If you’ve hit your 30’s and suddenly realize it’s time to get sensible about money – then fear not. We’ve put together a few tips to help you get a handle on your finances now, and in the future.
Get your income organized
Divide your income into three categories
- Routine expenses – set aside money for life’s everyday demands such as groceries, car and household bills. Keep this in a current account
- Big expenses – such as a holiday, a new car or a new home. This money should be kept in a standard savings account – maybe get some small return?
- Finally, your long-term commitment – such as your children’s university education and your retirement. Generally a much larger amount where you have options of fixed deposits, bonds, pension plans or even property as an investment.
Diversify, diversify, diversify
The global financial crisis of 2008-2009 was a lesson for all of us never to put all our eggs in one basket. In money terms this means parking all your money in one asset class could spell disaster; instead a balanced portfolio that spreads your money around is the best way to protect you from risk.
To maximise your money’s potential, make sure your investments include a variety of investments such as stocks, bonds, cash, property, commodities and even alternative investments such as art. Not all of them will be for you so ask yourself what kind of risk you want to take and how comfortable are you in risking your savings for higher future returns. Not risky? Then probably stocks will not be in your remit.
Get an income out of your investments/savings
By your 30’s you should have started to think more strategically about money and, ideally, your first big investments should have been made. However, while stashing cash in stocks and shares, pension plans or properties will all form part of your diversified portfolio, you also want to ensure your portfolio generates a second income for you. This could be in the form of dividends from share investments, or rental income from a property. This second income can then go towards funding bigger and better investments to ensure your financial future is as secure as possible.
Resist the urge to splurge
At this stage of your life your career should be edging towards its peak and as a result, this will be a time when your income will be high. With this in mind, resist the urge to splash out on expensive cars, homes and consumer goods. The more you rein in your spending, the more likely it is you will be able to retain the lifestyle you have now for the rest of your life. The last thing you want to do is to look back at your 30s as a time of excess when you frittered away your hard-earned cash.
As well as your investments, you also need to ensure you have an emergency fund for those times when life doesn’t go as planned. From job loss, to medical issues and death, life is full of surprises and with many 30-somethings also supporting a family they need to ensure there is a cash reserve to cover any sudden eventualities.
Don’t stop saving
Once that emergency fund is in place, don’t stop saving. By now you should have some healthy money-generating habits in place and you want to keep adding to those. Just because you have a tidy sum in the bank doesn’t mean you can sit back or splash out. Keep striving towards a bigger savings pot.
Borrow to invest, never to finance your way of life
Running up debt on credit cards or loans is inexcusable in your 30s. At this time in your life, your spending should be sensible and borrowing to finance a lifestyle of designer clothes and fast cars should be avoided at all costs.
That does not mean you should not borrow at all. Taking out an education loan to finance an MBA or taking out a mortgage to buy an investment property is the correct way to borrow as you are either investing in your own development or in your capital worth.
Just as your emergency fund is vital in case of illness or death, so too is insurance, whether it’s home insurance to protect your home and its contents, car insurance to protect your car or medical insurance to protect your health. And don’t forget life insurance.
While life insurance will not help you, it will protect your dependents from the worst possible eventuality – your death. Just make sure the monthly instalments are manageable and that you the sum assured is enough to cover your family’s needs in the event of your demise.
Make a will
Now that you have your saving and investment goals prioritised, you need to ensure those investments are protected. This means making a will to ensure that your assets are passed on to the people you want them to go to. This is particularly important for those with a family and for expats living in the UAE. Without a will, your assets could be handled by Sharia law, which treats men and women very differently.