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In your 20s, you probably checked off a lot of firsts: first job, first car, first apartment, perhaps.
Hitting the big 3-0 is often a turning point – life gets more complex, and your finances do too. Seemingly overnight, the novelty of money in your 20s is replaced with the reality of planning for your financial future.
Throughout your 30s, you’re building momentum toward your peak earning years, which means bigger paychecks and growing account balances. That extra money will come in handy, since big-ticket purchases become increasingly common in your 30s. The stakes are higher for balancing it all, but there’s no need to stress if you miss the mark occasionally. Almost no financial mistake is fatal.
Everyone’s situation and needs are different, but read on to find out the smartest thing to do with your money in four common situations you might face in your 30s.
If you’re buying a house, figure out your budget first — and stick to it
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Few purchases are as exciting – and anxiety-inducing – as buying a home, especially if it’s your first. And for most of us, it’s an inevitable purchase. Approximately two-thirds of Americans are homeowners, rather than renters.
Before you start thinking about kitchen appliances and how many bedrooms you need, it’s important to determine how much mortgage you can reasonably afford. That doesn’t mean talking to a real estate agent or mortgage broker, since their compensation is typically tied to the price of the home. Even well-intentioned friends and family may push you to spend outside of your comfort zone. The best approach is to do some simple calculations based on your own financial situation.
The standard measure of housing affordability is 30% or less of your pre-tax income, but it’s not a hard and fast rule. If you limit your monthly mortgage payment to even less, say 30% of post-tax income, then you’ll have more money to put toward other financial goals and fun purchases, like travel and dining out. If you have student loans or other debt, you may want to limit your mortgage payment even further if you can, such as 20% of post-tax income.
The typical homeowner earns $70,800 a year, according to the 2017 State of the Nation’s Housing report published by the Joint Center for Housing Studies of Harvard University. At that income, spending up to $1,770 a month on housing-related costs would be considered affordable, using the standard 30% measure. That could mean getting approved for a mortgage of $350,000 (or more), which might sound great, but keep in mind you’ll also have taxes, insurance, utility costs, and ongoing repairs and maintenance, in addition to all of your other monthly expenses. Even an amount that seems reasonable at first, could leave you living paycheck-to-paycheck.
So, before you start shopping, figure out how much you’re willing and able to spend on housing, and stick to it. There will always be a bigger, better, more expensive house, but that doesn’t mean it’s worth the added costs.
If you’re considering going back to school, figure out how the degree will affect your finances
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Some experts argue that your career is your single greatest asset, even more so than your home or investment portfolio.
Graduate school can increase your earning potential, but it can also be expensive, and not all degrees have the same long-term payoff. Before you go back to school, carefully consider the following questions:
1. How much will you earn after you graduate? (And how is it different from what you earn now?)
2. How much will it cost you to go to school? Will you need to take out loans to cover the expense?
3. How much income will you lose while you’re in school?
The amount you pay to earn the degree, as well as the amount you recoup in future earnings, are the two most important financial considerations when weighing the decision to go back to school.
For the 2013-2014 school year, the median graduate school debt was $45,890, according to The College Board, nearly twice the median undergraduate debt for the same time frame. In most cases, earning a four-year degree is a worthwhile investment, even if you have to take out student loans to do so. But going to graduate school is a bit trickier.
The average amount of student debt used to finance a masters degree in education is $50,879, according to Student Loan Hero. For an MBA, it’s comparatively cheaper at $42,000 on average. But, even though the education degree costs more, it won’t pay off in higher earning potential. The average starting salary for a teacher with a master’s degree is $46,000, while the average starting salary for a recent MBA grad is $58,000, according to data from PayScale and recently reported by Business Insider. That income discrepancy only grows over time.
Pursuing graduate studies may not be all about the money, but the financial side shouldn’t be an afterthought. Even if you’ve already been accepted, carefully weigh the cost benefit analysis of the degree before making the decision to go.
If you’re planning to have children, be prepared for the unexpected
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The cost of raising a child in the US is $233,610, but you don’t have to save that up before you start a family. In fact, some expenses associated with having a child will coincide with reduced expenses elsewhere – diapers and baby food replace dining out and travel.
Still, having kids changes your financial plan. The first thing new parents often think about is saving for college, but childcare may be a bigger – and more immediate – priority. The average annual cost of full-time, in-center care for a child under age four is $9,589, compared to $9,410 for a year of in-state college tuition, as Business Insider recently reported.
Practical conversations about paychecks, benefits, and childcare are essential, and the earlier the better. The cost of healthcare for a family is much higher than for a single person, and the percent you spend on premiums and out-of-pocket costs will vary based on where you get your insurance. Becoming a parent also means you’ll need life insurance, disability insurance, and a will to protect your growing family.
If you’re thinking about getting divorced, get prepared right away
At the heart of it, the financial side of divorce is a negotiation. Any time you’re approaching a negotiation, especially an emotionally-charged and high-stakes one, there’s no such thing as over-preparing.
Start by understanding what you have now. Different states handle joint assets differently, so you may need to enlist an expert to help you understand what is shared, and what each of you own individually. Create a file and compile paper statements for everything, since passwords can be changed for online accounts. Use a checklist to make sure you haven’t forgotten anything.
Once you know where you’re starting from, it’s important to determine what your ideal outcome is, as well as what you will need for the future. In the best case scenario, you’ll both care about different things and be able to amicably divide up everything you own together. If the conversation is tense, it may be worth it to employ some science-backed negotiation tactics.
Going through a divorce is a big life transition, so there’s no reason to rush the process. The more financial planning you can do now, the less likely you’ll be to have to go through additional costly legal proceedings in the future.
Lauren Lyons Cole is a certified financial planner and the editor of Your Money at Business Insider.