How to Build Wealth in Your 30s — Retirement by Decade Series

Thinking about retirement when you’re a little more than a decade out of school and entering the height of your career might feel a little premature (although your parents will tell you how fast time flies and it’s never too late). Think about retirement planning in terms of how to build wealth in your 30s. Wealth planning, after all, is all about financially planning for the future …  whether retirement seems like a reality or not.  

But if you’re reading this, chances are that you realize the importance of planning for retirement and are ready to tackle the challenges involved in improving your financial well being. While nothing will replace a financial advisor when it comes to understanding investment and retirement planning, the following strategies can help you get started on the right path. 

‘How Much Retirement Should I Have at 30?’

This is a common question people struggle with, and there are a lot of opinions about what the answer should be. You will see suggestions that range from one-third to one times your annual income by the time you’re 30. The goal is that you ramp up your savings and invest it wisely, so that you have two times your income tucked away by the time you are 40. 

In reality, there is no one-size fits all answer to this question. How much you need to comfortably retire depends on a variety of factors like the age you want to retire and what kind of retirement you want to have. There are retirement calculators online, but these are typically too generic to be reliable. Your best bet is to talk with an experienced financial planner to look at your specific situation.

5 Money Rules Every 30-Year-Old Should Follow

Money management and investing are complicated topics, but the following rules will help you get control of your financial health so you can save for the future. Think of these as your “age 35 milestones” or goals to reach before you turn 40.

1. Live on a budget. 

Budgets are your secret money-stretching weapon. By giving every dollar a purpose, you can better control spending, break bad habits and find money for savings. Your budget needs to be official to work, so write everything down. Don’t make it overly complicated, especially if you’re new to budgeting. Start with just a list of your expenses and income along with categories for things like savings, entertainment and food. 

2. Pay down debts

Debt takes away your most powerful wealth building tool — your income! By reducing your debt you can invest more for the future, so get serious about paying things off. One method you can use to get debts under control is to pay the smallest debts first, then roll that payment over to pay off the next one in line. It’s equally important to be mindful about adding more debt, so watch those credit cards and lines of credit carefully. 

3. Create an emergency fund

Cars break down, kids get sick and jobs go away when you least expect it. Life is full of emergencies for which many people simply aren’t ready. The Federal Reserve¹ released a report suggesting that 33% of adult respondents are unable to pay their bills or are a single, small financial setback away from financial hardship. Creating a safety net is your best bet against uncertainty, so prioritize creating an emergency fund. Having three to six months of living expenses set aside is a good goal, but don’t get overwhelmed by the amount. Start with $1,000 savings and build from there. 

4. Start a 401(k)  

If you don’t already have a 401k, start one. A 401(k)s is a good tool for wealth building and can play an important role in preparing for retirement. The earlier you start, the better off you’ll be, so talk with an investment advisor as soon as possible to learn how to best leverage them. If your work offers a 401(k) match program, take full advantage of it. This is essentially “free money” that you can leverage to more quickly build your retirement. And remember, your money will grow with time so avoid the pitfalls of 401(k) loans so that you more fully realize the financial benefits of the investment.

You might wonder, “how much should I have in my 401k at 30” and “how much should I contribute to my 401k”? Even if you have an employer-sponsored retirement savings account, you can use your own financial advisor to help you make investment decisions. A lot of our clients are surprised to learn this!  

5. Educate yourself about investments

Retirement planning is more than just savings. In fact, simply saving money will not get you to your retirement goals. To build wealth you’ll need to leverage the power of investing. While you should talk with a skilled financial planner to come up with a strategy, you should also educate yourself. Focus on understanding the financial tools available to you, and how you can use them to maximize your savings. The following resources can help you get started: 

• Blueprint for Financial Clarity
• How to Become a Self-Taught Financial Expert (Investopedia)
• Practical Money Skills (Visa)

Easy Ways to Ramp Up Savings and Reduce Debt

Managing money wisely can feel a bit overwhelming, especially if you’re new to it. It can also seem nearly impossible to find extra money to save or pay debts while still covering your daily living expenses. The good news is that you don’t have to know everything or make drastic changes to have a positive impact on your financial health. 

The following steps may seem small, but they will compound your efforts to reduce debt, increase savings and harness your income.

• Retirement account: Slowly increase how much you contribute to your 401(k) every couple months. Ramping up your long-term savings by just $25 to $50 on a regular basis can really add up without putting a strain on how you live. If a 401k is not an option, talk to an advisor about starting a Roth IRA at age 30. 
• Health and medical: Health care is expensive, and as you age you’ll spend more on health-related costs. This is also true for those in their 30s as they plan families. Give yourself a buffer against these costs by putting more into your Health Savings Accounts (HSA). This can also provide helpful tax deductions.
• Debt management: Pay more than the minimum amount due on your credit cards. Even $10-$25 more a month can help you more quickly clear debts. 
• Mortgages: Make a single extra mortgage payment every year. By doing this, you can reduce a 30-year mortgage by 5-7 years. You can easily do this by simply making mortgage payments bi-weekly instead of monthly. This adds up to roughly one extra payment over the course of a year. Of course, you can do both strategies, pay one extra payment AND pay your mortgage bi-weekly. This aggressive tactic can help you pay off a 30-year mortgage in just 20-22 years!
• Expenses: Look for ways to find more money to save every month. This can take the form of cutting expenses but it can also mean finding ways to earn more so that you can tuck more away in savings. This can be a powerful wealth-building tool, especially when you start early. For example, if a 40-year-old saves $650 a month, and invests it wisely, they can have up to 1 million dollars in retirement savings² when they reach 67. Imagine how much you can save if you start now? 

When you look at the numbers, the results can be overwhelming and even alarming. After all, if you’re like the average American, you’re facing the future with more debt than savings. No matter what your financial snapshot looks like though, it’s important that you don’t let fear keep you from making better money decisions and taking control of your financial health. 

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Sources

¹ The Federal Reserve. May 28, 2019. “Report on the Economic Well-Being of U.S. Households in 2018.” Accessed June 9, 2021.   

² Ramsey Solutions. March 1, 2021. “40 With No Savings? How to Retire a Millionaire.” Accessed June 9, 2021.

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We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

Neither our firm nor its agents or representatives may give tax or legal advice. Be sure to speak with a qualified professional about your unique situation. All investments are subject to risk including the potential loss of principal.  No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Lundervold Financial is an independent financial service firm that utilizes a variety of investment and insurance products.  Investment advisory services offered only by duly-registered individuals through AE Wealth Management LLC. AEWM and Lundervold Financial are not affiliated companies. 955835-6/21