Vital Financial Decisions to Make in Your 30s

Reaching your 30s is like being at the crossroads of life – when you think more seriously about important goals in life, whether personal or financial. While some decisions can be postponed, such as career moves, getting married or having children, some vital financial decisions cannot be delayed without long-term adverse effects.

Certain financial decisions can produce slow but big impact on your future life. To secure your financial well-being and to achieve your objectives, such decisions must be made at the proper time. Consider these seven principal financial guidelines when you are in your 30s.

1. Set up an emergency fund

Anyone who receives a paycheck must set up an emergency fund, in case you stopped receiving one and have to pay your bills. What if your car suddenly broke down? Do you have the extra money for repairs? A contingency fund will allow you to go on with your life as usual without getting into debt or getting disoriented.

You can begin by putting away enough money for three months’ worth of your personal expenses and slowly increase your emergency fund to incorporate six months’ worth of your expenses. No matter how small it might be, if you have such limited budget, build that emergency fund. For instance, set aside an hour’s worth of your salary per workday after you receive your weekly check and work up to two hours’ worth of wages per workday whenever you can afford it. In case that is not viable, set aside $50 each week ($200 per month) and build it up to $75 weekly or more when you are capable. Avail of automatic transfers from your check to your savings account to make regular deposits into your fund.

2. Create a payment strategy

Once you reach 30, resolve to establish a sound foundation for a secure future and begin by paying off your debt. There are good and there are bad debts. School loans and home mortgages are good and necessary at times; however, high-interest credit-card debts or personal debts can cause so many problems. Deal with both kinds with dispatch.

Your best approach is to pay off debts with the highest interest rate before others. Hence, prioritizing a credit-card debt that charges 22% interest rate would save you more of your money’s value than clearing a home mortgage loan that charges only 4%. Seek the assistance of a debt management expert to determine the most efficient way to resolve your debt issues.

3. Begin or Keep maxing out your 401(k)

It is far better to max out your 401(k) or other retirement plans than your credit cards. Your age is the ideal time. 

Contribute as much money as you can afford to your employer-sponsored retirement plan. In case you still cannot pay the maximum contribution limit, at least contribute enough to benefit your employer’s matching contribution, if you are allowed. That is free money you should use. In case your company offers no retirement plan, acquire a regular IRA or Roth IRA account. An IRA allows you to contribute a maximum of $5,500 in a year.

For self-employed individuals who cannot avail of a employer-sponsored retirement package, set up your own. There are common alternatives you can choose from, such as the self-directed Solo 401(k) for owner-exclusive enterprises or the self-employed, SEP IRA or SIMPLE IRA plan. For such plans, here are the yearly contribution limits:

Solo 401(k): Maximum of $53,000 for 2016, including catch-up contributions of $6,000 for individuals above 50 years old.

SEP IRA: Maximum of $53,000, or 25% of compensation.

SIMPLE IRA: Maximum of $12,500, including catch-up contributions of $3,000 for individuals above 50, if allowed.

4. Go investing now

Being in your 30s is your best asset; investing now is also to your advantage. Take the case of two actual investors. Steve began investing $1,000 monthly at 30 until he reached 40. Although he stopped investing, he did not take out his investment and left it to grow until he retired at 60. Bob, at 40, began investing $1,000 month until he reached 60.

At a 5% average rate-of-return compounded yearly, Steve earned $154,992 after 10 years. Because he kept his money invested, he eventually earned $411,240 at 60. On the other hand, Bob got $407,460 under similar investment terms. The power of compounded interest worked to Steve’s advantage. You see, compound interest allows your return to be augmented to your principal every year, making your money grow more rapidly, unlike simple interest rate which uses the original principal invested to produce a constant yearly return.

For novice investors who have only limited grasp of the investment world, opt for passive investing, applying approaches that utilize the general fluctuations of the market instead of projecting the sectors or assets which will perform well. You can do this by investing in mutual funds or exchange-traded funds which are tied to a broad-market index. For individuals in their 30s, starting with ETFs is the most advisable due to their affordable fees and transaction costs.

