The next decade is pretty exciting - the 30s. Now, we like to call this the messy middle because we do this hopefully to free you up to feel like you're not alone. In your 20s, you have a lot of time on your hands but don't have as much disposable income, so it creates this weird situation. But in your 30s, it's the exact opposite. You're starting to make more money, but now you feel like all your time has been squeezed out. Not only do you have more career responsibilities, but more than likely you also meet somebody and start a family. That stuff is gonna all of a sudden squeeze every bit of free time out of you, and you'll just feel overwhelmed. So, we wanted to kind of give you the things you ought to be thinking about while you're in this controlled chaos moment, and it's okay. You'll make it through it, and you'll be rewarded if you do it the right way.
I love what you said, Brian, right there. It's okay; you are not alone. Other people feel like this, so as you go through this, know that you are going through the same path that a number of other folks have done at the same stage. So, from a cash flow standpoint, one of the things we want you to recognize in your 30s is that your wages and your income may have grown significantly since your 20s. You're likely making more money and moving into a different stage of your career. Make sure that your savings follow suit. Don't be a 30-year-old with 30-year-old income and a 20-year-old savings rate. Make sure that your savings mature at the same time as the other areas of your financial life.
I would challenge you on your cash flow. Every time you're getting pay raises and other things like that, prioritize actually paying yourself first. Because there is something, I think I give people a lot of grace in their 20s because you are trying to work with limited resources. But by the time you're in your 30s, hopefully, you're no longer in a job. You're actually in a career. I want you to be prioritizing that 20 to 25 percent of your earnings are going towards working for you in the future. The next thing you need to recognize is that, because you likely have more income and thus more disposable income, you need to make sure, in your 30s, you're watching out for lifestyle creep. It happens to all of us. Be careful as your income increases that you don't let your lifestyle increase and outpace how much your savings and wealth-building journeys increase.
I think it's so interesting in your 20s; you know, you're making decisions that are really hundreds of dollars at a time. Mistakes now, they have a big exponential benefit in the long term, but it's still recoverable from. I think in your 30s, you have to be careful because it's not uncommon for people now to have a thousand dollar-plus car payments, to have mortgage payments that are substantial sums of money. Your ouchies in your 30s are going to be much bigger than some of those consumer decisions you made in your 20s. So, just be very aware that you got to be disciplined and make sure they reflect where you want to be in the future.
By the time you get to age 30, that's now dropped to one dollar can turn into twenty-three dollars. So, your savings rate matters so much in this decade, so that you can make sure you're setting your future self up for success. So, if you're not saving 20 to 25 percent, this is the decade where you really need to clean that up. I also want to remind people in their 30s, don't give up. I mean, this is one of the if you've been saving for five years, ten years, going on 15 years, you know a lot of people, especially in a bear market, what we've had recently. A lot of people will be like, "Man, I don't - I hear these guys talk about compounding growth, but I don't see it." This is the point of building up your what I call boiling point, and the fact that if you think about this, to reach the 212 degrees Fahrenheit all the way from, you know, room temperature up to 212, it doesn't look like much is happening. That's the same way it works with investing, but then once you reach that critical medical mass point where it actually - the bubbles start forming - you will be rewarded. So, don't give up the journey. It's such an important part of this, but there is that's the part where people are getting frustrated.
I do want to tell you, when happy days return, I think that this is also the decade where you very well could exceed five hundred thousand dollars or you maybe want to go beyond index Target retirement funds with looking at, you know, tax location and other things you need to consider when you are graduating past the basics. But even if you graduate, even if you're getting to that point to where, "Okay, maybe Target retirement index funds aren't the solution. I need something more specialized." You also need to keep in mind that your savings rate at this age is still more important than your rate of return. How much you're saving, how much you're putting away should take more of your focus than, "Okay, what investment decisions I'm making and how am I allocating my portfolio?" Because your dollars are still super, super, super powerful at this stage, so make sure you're not giving too much attention to, "Oh, what's my annual rate of return?" And focus enough attention on your savings rate.
Let's talk about something that's near and dear to my heart from the 16 years of tax preparation, tax planning. What's interesting about your 30s is we said you're starting to get a little more jingle in your pockets. You're making a little bit more money in your career. You're now in this weird dilemma where, you know, when you're in your 20s, tax-free growth is so powerful, and likely you're not making six figures at the very beginning of that, that it makes it's just a no-brainer. You choose the Roth option. Whether it's your employer plan, you just choose tax-free growth. In your 30s, once you start getting in those higher tax brackets, you might have a decision to try to figure out, "Do I do Roth where I get the tax-free growth or do I use traditional savings so I get the current year deduction because I think my taxes will be lower in retirement?" Don't overlook how important it is to plan this in your 30s, but also don't forget in your 30s, this is the messy middle. This is the time where, literally, the one thing that we do not have here is time.
I do think this is an important one as you go through the life changes. You start having a growing family. If you have kids, make sure you have a will. Because if you don't have a discussion on guardianship while you're here on the planet, imagine how hard this is going to be for who you leave behind. Because we all love our kids tremendously. I know it's a complicated and hard conversation. Don't just assume you're going to be okay. Make those hard decisions while you still have a voice and you make your wishes known today. And again, make sure that you're updating your beneficiaries. It's something we talked about in our 20s. That same thing is true in your 30s because life changes. Marriages happen, divorces happen, children get born, grandchildren happen. All of these different things take place every stage and age of life. You need to make sure you're reviewing, 'Are my assets going to pass to the people that I actually want them to pass through?' Again, I don't think it has to be super complicated in your 30s, but it probably needs to be a little more sophisticated than the plan was in your 20s.
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