Being able to manage finances properly can do more than improve the state of a bank account.
Individuals in their 30s who are just starting to exercise their financial potential, however, may find money management overwhelming.
But contrary to popular belief, the most essential financial planning tips for 30-year-olds aren’t about knowing how to invest in stocks.
The best way to maximize the full potential of one’s personal finances is by banking and borrowing smarter. This includes financial planning tips such as:
- Organize Savings According to Your Personal Financial Goals: Manage savings based on financial needs and aspirations by having each account dedicated to a main purpose, whether that be retirement, an emergency fund, or mid-term to long-term financial goals.
- Manage Debt by Knowing How to Borrow: Understanding how to expand borrowing capacity or build credit by taking advantage of low-cost lending options and the basics of mortgage interest rates are vital to debt management.
- Establish a Consistent Financial Plan with a Budget: When financial planning, creating a personalized budget can help monitor expenses and eliminate unnecessary costs.
Understanding how to bank smarter, borrow strategically, control debt, and budget well are all great ways to improve one’s financial situation — especially for those with little experience in financial planning.
Organize Savings According to Your Personal Financial Goals
New financial planners should take care to allocate savings to different types of bank accounts according to their personal financial goals.
Open an IRA to Save for Retirement
Age 30 is the ideal time to focus on building up a healthy amount of savings for retirement.
Experts advise 30-year-olds to have a year’s gross or pre-taxed income saved in a retirement account.
Other factors can also determine how much money an individual should have saved for retirement by age 30, such as projected lifestyle and anticipated retirement age — but it is a general rule that the earlier one saves for retirement, the better.
Money in a retirement account earns more interest and grows in value over time — so starting young is crucial. Individuals in their 30s ought to take advantage of this time by opening multiple retirement accounts.
Because the Internal Revenue Service limits how much savers can contribute to their retirement accounts on a yearly basis, it’s not enough to just have an employee-sponsored 401(k).
An Individual Retirement Account (IRA) should also be opened. Able to be set up or owned without the support of a qualifying employer, an IRA is an excellent option for savers looking to optimize their annual contribution limitations.
If saving an entire year’s pre-taxed income seems intimidating or impossible, break up contributions into smaller amounts and gradually increase from there.
A suggested starting goal is setting aside 5% of a year’s gross salary and raising that contribution by 1% each year until 15% is reached.
Build an Emergency Fund with a High Yield Savings Account
If the financial institution offers it, using a high yield savings account rather than a traditional bank account to hold savings allows the funds to grow exponentially over time.
The interest earned by money deposited in a high yield savings account compounds at a faster rate. Expressed as the annual percentage yield (APY), compound interest is determined by the initial principal amount in the account and the interest it accumulates.
Those who choose to open a high yield savings account with HRCCU can earn compounded monthly dividends by maintaining at least $25,000 in savings.
The current APY on the majority of the high yield savings accounts offered by HRCCU is 0.10% — significantly higher than the national average APY rate of 0.06%.
Members can increase their bank balance simply by keeping an active high yield savings account. For this reason, a high yield savings account can also be an ideal place to build an emergency fund.
Part of smart financial planning is being financially prepared for the unexpected — accidents, loss of a regular source of income, and other situations that can quickly deplete one’s savings should be accounted for.
With a well-stocked emergency fund — at least three to six months-worth of income stored in a high yield savings account, savers are investing in their financial future and stability.
Use a Certificate of Deposit to Hold Long-Term Savings
Long-term savings or funds that can be put away for long periods of time in order to accumulate wealth should be placed in a Certificate of Deposit (CD).
A CD is similar to a high yield savings account in that the money saved in it also earns interest.
In exchange however, the owner of the CD must not withdraw the money invested into the account for the duration of the CD’s term, which can vary anywhere between six months to five years.
Withdrawing money from the CD before the term ends can result in financial penalties.
Investing in a CD as opposed to other equities such as stocks tends to be a more secure option, as the interest earned is locked, meaning it is not affected by changes in the economy or national APY rates.
Generally, the longer the maturity rate or term of the CD, the higher return the account holder will earn on the investment.
At HRCCU, savers can open a CD with an initial deposit as low as $500 and earn an APY as high as 0.45% depending on the term of the account.
Save Towards Mid-Term Financial Goals with a Money Market Account
To save towards mid-term financial goals such as a vacation or a new vehicle, a money market account is best.
The savings stored in a money market account are not restricted from withdrawal like those in a CD.
Money market accounts also usually come with a debit card and a checkbook, making the funds readily available when it’s time to use them to complete a personal financial goal.
Manage Debt by Knowing How to Borrow
Managing debt — particularly for those under 30 who may not have a lot of credit — begins with understanding how to borrow wisely.
Borrowing responsibly can build credit, trust with lenders, and make applying for loans and other financing options easier.
