Common Financial Mistakes 30-Somethings Make

Pioneer Wealth Management Group is a fee-only financial planning firm in Dallas and Austin, TX. Milad Taghehchian, a Certified Financial Planner in Austin, TX, is our guest blogger for this week.

Thinking about your finances can be very stressful, especially when it comes to big decisions. What impact would buying a bigger house have on your finances? Should you buy the base model of that car, or pay extra for the upgrades? Many people don’t know how to live within their means and can often amass thousands of dollars in debt. The following are common financial mistakes people in their 30’s make!

Failing to get insurance

We all know we need insurance. For our health, our cars, our homes, even our businesses. In fact, so many aspects of our lives need insurance that it can be easy to become overwhelmed and put off the entire process. A common mistake people in their 30’s make is to simply get the cheapest or simplest insurance, not knowing how to shop around for what they truly need. The consequences can be drastic, even catastrophic, if one finds themselves in a situation where insurance does not cover their sudden need!

High wedding costs

An average wedding today runs about $26,000… the equivalent of a down payment on a $130,000 home! Imagine hosting a smaller wedding and inviting only the most important people you think should be there. One of the biggest wedding expenses is food: it costs thousands of dollars to feed more than 100 people!

Saving for the wrong things

Saving is good – really good. As financial planners, we share a philosophy of planning for the future and being as prepared as possible for what life throws at us. One of the best ways to do this is by saving a lot, and saving early. But you could be saving in the wrong places!

Pouring all of your savings into 401(k)s and other retirement vehicles can become problematic when you need to buy a new car, or put a down payment on a home. The reason is simple: these are retirement accounts, and they charge hefty fees for early withdrawals. Instead, you should have separate savings accounts at your bank for each different investment you expect to make down the road. For example, you might have a savings account for the home you plan to buy in 5 years and a separate one for the new car you’re due next summer!

Overspending on your first child

There’s always a dilemma with the first child: you want to give them the most comfortable upbringing possible, but you also don’t want to spend more than you need to. Because you have no prior experience raising a child, you’re prone to spend more than you actually need to on raising the child. You should research the costs of raising children and try to spend accordingly, keeping in mind you’ll likely be having at least one more child at some point!

Overspending on cars

A rule of thumb when it comes to purchasing vehicles is that you should try to pay it off in 5 years and purchase a new one within 10, or to hold on to it as long as it’s running reliably. If the maintenance and repair costs start piling up, it’ll pay off to invest in a new car at that point – this could be as soon as 7 years in.

Using this rule, the monthly car payments will be manageable and after 5 years you’ll be able to increase your monthly savings. Purchasing a new car every few years is simply wasteful – cars depreciate (lose value) quickly, and a reliable car should certainly last more than a few years.

If you’re a Texas resident in the Austin or Dallas area, we recommend you visit a fellow fee-only financial planning firm. Check out pioneerwealth.com or call Pioneer Wealth Management Group at 512-334-6800.