No, it’s not just you. When it comes to finances, your 30s can be overwhelming. Most people find themselves juggling mortgage payments, an expensive young family and growing demands at work. You’re still relatively early in your career, so the money is tight and the questions are many. How big a mortgage can we afford? How much should we be putting into our RRSPs? How do you set up an RESP anyway? To get it all done, you need to figure out what’s important and what can wait, then come up with a financial plan that automatically funnels your money where it’s needed most.
Embrace good debt
Given that your 30s are expensive years, you likely won’t be able to avoid debt entirely — the trick is to manage it wisely. That means knowing the difference between good and bad debt and feeling comfortable with the overall level of debt you take on.
Bad debt means borrowing to buy consumable items, especially those whose initial sheen quickly wears off. It’s borrowing to buy a car you can’t really afford, or carrying a balance on a high-rate credit card. Good debt, on the other hand, helps you build your net worth. It’s used to buy investments that will increase in value over the long term, such as a home or blue-chip stocks.
Pay down your mortgage
Buying a house often means a forced savings plan that helps you build up equity, which is great thing, as long as you pay off your mortgage quickly. Paying down your balance fast is especially important now, as mortgage rates are starting to inch up, so even if you’re locked in, when you renew, your monthly payments could jump. Some strategies to consider include opting for a shorter amortization (25 years, say, instead of 30 years), doubling up your mortgage payments, putting an extra 10% down on the principal of the mortgage every year, or getting a good mortgage broker to negotiate a better rate.
What about my RRSP?
If you find your mortgage is devouring so much of your income you don’t have much left for RRSPs, don’t worry. You can wait a bit longer before you start saving in earnest. “I’m always asked whether paying down the mortgage or saving for retirement in an RRSP is a better financial strategy for your 30s if you own a home,” says Marc Lamontagne, a fee-for-service financial planner with Ryan Lamontagne Inc. in Ottawa. “My answer is to ask yourself what motivates you. If it’s getting rid of debt, then pay down your mortgage as quickly as possible. If you’re keen on having some retirement savings in the bank, then contribute a portion of your salary to RRSPs and use the tax rebate to put towards your mortgage.”
Invest in your kids
If you recently had kids, it may be time to start a registered education savings plan (RESP) to help pay for their education. We recommend setting up an RESP account at your bank’s discount brokerage, and then buying low-cost exchange-traded funds or index mutual funds to build an RESP Couch Potato portfolio. As long as your portfolio is in an RESP account, for every dollar you contribute (up to $2,500 a year per child), the government gives you an immediate 20% top up.
Protect yourself from job loss
Tough as it is, you should try to build up a cash cushion to live on should you find yourself out of work. Three to six months worth of living expenses in cash, GICs or money market funds is ideal. Failing that, you may want to have an unused line of credit lined up for emergencies — it’s much easier to get approved while you’re still employed.
It’s also a good idea to keep upgrading your skills while you’re working. Part-time courses and certifications show that you’re actively investing in your career. “Because you have a university education doesn’t mean learning is over,” says Al Feth, a fee-for-service adviser in Waterloo, Ont. “You’ll be working for several employers over your lifetime. It’s up to you to make sure you have the skills to be employable at all times.”
If you are laid off, don’t be afraid to approach former co-workers and associates for help. Keep in touch with valuable people at your last job, and if you can, convince your manager or supervisor to write a letter of recommendation before you leave. With a positive attitude and a bit of help from your friends, you’ll make much faster progress toward finding a new job.
The top financial lessons from our 30s — Andrew and Penny Gumley
The best thing Penny and I did in our 30s was to always keep a budget. In the early years of our marriage we budgeted $30 a day for food, transportation and incidentals and we made sure to live within our means. That allowed us to build our savings for a substantial down payment on our first home 11 years ago — that, as well as an automated savings plan that saw us deposit a set amount of money to our “savings for a house” account every month.
Our first home was a $175,000 townhouse in Vancouver and after we bought it, we used every strategy we could to pay it off as quickly as possible. As our salaries increased, we doubled up our monthly payments and put lump sums of cash down on the principal as often as we could. Then, when we moved east seven years ago to be closer to family, the equity in our Vancouver home allowed us to make a substantial down payment on our current home in Ottawa. We paid that home off completely last year when I turned 40.
Paying off our mortgage has given us options now. We have three kids — two seven-year-old twins and a newborn — but we know we’re in good enough financial shape that Penny can stay home with the kids for a few years if she wants to. Or, we may decide to both continue working so that we can save for a substantial down payment on a second property in British Columbia — a place we’d eventually like to retire to.