Young people pack a lot of life into their 20s. They graduate, start their careers, and enjoy the newfound financial independence that having a job brings them. Sometimes too much! But if you’re in your 30s, or heading into your 30s, it’s time to be more serious about money and lay down some lifelong financial habits. Here are nine savings goals for 30-somethings to see you into the next decade and beyond:
1. Start saving into a pension
‘How’s your pension doing?’ isn’t a question that comes up very often among 30-year-olds, but it should. Those aged 30 today have a 50% chance of living until they are over 100, so even if you retire at 70, you’ll need to fund at least another 30 or 40 years of retirement.
This is tip number one because it’s startling just how many 20-somethings ignore their pensions. Most of you will have been enrolled into a pension automatically, but there are several reasons why you should maximise your contributions. The great thing about pension saving is that it’s not just you putting money into the pot, your employer and the government also chip in. The more you put in, the more they put in, so let’s not say no to free money!
Firstly, you don’t pay tax on pension contributions which means that the dent in your pay packet is less severe than you expect because you pay less tax overall. Secondly, most employers match your contributions up to a certain amount, so you’re missing out on a chunk of money from your employer if you don’t maximise your contributions. Some employers even offer higher contributions for staff who have been at the firm for some time.
It’s often recommended that you save about half your age, so if you’re 30, that’s 15% and you should increase the amount as you get older. But don’t forget you’re not just relying on your own contributions to hit this target, there’s tax relief and employer contributions as well. Here’s our blog on how much you need to retire.
2. If you don’t have savings, start now.
Having savings gives you something to fall back on when things go wrong like losing your job or your car breaking down.
Sticking away £50 per month may not sound like much, but that’s £600 at end of the year and then there’s compound interest — basically you earn interest on the interest you’ve received and your savings start to grow faster. Find out more about snowballing here.
3. Start investing
When it comes to saving for your future, time really is of the essence. It’s important to consider how you save too as cash isn’t going to do you any favours in the long term. Once you’ve got your emergency cash fund sorted, you should start investing in the capital markets instead. The earlier you start to do so, the more you will benefit from the effects of compounding — the most valuable tool in investing (see video above). You benefit from compounding by keeping any interest, yield or capital gains invested, instead of spending it. These additions create greater growth than would have been possible from the original investment alone.
If you’re in your 30s, start investing by opening a Stocks & Shares ISA and trying to fill your annual allowance (which is currently £20,000 (2023/2024). Money that you put into an ISA is free of income tax or capital gains tax hugely benefitting your long-term returns.
Another good thing about ISAs is that you can access your money whenever you want to, which comes in handy if you’re saving for a house or other significant expense (investing is not a good idea if you plan to use the money in fewer than five years).
If your monthly budget can stretch to it, you should consider opening a Self-Invested Personal Pension (Sipp) too. A Sipp gives you greater control and flexibility compared to other types of personal pensions. It also comes with tax relief. Money paid into your Sipp will automatically receive basic rate tax relief (20%), so if you contribute £8,000, the government will top this up to a total contribution of £10,000.
Higher rate and additional rate taxpayers can claim an extra 20% and 25% tax relief respectively. Like ISAs, any holdings inside the Sipp can grow free of income, dividend, or capital gains tax. The downside is that money in a Sipp will be locked up until retirement. But a pound invested in your 30s is far more valuable than one invested in your 40s or 50s.
4. Take some risk
Those in their 30s may not have a particularly high level of financial knowledge and tend to be slightly cautious when first dipping their toe into the world of investing. A recent report found that Millennials hold twice as much cash in their portfolios as their parents. However, the good thing about their long wait for retirement is their long investment time horizon. If you’re in your 30s now, you will be working until you’re in your late 60s, giving your investments at least 30 years to weather some ups and downs.
It’s important that investors feel comfortable with their position, but consider your appetite for risk in relation to your time horizon — the longer the horizon, the more risk you can afford to take. Over time, a higher risk profile tends to generate higher returns. Every cloud has a silver lining.
5. Pay down expensive debt
A large portion of those in their 20s will have student debt. There’s not an awful lot you can do about that except pay it off month by month. But you can do something about any credit card or payday loan debts.
If you do have relatively large credit card debts, you can explore transferring your balance to another credit card to reduce the interest and transfer again if you haven’t paid by the end of the promotion period. Use the snowball debt method to pay off the debt.
6. Spend wisely
Being in your 20s often goes hand in hand with spending or wasting money, usually because it is when you first start getting a solid pay packet to do what you want with. But whether it’s £30 on a round of shots or £100 on a pair of shoes, by the time you’re heading into your 30s you need to be less frivolous.
There’s nothing wrong with indulging yourself occasionally, but cut out other unnecessary expenditure so you stay in control and don’t have to resort to whacking your expenses on a credit card. If you have a serious shoe habit, cut out a couple of lunches and coffees a week and put the money into a savings account so you can indulge your habit without feeling guilty.
7. Save as much you can afford
If you have anything left after pension contributions, debt pay down, mortgage payment and general living costs, save it! We’ve already mentioned how much your pension can benefit from compounding, but other forms of saving can benefit from this too. Say no to the taxi and yes to the ISA. Or pay yourself — set up a standing order so that your extra cash is out of sight and out of mind… Your future self will look back on your current self with a lot of gratitude.
8. Consider buying a house
This may seem like a perverse suggestion at a time of climbing interest rates – there have been 14 of them consecutively and there could be more to come – but hear this out.
If you can cope with climbing and possibly even higher climbing rates, then it could make sense for you to buy a property.
As interest rates have risen it has put pressure on the housing market, house prices have started falling. With house sellers slashing their prices at the fastest rate in a decade this is a buying opportunity if you can afford it.
The biggest hurdle to buying your home is saving the deposit. Most banks expect a 10% deposit so on a £200,000 property, the deposit is a meaty £20,000 and then there’s the £1,500 stamp duty and solicitor fees on top, as well as other costs.
9. Look after your loved ones
Let’s face it, you’re in your 30s and getting older. If you’ve taken these tips on board and are accumulating investments, it’s sensible to make a will and make sure that your hard-earned cash goes to the right people, should the worst happen.
Dying without a will means that you die ‘intestate’. That means that intestacy laws come into play and will decide how your assets are distributed on your behalf. There’s no such thing as common law spouses in the UK so if you have a significant other but are not married, then a will ensures that your money goes to them and not some distant, unknown relatives on the other side of the world.
Writing a will can also make sure that you don’t pay more inheritance tax than you need to. You can write a will yourself but will need to have it formally witnessed and signed. It’s always best to get professional advice from a solicitor.
Aged 40 or more? Savings tips for 40-somethings coming soon.