How to Build Wealth in Your 30s

If you’re in your 30s and starting to build your wealth, life is a forked path. The easy path leads to an unsatisfactory outcome more than three decades later. The more difficult route leads to a fulfilling summit with 360-degrees views. With many decades of wealth accumulation ahead of you, time and compound interest are on your side.

The burden of college loans and, perhaps, a wedding or children may be bumps in the road, but these are relatively small considerations in your journey. Rest assured, the work you do today is likely to pave the way for a more forgiving path later.

Here are the key steps for getting there.

Treat Your Career as Your Prime Wealth Generator

It may seem obvious, but your employment income will be the prime vehicle for growing wealth in your 30s. With that being the case, it’s important to pay extra attention to your professional life in this decade. Make yourself invaluable to your team or business and make sure that your bosses are taking note.

Asking for a raise isn’t easy, but time spent working toward and negotiating salary increases and other compensation—including bonuses, equity and matching 401(k) contributions—can pay dividends for decades to come.

Get the Most of Your Retirement Match

Prioritizing many savings goals in your 30s can be a challenge, to be sure. Yet, one piece of wisdom that is universal is to take advantage of tax-advantaged savings via a 401(k) or another employer-sponsored plan—and contribute at least enough to max out on any employer match. In 2019 the average employer match was up to 4.7% of employee salary. In other words, a person earning $100,000 a year who saves at least that much of her salary in the typical plan would get an additional $4,700 in savings. No investment offers that kind of guaranteed return.

Embrace Dollar-Cost Averaging

Use dollar-cost averaging as an opportunity to spread and smooth your stock or mutual fund buying costs over time and market shifts. Dollar-cost averaging is the process of buying securities at regular intervals, such as bi-weekly or monthly, no matter what is happening in the market. This proven strategy eliminates the temptation to try to time the market—and in fact, can make any dips in the market ultimately work to your advantage.

Diversify with Real Estate

If you’ve taken all of the smart steps and still have money to invest, consider diversifying your portfolio with real estate. Real estate is typically a longer-term and less volatile investment than stocks, and it can reap the advantage of sweat equity if you have the time to make prudent home improvements that increase the value of your property.

Interest rates are hovering near historic lows, and in 2020 home loans have ticked yet lower, most recently around 3% for borrowers with good credit for conventional mortgages. If you plan to stay in your house for at least a few more years, do the math on a refinance. In general, it makes sense if you can shave one percentage point off your rate, but do your own calculations to see how quickly you can break even after factoring for the cost of refinancing.

Can’t afford a million-dollar starter home in your primary market? Consider getting your foot in the door with a rental property or vacation home in a more affordable but up-and-coming area.

Pay Off and Avoid High-Interest Debt

No matter what in life, consumers should look at paying off the burdensome high-interest credit cards or loans a quickly as possible. The average interest rate on a credit card in 2020 is 14.5% for existing accounts and 17.9% for new accounts, according to WalletHub’s Credit Card Landscape Report. The revolving debt on a $100 purchase will end up costing almost 40% more after two years. Seeing those rates will help you decide where your next dollar goes.

Conversely, don’t be in a rush to pay off low-interest college loans. You’re better off putting more money into your 401(k) or a Roth IRA, which should more than offset your college loan interest rate. Meanwhile, treat your college loans as low-interest vehicles to earning a better credit score with timely payments.

Budget for the Win

Ideally, you’ll learn the basics of budgeting when you earn your first dollar, but it’s never too late to learn how to make smart decisions about saving and spending. Budgets are intermittent life goals and embody your values, too. Think of the process of building and sticking with a budget as a chance to explore what’s possible rather than what’s financially improbable. If travel is important to you and your family, be sure your budget reflects that value while minimizing other expenditures. Set goals that make sense for the next five years and revise as your situation changes over the next decades.

Make College Savings Second Nature

As your family grows, you can give your kids the ultimate head start with 529 college savings plans. In the not-so-distant future, these funds can minimize the stress of choosing a college, and reduce the risk that your child’s education will derail your own plans. Among other benefits, 529 college savings offer tax-deferred growth and tax-free withdrawals for qualified expenses, including private and parochial elementary or preparatory school. Further, some states offer state tax incentives for 529 contributions. You don’t lose the money if you don’t use it for educational purposes. A 10% withdrawal penalty plus income tax on earnings only.

The cost of college may seem mind-boggling, to be sure. Yet, making small and consistent contributions—and nudging grandparents to contribute in lieu of gifts—is the easiest way to build college savings, and in the process help the next generation get a head start building their own wealth.