The financial decisions you make in your thirties can set the general course of your financial journey and it’s absolutely essential to get them right. Major decisions such as marriage, children, property purchases and career-changes are hallmarks of one’s thirties, but the pace at which life moves can leave little time for careful decision-making. Here are some financial pitfalls that should be avoided in this often-frenzied decade of one’s life:
Spending too much money on the wedding
Many couples delay marriage until their thirties when they are more financially secure and have established careers. As a result, couples often elect to cover the costs of the wedding themselves rather than burden their parents with the expense. The average cost of a wedding in South Africa ranges from between R70 000 (on the low side) and around R250 000 (on the upper side), and can increase quite rapidly depending on the number of guests. Starting out one’s life together saddled with debt can create enormous tension within a relationship, especially if the couple’s views on the wedding were not aligned to begin with. Many couples report feeling pressured by their parents and friends to have a more elaborate wedding than they would normally have opted for, something they will quite literally pay the price for in the years to come. Rather than borrowing money to pay for the wedding, it would be more prudent to save towards a reasonably priced wedding even if it means delaying the wedding for a year or two. Coupled with house, vehicle and retail debt, excessive wedding debt can cause untold stress and anxiety on a newly married couple.
Getting married without talking about finances
With the number of blended families on the rise, merging marital finances can be somewhat complicated. Before getting married, serious discussions about money and finance should take place. What are your money fears? How do you feel about debt? What is your attitude towards lending money to friends and family? Who pays for what? Should we operate a joint bank account? Do we have a spending limit? An upfront commitment to honesty and transparency when it comes to joint finances will lay a healthy foundation for the future.
Making debt a way of life
The 30s is generally the time when young professionals choose to invest in property and/or take out vehicle finance and, while this is perfectly normal, it is important that debt does not spiral out of control. In many instances, young qualified professionals have confidence in their future earning potential. Knowing that their income should increase quite rapidly in the medium-term often provides young professionals with the temptation to over-extend themselves when it comes to buying houses and cars. Statistics show that car owners in their 30s and 40s tend to have the highest level of vehicle debt. Bear in mind that debt can keep one on a treadmill of paying off yesterday’s expenses with interest. A certain level of good (and necessary) debt is essential in this decade of life, but should not be made a way of life.
Not preserving your capital when moving jobs
According to the US Bureau of Labour Statistics, the average worker currently holds ten different jobs before the age of forty, and this number is projected to grow to see Millennials hold between twelve and fifteen jobs in their lifetime. Generational experts believe this trend should be viewed as ‘career exploration’ rather than career climbing, with their generation perceiving it to be socially and culturally acceptable to explore multiple jobs and industries. The downside is that the movement in careers interrupts the Millennial’s savings progression, making it difficult for them to harness the power of compound interest in favour of their retirement funding. Coupled with this, Millennials enjoy a longer life expectancy than any other generation prior to them and could realistically spend 35 to 40 years in retirement. Regular career and job changes will provide Millennials with the opportunity to withdraw their retirement fund benefits rather than preserve their capital, with can have far-reaching consequences for their retirement planning.
Delaying your retirement funding
Regular career changes, coupled with property and vehicle repayment commitments, provides thirty-somethings with easy justification to delay funding for their retirement until they have more surplus income to spare. Compound interest is either working for you or against you, and the longer you allow it to work against you by being indebted and not saving, the more difficult it is to rectify the situation. Even a ten-year delay in saving can have significant repercussions for one’s retirement saving, with every further year’s delay making it increasingly difficult to close the funding gap.
Not protecting your income
While young and in the process of building wealth, it is essential to protect one’s greatest asset – your income. Your income allows you to service your debt, maintain your standard of living and fund for your retirement years. If, for whatever reason, you were to become disabled or ill and unable to generate an income, it would be wise to ensure that you have an income protection benefit in place that would essentially pay your current level of income, increasing with inflation, until you reach age 65.
Investing too conservatively
If you begin investing at the outset of your career, you have a very long investment timeline and should avoid being too conservative in your approach to long-term investing. Many Millennials shun the idea of a traditional retirement at age 65 with a view to working for as long as possible, and this is great news for their retirement funding. With an extended investment horizon, 30-somethings can afford to take more investment risk and should be encouraged to do so – allowing compound interest to work its magic for as long as possible.
Over-indulging your children
Teenagers are under enormous pressure to sport the latest fashion, cell phones and technology, and this in turn places financial pressure on parents. According to a survey conducted by the Centre for a New American Dream, a teenager who asks a parent for products will ask nine times until the parent eventually gives in. It is our responsibility as parents to teach our children the difference between needs and wants, and then encourage them to work for their wants. We also need to teach them the art of delayed gratification which is a skill that they will use in every aspect of their life, whether it is working hard for the qualification that they want, putting in extra hours and effort for the promotion they desire, or training hard for a race that want to compete in.
Prioritising children’s education over retirement funding
This generation of children is faced with unprecedented options in terms of fields of study, online opportunities, short-courses through some of the world’s top universities, part-time self-study courses and internships. As parents, we need to broaden our perspective of what our children’s tertiary education will look like. In addition, as much as we would like to fund their tertiary education as much as possible, we cannot do so to the detriment of our retirement funding.
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