After a decade of experimenting, failing, learning from those failures, and “figuring things out,” you might find yourself in a more secure financial position once you hit your 30s.
What do you do with excess money when you’re no longer living paycheck to paycheck? And how do you prepare for big expenses you’re bound to face in your 30s?
We spoke to Michael Solari, a certified financial planner at Solari Financial Planning, about the smartest things 30-somethings can do with their money to set themselves up for a prosperous future.
Here are eight smart places to start:
If you're maxing out your 401(k) plan, the next step is to put money towards a Roth IRA, a retirement savings vehicle that offers tax benefits and is particularly well-suited to younger people who earn less than the income cap ($US116,000 a year or less for individuals; $US183,000 or less for married couples filing jointly).
Contributions to this type of fund are taxed when they're made, so you can withdraw the contributions and earnings tax-free once you reach age 59 1/2.
Solari recommends directing your tax refund, bonuses, or any other extra money to a Roth IRA.
Another employee benefit to tap into is the health savings account (HSA) into which you can put pre-tax money and use towards medical costs whenever you want. You can also grow that money in an investment brokerage account, Solari explains.
To qualify for a HSA, the IRS requires you to be on a high-deductible health care plan (HDHP) -- a plan that offers a lower health insurance premium and a high deductible. 'They are encouraging people who have high deductibles to save money into these accounts,' explains Solari.
'I usually recommend my clients to have their total out-of-pocket expense saved in a savings account portion, and then the remaining in a mutual fund,' he tells us. 'The savings can be withdrawn for immediate health care, and the mutual funds can be left alone and invested for a long time. '
This option is particularly advantageous for those who are generally healthy and don't have to go to the doctor's office or hospital that often, such as 30-somes without children who are looking to save for future health care expenses.
You can't just go through the motions. 'If there are no savings goals, then there won't be any progress,' says Solari, and your 30s are bound to be filled with bigger expenses -- such as a home, car, and children -- that require diligent saving.
Kids are pricey. The average cost to raise a child is about $US245,000, and that doesn't include college expenses. If you plan to have children, it's time to start saving. To get an idea of what you might need to cover, read about the costs new parents didn't see coming.
The best way to prepare for these expenses is to start setting aside money as early as possible. The dependent care flexible savings account could help with daycare; as for the additional costs of college, start by looking into a 529 savings plan.