The financial decisions you make in your 30s can have a big impact on your future.
“Money is a tool. When we learn to use money wisely, we can live our lives the way we want,” Marguerita Cheng, a certified financial planner and CEO and co-founder of Blue Ocean Global Wealth, tells CNBC Make It.
Here are three money mistakes to steer clear of in your 30s that you’ll be happy you avoided later in life.
1. Not setting financial goals
If you haven’t yet set any money goals, your 30s are a good time to create both short- and long-term financial plans, says Ryan Marshall, a certified financial planner at Ela Financial Group.
“Almost every 60-year-old I meet with wishes they started to think about retirement and financial goals when they were in their 30s or younger,” Marshall says.
Whether you want to save a certain amount by retirement, establish an emergency fund or buy a home, the time to start planning is now, says Douglas Boneparth, president and founder of Bone Fide Wealth.
“Not setting goals is the biggest mistake people can make in their 30s because setting goals provides financial direction and establishes timelines for achieving the great things in life, like financial independence, buying homes, having kids and starting businesses,” Boneparth says.
One way to get started is to take a cue from Kumiko Love, the founder of financial advice website The Budget Mom. As a single mom and entrepreneur, she managed to pay off $77,281 within eight months using visual tools and worksheets.
You can use Love’s worksheet to write out your own short-term money aspirations for the next year and the next five years, as well as your long-term goals for the next 10 to 15 years or more. When completing this exercise, you should get specific about your goals and make them actionable, Love recommends.
If Love were tackling the short-term goal of paying off debt, for example, she would write something along the lines of: “Pay off debt by tackling my student loans first. I will put $500 monthly towards my student loans for the next 24 months.”
2. Not saving for retirement
Money experts frequently emphasize the importance of starting to save for retirement early — especially if you want to be on track to reach the $1.7 million that Americans believe you should have put away by 65.
“A person in their 30s has the tremendous opportunity to harness the power of compound interest, where even small amounts invested can grow large over enough time,” says Kaleb Paddock, a certified financial planner at Ten Talents Financial Planning in Parker, Colorado.
Unlike simple interest, which only earns you returns on the money you invest, compound interest earns you returns on your returns. That means your money grows exponentially the longer you leave it invested in a retirement fund, such as a 401(k) or Roth IRA. And time is a commodity you can never get back.
“You can’t rewind the clock when it comes to setting aside for your future, so this is a mistake you want to avoid,” Paddock says. “Target 15% of your income to set aside for ‘future you.’”
3. Not keeping track of your spending
By your 30s, you should be keeping tabs on where your money is going.
“Mindless spending on a day-to-day basis adds up and can be the biggest destroyer of wealth over time,” says Kristin O’Keeffe Merrick, a financial advisor of O’Keeffe Financial Partners. “Spending less than you make is the key to accumulating wealth. It’s not easy, but it sure is simple.”
To avoid overspending, you first need to master your cash flow, Boneparth says. Start by monitoring your spending habits over a 30-day period. After writing down every purchase you made and dollar you spent in a month, you’ll begin to notice patterns in where your money is going and where it’s possible to cut back.
“One of the hardest parts of personal finance is striking a balance between establishing a comfortable lifestyle and consistent savings,” Boneparth says. “The only way to strike that balance is to intimately understand how money comes in and out of your life.”
Additionally, you should try to avoid giving into “lifestyle creep” in your 30s, which happens “when someone gets raises or other increases in income and subsequently increases spending to meet the new income,” explains Aaron Graham, a certified financial planner at Abacus Planning Group.
People often justify their lifestyle creep by maintaining that they “deserve to spend more” or “by judging their spending habits to those of others,” says Graham. However, you should try to resist this line of thinking. Instead, keep track of your cash flow and individual spending habits.
“Your spending is just that — yours,” Graham says. “You own it.”