling responsibilities of buying a home, mortgage payments, paying for a wedding, starting a family, and somehow trying to save for retirement. You are still early in your career with growing demands at work, and the money is tight.
There are a lot of questions:
- How big of a mortgage can we afford?
- How much should we put towards or RRSPs and TFSAs?
- How do we set up a RESP?
Without careful planning it can be easy to fritter away your paycheques.
Balance the present with the future
You need to clearly identify short-medium-and long-term goals to help you focus on what’s important now and what can wait, and then set up a plan to funnel your money where it’s needed the most.
Be realistic about what you can achieve. You can’t do everything at once. You may have to adjust your spending, especially if one parent is on maternity or paternity leave, with even less income coming in. Strike the right balance to use your income as effectively as possible. It makes no sense to try to save money for your kids’ education while you are still paying off your own student loans.
Make sure you talk about your finances and life goals with your spouse and be in alignment on how you will get there together. Focus on just one or two goals at a time.
Manage your debts
To some degree your 30’s are a time of debt accumulation rather than asset accumulation.
Don’t be maximizing your RRSPs while scrambling to make the mortgage payment, charging diapers and groceries to your credit card, or borrowing to pay for home repairs.
At this age you likely won’t be able to avoid debt entirely, so you need to manage it wisely. Avoid borrowing to buy consumable items – clothing, vacations, electronics, a car you can’t really afford – or carrying a balance on a high interest rate credit card. If you find yourself with a lot of debt make it a priority to pay it off as quickly as possible.
Buying a home
The average age of first time homebuyers is 36.
For most people a home will be the biggest purchase of their lives. A house appreciates over time and helps you build up equity provided you don’t buy more house than you can afford, and stick to a payment schedule you can manage.
Pay off mortgage or invest in RRSP’s? Personally, I would take advantage of long-term compounding by investing early. You can easily pay off your mortgage more quickly by increasing your payments (even 5-10% can make a difference) and/or choosing a rapid weekly or bi-weekly payment plan. Both will reduce your amortization.
But everyone is different. What motivates you more – no debt, or higher savings?
Take charge of your investments
The average age of starting to save for retirement is 32.
If you haven’t already done so, now is the time to educate yourself on basic investing and financial management.
If you are invested too conservatively your investments may not give you the long-term results you want to achieve. Conversely, if your investments are too risky, volatility may keep you up at night and you may undermine your efforts by making poor choices.
Don’t overlook other opportunities for free money in the workplace and workplace benefits. Sign up for a company pension plan. Find out if there are any RRSP plans that offer discounted management fees or matching contributions.
Discounted employee stock purchase plans should be looked into as well. However, don’t over-invest in your company, whether through employee stock purchase plans or stock options.
You need an emergency fund now
Having kids costs you more than you think. This, plus owning a home means plenty of unforeseen expenses – everything from car repairs, to a leaky roof, to braces.
Plan for emergencies and try to build up a cash cushion – 3-6 months of easily accessible funds set aside is nice to have, but you may choose to have an unused line of credit available instead.
Protect yourself and your family
If you live alone, chances are you don’t need life insurance. But, if you have a spouse and a young family who depend on your earnings, you need to ensure their financial security. Buying term life insurance for you and your spouse can bring you peace of mind.
Perhaps more importantly at this time is to make sure you have some disability insurance. Coverage is a staple in many employee benefit packages. Take as much as is offered, or look to an outside provider. Disability insurance is probably more vital at this age than life insurance.
Have you named a guardian for your kids in your will? You want to make sure your young children are looked after according to your wishes.
Financial takeaway for your thirties – Finding the right balance.