Debt can be consuming, but if applied correctly it can help to increase borrowing power. The difference between good and bad debt essentially comes down to what is being financed.
Going into debt to finance property or transportation can be beneficial in the long run as such investments have the potential to see a rate of return.
Discerning what’s worth investing in, the financing options available, and how to negotiate for more favorable loan terms are all ways to better your financial situation through smart borrowing.
Enhance Borrowing Capacity by Maintaining Good Credit
Having good credit can open borrowers to more financing opportunities.
As credit score partially relies on credit utilization, one of the best ways for a borrower to build and maintain a good credit score is to moderate how often they use their available lines of credit.
The frequency of which a borrower uses their credit is measured by the credit utilization ratio.
Also known as the debt-to-limit (DTL) ratio, credit utilization ratio is calculated by dividing the total balance of all active credit cards and the total credit limit.
It is recommended that borrowers use no more than a third of their available credit as this shows lenders the borrower is responsible and low-risk.
Borrowers who are struggling with overcoming debt or don’t normally qualify to open new lines of credit can obtain it through HRCCU’s Share Secured VISA Platinum Credit Card.
With a Share Secured VISA Platinum Credit Card, borrowers can improve their credit by taking advantage of the low 4.0% annual percentage rate (APR).
Poor credit can inhibit financial growth, but this can be tackled with quality financial products like those offered by HRCCU.
Invest in Low-Interest Loan Options for Easier Repayment
Investing in low-interest loan options makes repayment easier, more affordable, and also allows borrowers to improve their credit.
Credit unions such as HRCCU specialize in low-cost financing options that are accessible even to those with bad credit.
Members at HRCCU can borrow a secured personal loan, which is backed by collateral for up to 144 months with an APR as low as 3.74% and no payment is required for the first 90 days.
Even under challenging circumstances, establishing a better financial situation is possible with the right assistance and resources.
Learn About How Mortgage Interest Rates Works
Financing a home by acquiring a mortgage is a primary example of good debt.
But purchasing a home can be a very involved process, especially for first-time homebuyers.
On average, lenders expect borrowers to apply 28% of their monthly income towards a monthly mortgage payment.
Multiple factors affect the cost of a mortgage, including the price of the property, down payment, loan term, homeowner’s insurance, and interest rate.
By inputting these figures into a mortgage calculator, applicants can approximate the cost of a monthly mortgage payment.
Lenders consider a borrower’s credit score, employment history, and other criteria when determining the loan amount to extend to an applicant.
Considering how significant of an investment a mortgage can be, it’s important that prospective borrowers attain an interest rate that best suits their personal financial situation.
Mortgage interest rates are applied as one of two ways — a fixed-rate or adjustable-rate mortgage (ARM).
With a fixed-rate mortgage, the interest rate does not change throughout the length of the loan’s term.
This is the ideal choice for homebuyers who prefer to adhere to a consistent budget every month and don’t plan on reselling for at least the next five years.
Homeowners with an ARM experience a fluctuating interest rate that rises or falls based on the conditions of the market. An ARM is set below the average market rate at the beginning of the loan’s term.
First-time homebuyers may favor an ARM, as they are more likely to want to resell within a few years and can therefore save money while the interest rate is low.
Mortgage applicants should consider their needs and future in order to choose the best type of mortgage interest rate for their needs.
Establish a Consistent Financial Plan with a Budget
Budgeting is often seen as a restrictive practice when in actuality it can be financially liberating.
A well-rounded budget can maximize a household’s savings and ensure needs as well as wants are satisfied.
It can also help with paying off sizable loans such as mortgage payments. Getting these financial burdens under control can make room for new goals, like starting a family or establishing a small business.
A budget allows savers to identify unnecessary expenses so they can cut down on excess spending and instead focus on what really matters.
Organize Expenses According to the 50/30/20 Rule
The key to designing a comprehensive monthly budget is to plan for both necessities and desires.
Many financial advisors recommend organizing a budget according to the 50/30/20 rule — half of the total net or after-tax income is dedicated to needs, 30% is reserved for wants, and 20% is allotted towards savings or managing monthly debt.
By following the 50/30/20 rule, beginner budgeters can reduce their financial waste and allocate more funds towards what is most important to them.
Grow Savings Through Good Banking Practices with HRCCU
Banks can provide members with a variety of services and products to help them grow financially.
This is especially true for not-for-profit financial institutions such as credit unions, which offer interest rates that are more competitive than the national average as well as affordable financial counseling.
By practicing smart banking and becoming well-versed in the available products and benefits financial institutions offer, young adults can build up their savings and earn good credit.
Exercising the full capacity of your financial potential is possible with the financial planning services and products provided by the financial experts at HRCCU.
For more information on how our advisors can help you pursue your financial goals, contact us today.
