There's something about being in your 30's that feels more adult. Whilst you may want to adamantly hold onto the last of your 20’s there’s a few burning financial matters that you should be attending to now rather than later.
You've probably been on your own for a little while or maybe you’ve found your significant other and you're starting to get the hang of it. But that doesn't mean you're exactly where you want to be. You might still be paying off student loans, overdrafts and credit card debt. Nothing to panic about, as there is still time to get those savings sorted and start thinking about other things that felt less urgent earlier, such as writing a Will and sorting your insurances out.
So, what should you aim for? Here are a few goals.
1. KICK YOUR EMERGENCY SAVINGS INTO HIGH GEAR
Some might remember starting the emergency savings in their 20’s once that first failed WOF came through on the 97’ Honda Civic. It mounts up when you have to replace a few tyres, brake pads and a few things under the hood. So you cut back on eating out, curb the guilty pleasures in the pantry to make sure that you’ve got a few dollars in case of unforeseen circumstances.
Problem is with each new milestone – think mortgage or kids — a ‘few dollars’ needs to be more significant in size. Financial Advisers say for many it'll be smart to have about three to six months' worth of expenses in the bank but the exact size of the fund will vary based on individual circumstances.
For instance, someone with unsteady income may need a bigger fund than someone with more predictable income. Likewise, someone with a house might need more savings for the mortgage, the maintenance and the alterations. It works out cheaper in the long run to allocate a set budget for yearly maintenance on a house than it is to pay for something to be fixed, when it needs fixing. The point is that it might be harder to sell your furniture and move back with your parents if something goes wrong, especially if you're a parent yourself now. So save up.
2. UP YOUR KIWISAVER CONTRIBUTIONS TO 4% or 8% OF YOUR PAY
Your 30's are a good time to start building wealth outside of just your house and your car. In New Zealand, we have this great ‘opt in’ scheme called Kiwisaver. You may have signed up through a Financial Adviser (best option), a bank or when you started a new job. Point is, you may well be slotted into the default scheme at the base contribution rate of 3% (formerly 2% for you day 1 Kiwisavers).
If you weren't saving much in your 20's, but you had Kiwisaver ticking away in the background, you will have had a nice surprise when you actually had a look at it 5 or 6 years on. The point is, don’t be surprised because in those 5 or 6 years, you could’ve saved a lot more had you have gone for a higher contribution rate and tailored your scheme to suit your needs.
To get a better idea of how much you could save through Kiwisaver you should do your homework. Check out the website or maybe use the Sorted.org.nz online tool that projects how much you could save on a higher contribution rate. Lastly, talk to a Financial Adviser about tailoring your scheme to suit your needs rather than being in a default setting - one of our team can help you with this.
3. BE (MOSTLY) DEBT FREE
Hopefully in your 20’s you've made a dent in your student loans and paid off any outstanding credit card debt by now. But if you haven't, it's not too late to get serious about tackling that debt.
The goal is to stick to a plan, like keeping credit card debt at bay and paying off all your non-mortgage debt. Be aggressive with it. Remember borrowing money can seem like a quick fix but having some debt can limit your options in life. Having your bank accounts structured to serve your goals is a really good way to approach this & we can help give you some common sense advice around this.
For things like credit cards and personal loans, make extra payments on your highest-interest ones first, then use the payments that were going to that card to pay off your other cards. Sorted.org.nz have a calculator you can use to calculate how to get the credit card debit down as well as some tips on managing your debt.
4. WRITE A WILL AND PREP OTHER LEGAL DOCUMENTS
Having a Will means if you die you leave a last Will & Testament (or die Testate) and you will have named who will manage your affairs and how they should do that. Dying without leaving a Will is called dying Intestate. Financially speaking, it is a less than ideal situation with no instructions left for whoever ends up managing things after you have gone. It is especially a problem if you have children. If people don't explain through their Will who should look after their children or who they want to get their property, investments & Kiwisaver when they die, the care &/or money may end up with someone you wouldn’t want.
Most of us know we should get serious about writing a Will after having children. But this process should really start once you start building your savings or have purchased a property. If you or your partner were to pass away – even prior to having kids - with the things we’ve spoken about already in place and no Will to distribute it, it could take months of administration to eventually sort it out..
While you're doing that you should organise your Power of Attorney that gives a nominated person or company the power to act on your behalf if you do not have the capacity for health reasons to do so. It’s very important if a medical or financial decision requires your approval and you are deemed incapable by a medical professional.
5. GET YOUR INSURANCES IN LINE
At this point in life not only should you have your assets insured but it is important that you should have already started thinking about implementing health and risk insurance too.
Your 30's are a time to think about these things if you haven’t already. Life insurance - which would help alleviate the financial load on loved ones on your passing - is one aspect, income protection, mortgage protection, disablement and trauma cover are others. It may only be when you buy a house that you are thrust into the world of life insurance because a lender says it would be a good idea. Long story short, do your homework on what a necessary amount and type of cover should be. There’s no one size fits all, and different insurers have different features to their products. Again, personalised advice to suit your circumstances is what a Financial Adviser does and we can help here.
Luckily in NZ if being off work is due to an accident, ACC may cover up to 80% of your taxable income. Bear in mind though, you may want to find out what your job offers in terms of short-term disability coverage for you (if you were unable to work for several months due to a medical condition) and if you are self-employed you need to understand how ACC applies to you. You should have a chat to a Financial Adviser about what types of policies are available and what would best suit you to complement any Employee benefits or ACC. There’s a range of options and every provider has different benefits, including specialist covers for those that are self-employed.
The key to getting your insurances right is to understand your needs and priorities. For example, most married couples may want to build joint policies so that the surviving spouse could continue to pay the mortgage, or have enough money left over to take their time to grieve or maybe put the kids through university. On the other hand, someone that’s on their own may just want to clear any debt they have and pay for their funeral costs. If you’re not sure what your needs are get in touch and we can have one of our Financial Advisers talk things through with you.
Lastly, credit goes to Jonnelle Marte of The Washington Post for the original article "Six money milestones to hit while you’re in your 30s".