5. Determine the proper investment method for you

In case you have not encountered asset allocation, now is the time to learn it. Asset allocation involves choosing the appropriate distribution of various investment kinds (or asset classes) to suit your portfolio with your risk tolerance level, target investment schedule and financial objectives. Certain investments, such as stocks, involve greater risk although they provide bigger returns compared to such instruments as bonds. Hence, for a highly aggressive investment approach, build a portfolio that has more stock exposure; and for a less risky approach, gear up to more bond exposure.

You future wealth will depend greatly on your asset allocation. A very conservative portfolio might provide a nest egg that is insufficient, while a risky allocation could bring bigger returns; but it might cause you to worry when the market goes haywire. Your best option is to ask the advice of a financial professional on which investment approach suits your needs, objectives and risk capacity.

6. Opt for diversified investments

One vital part of creating a portfolio is diversification of your investments. Thus, if you have stock investments, diversify your equity holdings by investing stocks from firms that are different in sizes (whether large, medium and small capitalization stocks), classifications (whether value or growth stocks) and locations in the world. With a diverse assortment of investments in hand, you can distribute your risk and mitigate the effects of volatility.

Likewise, consider other investment choices that will provide greater portfolio diversification to withstand stock market volatility. The objective is to augment investments that have no tendency to move along the direction of the stock market and brings significant long-term returns. Alternative investments that are commonly popular among investors are real estate, precious metals, private stock, life settlements and private debt placement. Nevertheless, be reminded that alternative investments involve serious study; so do the homework, find how these investments perform, before jumping in.

7. Saving for college education

Start saving for college costs when your first child arrives. Although that may seem too early to start, with college education getting more expensive, you protect yourself and your family from many future problems the earlier you begin saving and investing for this important expense. A tax-friendly plan, such as a 529 college savings plan, can produce the required money to support your child’s expenses in college. Take the long-term perspective; consider implementing a more aggressive investment approach for the plan.

Visualize the far future

“Setting objectives is the initial step in making the invisible visible,” says Tony Robbins, entrepreneur, author and inspirational speaker. This is especially true for financial planning. Creating a financial plan requires seeing far into the vast horizon — that is, you’re the long--term personal and financial objectives — to discover the most suitable strategy to pursue in the present.

Although at time you do not feel you have control over your financial life, you actually do more than you think. The secret is in making well-informed decisions and acting promptly in order to prepare the way to financial stability and to reach your aspirations.

How to get out of debt in five ways

How would you like to get rid of your debts? Who would not, especially if you have a very limited budget? Many get frustrated when they have to let go of their precious money only to make loan payments. Money merely passes their hands, leaving them nothing to spend or even save. And much of the money paid often goes towards paying high-interest payments.

In spite of all that, you are better off paying just a small amount instead of not paying anything at all. But if you have no emergency fund, have a difficult time getting by and cannot sustain bills, then it is time to face the issues frontally. For those who have some money, by all means, pay off your debt. For those with limited budget, follow these five ways to do away with debt:

1. Make a plan for paying off a debt

Making a monthly budget 

If you have a very limited budget, you need to make a plan for paying off a debt. Begin by listing down all the people you owe money to and how much you owe each, then add up to find out exactly how much debt you have. Arrange your list according to order of importance, considering the amount you owe, the interest rate and the terms of the loan.

Now you can calculate the amount you are capable of paying monthly. Use Bankrate’s debt pay-down calculator for this purpose. Knowing how much you can pay, determine how you will distribute the total figure to every loan. Prioritizing a high interest loan for full payment may be beneficial; however, a loan that is not due and demandable any time soon (like a school tuition loan) should be considered for later payment so you can initially pay off other loans.

One other vital consideration if you have a large debt is to meet your lenders and negotiate a repayment plan which may lower your payments or secure more advantageous loan terms.

