Yahoo Finance A Smart Investing Plan for 30-Somethings
You stopped eating Ramen noodles and started paying a mortgage. Now what?
You're in your 30s, which means your finances are starting to get serious. You may have larger expenses than ever before, such as a new home, a new car and possibly a new bundle of joy. Hopefully your salary has also grown along with your responsibilities. If you haven't gotten your finances in order, now's the time to buckle down. Here's how to plan and invest for what may lie ahead, courtesy of U.S. News Smarter Investor bloggers.
Identify your retirement dreams and goals.
Consider your interests, hobbies and travel dreams as you envision your retirement, writes Jacob Gold, financial advisor and president of Jacob Gold & Associates Inc. "Once you've thought about how you want to spend your time in retirement, it's important to make a plan on how to accomplish these goals. Put something down on paper and take advantage of planning resources available through your employer or retirement plan provider," he writes.
Invest systematically to reach those goals.
Once you have a plan, make your savings automatic, Gold advises. "Allocate a certain percentage or dollar amount of your salary to be automatically taken out of your paycheck or checking account and invested in a retirement savings account. This makes the process painless and easy," he writes. "You adjust to your new budget, and have the assurance that you are taking care of your retirement readiness." Here's how to test your 401(k) IQ.
Build on a rock-solid foundation.
Your portfolio should include low-cost, diversified funds that hit these four major asset classes: stocks, bonds, real estate and commodities, writes Ron DeLegge, founder and chief portfolio strategist at ETFguide.com. "Only until after you have built your portfolio on this type of solid foundation can you begin to experiment with non-core assets like individual stocks, actively managed funds, call and put options, private equity, hedge funds and venture capital," he writes.
Keep a clean financial house.
You'll likely have a lot of expenses to monitor in your 30s, and this may be the time you ask yourself whether you should invest or pay off debt. "Make paying off high-interest debt a top priority. Yet don't stop contributing to retirement, especially if a workplace plan offers an employer-match program," Gold advises.
Prepare for child expenses.
The happiness that comes with a new son or daughter unfortunately doesn't cancel out anxiety about finances. "The good news is you can receive a tax credit for your child as well as potentially be eligible for a tax credit on your total day care expenses," writes Greg Ostrowski, a certified financial planner practitioner at Scarborough Capital Management. "There are many components to qualifying for this tax credit, so be sure to check with your tax professional." Also make sure to prepare your budget for the high cost of child care.
You may still want to delay homeownership.
You want to ditch that efficiency apartment for a roomy home, but when is the right time? Ostrowski uses the example of a home valued at $300,000. If you put down $25,000 at 4 percent interest, you'll end up paying about $198,000 in interest over the life of the loan. "If you can hold off and make a down payment of $50,000, you'll pay about $180,000 in interest. So by delaying our purchase, and saving an additional $25,000 toward your down payment, you can save $18,000 in interest," Ostrowski writes.
Use a 529 plan for college savings.
Your child may still be learning to walk, but it's never too early to start saving for college. Consider a 529 college savings plan. "The benefit of this plan is it saves you from paying federal taxes when you withdraw the money, if that money is used for educational expenses. Additionally, some states even allow for certain tax deductions on your contributions to these plans," Ostrowski writes. These plans may employ an "age-based" approach, which shifts your investment mix from aggressive to more conservative as your child gets closer to college.
Maximize your 401(k).
If your employer offers a 401(k) match, be sure to take advantage and at least contribute enough to capture the matching funds. "Although nothing is technically 'free,' this is a great benefit to have included in your compensation package, as your retirement contribution is essentially doubling," Ostrowski writes.
Maintain cash reserves.
All kinds of unforeseen expenses could pop up: Your child or parent becomes sick, you lose your job or you have to pay for expensive home repairs. Make sure to keep cash reserves, Gold advises. "Don't forget to keep three to six months' [worth of] cash reserves ... Once your financial house is in order, your debt is paid off and emergency reserves are in place, it's time to ramp up retirement savings to take advantage of the years of compounding ahead of you," he writes.
Stay disciplined in volatile markets.
Market volatility isn't going away, and it can occur in both bull and bear markets. So prepare for the market's inevitable churn and stick to your investing strategy. "Unless you commit to a disciplined savings habit, you'll always be scraping to get by. And unless you take that savings and invest it in a logically disciplined manner, you'll end up underperforming the market and wondering why," Delegge writes.
More From US News & World Report