2. Go for automatic payments

With a small budget, you may think a negligible payment will not amount to anything. Nevertheless, any small amount is better than nothing. Avail of automatic deductions in order to avoid falling into the habit of giving so many excuses to default on your loan payments.

You have to take into account any amount of money that is automatically deducted regularly each month from your bank account when you do your budgeting. You can then avoid overspending or paying penalties by the spending that money that has been allotted to pay off a debt. Stick to the plan once you have gone automatic.

Automatic deductions can be an effective way of paying bills; however, NOLO recommends that you inspect for errors in your accounts. In case late automatic deduction occurs or a payment is not made by the bank (or the bank keeps deducting even if you have told the bank to stop doing so), you might encounter problems. It is very important to check your account regualrly.

3. Reduce Expenses

Although it follows without saying, with a small budget, you cannot hope to pay off a debt if you do not find ways to reduce your expenses. Otherwise, it will take you forever to eliminate your debt. Evaluate your monthly expenses and find out where you can implement some changes. Decreasing or eliminating some of your expenses will free some money for paying off your debt. If so, you could be cooking meals at home instead of eating out at restaurants, watching regular TV shows and not cable shows or jogging around the neighborhood instead of doing the treadmill at the gym.

In case your budget will not allow you at all to cut expenses, you may have to bite the bullet in order to get out of debt more rapidly — cut off some expenses for the sole purpose of paying off your debt. Even a small act as making your own bread or yogurt at home, instead of buying them, will go a long way to help you on this goal.

4. Revamp your spending pattern

This approach may seem to be the same as the previous; however, it is not. Getting into debt rarely, if ever, arises from an accident. Having a home mortgage or an education loan is a given for most people, being legitimate needs that they are. But sometime in the past, you must have made some decisions that brought you to where you are now. As such, you might have to evaluate your spending habits and resolve to get out of debt as soon as you can.

The consequence, therefore, is becoming more responsible in paying off a need, such as a home mortgage, by giving up some wants -- for example, buying a more expensive car. Limit your credit card expenses if you have an existing debt, that is, wait till you pay off a debt before spending even more and increasing your debt. It is no longer a matter of being a conscientious spender or an impulsive spender, but deciding to be debt-free by not spending any more using your card.

5. Seek assistance

Feeling frustrated or overwhelmed by your debt? Get the help of a credit counseling agency to guide you how to get out of the slump. Check out the National Foundation for Credit Counseling to help you begin the process of recovery. Getting free advice or for a minimal cost may just be the answer to your present financial issues, teaching you how to handle your money and also how you can come up with a strategy.

How about borrowing money to pay out a loan? There are some benefits to doing that. Having several various loans may allow you to consolidate them. But be careful of the interest rate and the devil-in-the- details of a new loan you plan to acquire. In particular, an unsecured short-term loan should be avoided as it is quite risky. Consider seeking the help of relatives for help to pay off your debts at zero or minimal interest rates, as long as you can agree on the payment terms.

The burden is upon you to make these tips work to help you in your situation. Remember, a limited budget is not an obstacle to paying off debts, although it can be quite challenging. Take the challenge now!

Enhancing Your Credit Health in 2017

New Year’s resolutions are seldom mere overreaching wishes in that people make their lists without having a definite plan on how to achieve their goals.

How do you plan on paying your debt? How will you exactly go about losing excess weight? How do you specifically attain a fulfilling and abundant life?

When it comes to personal money matters, we would like to present a workable plan to address a common problem which many people fail to solve for lack of professional help. We asked several personal finance experts to show us how to maintain or obtain good credit in 2017.

Heather Battison, a vice-president at TransUnion, a major credit bureau, says, “I believe it’s vital for consumers to realize it requires a definite process. “It’s actually about developing the right practice,” she adds. “Begin at the start of each year. Then incorporate it into your daily routine and your weekly schedule.”

Take these suggestions as your chart to achieving the obvious and even the obscure ways to your credit success.

Take responsibility on your debt

Financial well-being begins with responsibility. Always pay your credit statements as well as other bills promptly.

Your credit score is computed based on your payment track record, about 35 % of your score. Paying late can greatly affect your credit standing.

“Aside from paying a charge for late payment, not paying your bill within 30 days will cause credit reporting agencies to be informed and such record will be filed for at least 7 years,” according to Katie Ross, manager of education and development at the American Consumer Credit Counseling in Auburndale, Massachusetts.

Paying promptly, however, is not sufficient. To enhance your financial well-being, you must speed up your debt payments by paying above the required minimum dues.

Paying only the minimum results in paying more interest, particularly if the Federal Reserve raises interest rates several times, as predictions for 2017 seem to suggest.

The best strategy for such an ominous event is to slowly increase your payments within the year.

“Welcome the new year as your challenge to set a strict debt control by raising your monthly payments,” suggests Bruce McClary, vice president of public relations and external affairs at the National Foundation for Credit Counseling. “Accelerating debt payment can bring hundreds of dollars or even more in savings, based on the size of the debt and the fee structure.”

Review your accounts and credit reports

Regularly review your credit accounts for any possible credit card scams and to find out your total expenses and debts, Battison states. Report right away to your credit card company any charges that you did not make.

Use your smartphone to set notices to alert you when your credit card is used. This will tell you whenever an unauthorized charge has been made.

Also check your credit reports regularly for any signs of fraud in your accounts. Is there a credit account you have not opened? If so, someone could have opened one by using your personal information.

What to do? You can stop criminals from using your name and your personal information by freezing your credit.

Avoid these 3 things to safeguard your good credit

1. Do not take out a cash advance. With interest rates on cash advances from 10 to 15 %, you end up paying higher rates compared to ordinary expenses, Ross says. There are also fees for processing a cash advance. Although a cash advance may not adversely affect your credit, piling up debts just might. Use your savings for any additional cash needs.

2. Avoid closing a credit card account. Doing so might impact on your credit utilization ratio, which is the amount of credit that has been extended to you against the amount you utilize. Closing a credit card account decreases the credit that you can access, adversely affecting your credit score. “Another way closing a credit card account can damage your credit is by losing the corresponding track record of the card. Remember that credit works much like trust,” says Steve Repak, a Charlotte, North Carolina-based CFP professional as well as author of “6-Week Money Challenge.” “Credit takes a long time to gain but only a moment to lose. It is more preferable for your credit score to cut up a card from being used than closing the account ouright.”

3. Never close credit cards with a balance. This is worse than merely closing an existing credit card account. “When you do this, your available credit or credit limit on that account becomes zero, which appears that you have used the maximum limit on that card,” Ross says.

3 ways to enhance your credit

1. Get a co-signatory. According to Ross, young adults, in particular, will benefit from this approach. A parent or guardian can serve as co-signatory on a credit card account. “You and your co-signatories share the same responsibility on the loan,” Ross says. “Hence, the loan is also reflected on your co-signatory’s credit reports, affecting your credit positively or negatively depending on how it is used.”

2. Open a secured credit card. This is especially beneficial to those who have little or no credit, Ross says. “To choose a secured credit card, go for a dependable bank and do not fail to read the entire fine print,” Ross says. “Some credit card issuers charge significantly high interest rates and exorbitant fees, hoping to victimize people with little or no credit.” Likewise, see to it that the card you choose submits reports to all three credit bureaus to establish your good credit reputation.

3. A gas credit card can be a great help. A gas credit card can show creditors that you can be trusted to regularly pay your debts promptly, Repak says. “After each billing cycle, you need to pay off the balance completely; and remember that keeping a running balance is not necessary to build your credit,” he says. One good motivation for paying a balance fully is that the yearly percentage rate on gas credit cards often is likely to be high.