Your first step to financial planning in your 30s is to understand where you are today and where you want to be in the future. This will be a pivotal decade for you, so it’s important to take stock of where you are: How much money do you have coming in, where is it going, and how much of it are you holding onto every week, month or year? What does your financial picture look like right now? 

Create a budget

If you don’t already have one, create a budget. Creating a budget serves two purposes. First, it gives you a view into how you’re currently spending your money. Second, it will help you make decisions about how you allocate your money toward the things that are most important to you now and in the future.  

When you set up a budget, you’re essentially trying to get a view of your cash flow. First, add up your monthly take-home pay from all sources of income. Then, add up all of your monthly expenses and group them into these three categories: 

Once you have categorized your spending, it’s time to crunch some numbers to determine how much you’re spending within each bucket. While everyone’s budget will be different, as a general rule, aim to spend roughly the following percentages of your take-home pay on each category.  

Understand your net worth

The term “net worth” may sound like it applies more to Jeff Bezos than to you. But net worth doesn’t have to be a number in the millions or even the tens of thousands. Everyone has a net worth. So you might be wondering, “How do I calculate my net worth?” Here’s what you do: 

• Add up your assets. This should include money in your checking, savings and investment accounts, as well as the value of any physical items you may own, such as your home, automobiles, jewelry and other valuables. 

• Subtract your liabilities. This is essentially any debt that you carry, including credit card debt, student loans, auto loans, personal loans and mortgage balances. 

The resulting total is your net worth. 

Once you know where you currently stand, you can start to dream about where you want to go. This is the fun part. Ask yourself questions like: 

These are all big goals you’ll want to plan for financially. Getting a sense for when you might want to reach each goal can help you make choices about how to use money you’ve already saved and how to continue saving and growing your money to help meet those goals. Knowing where you are starting from and where you wish to go will allow you to create a financial plan to get there.

It can be tempting to jump right into a plan to invest your money for the future. But part of getting to where you want to be financially is including a plan to protect your finances so that life’s ups and downs don’t throw you off course. This is also a time of life when you’re likely to grow your family, which makes the protection component a critical part of financial planning in your 30s. 

Here’s what to consider. 

Start an emergency fund or build the one you have 

An emergency fund is exactly what it sounds like: A checking or savings account where you keep money that you can tap in the event of an emergency, such as a surprise medical bill, car or home repair, job loss or other major unexpected expense. Most financial experts recommend that you eventually have enough money in your emergency fund to cover about six months’ worth of expenses.  

If you started your emergency fund in your 20s and have it fully funded, check this off your to-do list. If it needs to be padded further (especially as your expenses have likely grown), work an amount into your budget that you can set aside into your emergency fund each month until it is fully funded. And if you don’t have an emergency fund at all, that’s okay, too. Now is the time to start one.

Planning for Disability

If you get sick or hurt and cannot work for an extended period of time,  it is important to have a plan to help you make up for some of that lost income. This can protect your financial plan by helping you to avoid having to draw down savings that are meant for other goals.

Many employers offer affordable short- and long-term disability insurance to their employees, but in many cases it will cover only about half of your income. Now that you’re in your 30s, it’s a good idea to review what coverage you already have and start planning for what you may need.

Life insurance

In your 30s, it’s highly likely that your family will grow or that you’ll have more people who depend on you, whether that’s a spouse, children, a disabled sibling or aging parents. That makes life insurance another critical layer of protection for your plan. It will ensure that your loved ones will be taken care of even if you’re no longer there to support them.

But how does life insurance work? The two main varieties of life insurance to consider are term and permanent. Both pay out a death benefit to your beneficiaries in the event of your death, but there are important differences:

Because of its additional benefits, permanent life insurance is more expensive than term for the same size policy. That’s why many people in their 30s will use a mix of term and permanent insurance to reach the death benefit amount they want while still getting access to what permanent insurance has to offer beyond the death benefit.

Once you’ve laid the groundwork to protect your financial plan, it’s time to start taking steps to grow your wealth. Depending on your financial situation, this may consist of a combination of paying down debt while also saving and investing for various goals.

Make a plan to pay down debt

When you’re in your 30s, it’s not unusual to have credit card or student loan debt. If that’s your situation, then it’s a good idea to plan for how to get out of debt. Doing so can help position you for future financial success, because debt can be a headwind to reaching your financial goals. Plus, as you pay down your debt, you’re helping to grow your net worth.

Good debt vs. bad debt

Before you aggressively start paying down your balances, it’s important to realize that not all debts are created equally. This is where the concept of good debt vs. bad debt comes into play.

If you find that you carry both good and bad debt (as most of us do), then you’ll probably want to prioritize paying down the bad debts first.

Debt repayment strategies

When it comes to paying down your debts, there are a number of different strategies to consider. Two of the most popular debt repayment strategies are the debt snowball and the debt avalanche. Here’s how they work.

Your investments

By the time you’re in your 30s, you’ve likely starting saving for retirement, or maybe you’ve even started putting money away into an investment account. Investments are a great way to save for big, long-term goals because they help your money grow over time. Now is a good time to brush up on (or learn) investing basics and make sure that you’re putting away the right amount in the right places based on your goals.

There are several big goals that people often reach with the help of investments. Some financial goals, like retirement or saving for college, even have special accounts that qualify for tax advantages, which is why they are known as “qualified” accounts.

Investing for retirement

This is one of the most common reasons that people choose to start investing, especially if you have access to a retirement account like a 401(k) or 403(b) through your employer.

Invest for college

If you have children or plan to in the future, your 30s is a great time to begin saving for their college education. After all, college is expensive, and it’s likely to get more expensive as time goes on.

As with retirement, there are a number of different options you can use to begin saving for college, including:

• 529 College Savings Plan
• 529 Prepaid Tuition Plan
• Coverdell Education Savings Account
• Uniform Gifts to Minors Act (UGMA) Account
• Uniform Transfers to Minors Act (UTMA) Account

Non-qualified investments

We mentioned above that accounts designed specifically for retirement and saving for college are called qualified accounts because they qualify for special tax benefits. Regular investment accounts don’t have these special tax perks, so they are known as non-qualified accounts — but you can still use them to save for any long-term goal, typically one that’s more than three to five years away. Some common goals include:

Many people think estate planning is something you do when you have tons of money. In reality, an estate plan spells out things like what happens for your loved ones if you die, who can make medical or financial decisions on your behalf, and how you want any money that you leave behind to be used.

It’s not fun to think about, but it’s a critical part of financial planning. If you don’t have an estate plan yet, your 30s are a critical time to put one in place.

An estate plan should include:

• A will,
• Beneficiary designations,
• Financial and health care powers of attorney, and
• A health care directive (also known as a living will).

Hopefully, you won’t need to leverage any of these documents for decades to come. But taking the steps now to generate an estate plan will take pressure off your family in the event that something were to happen to you. An estate plan helps make a difficult time a little less difficult.

Many people think financial planning is all about making sacrifices today in order to save for the future. The reality is that financial planning is about prioritizing what is most important to you and making a plan to get there. It actually helps free you to spend your money today without feeling guilty about shortchanging a future goal.

If you haven’t started a financial plan yet, there’s no better time than now to start. If you do have a plan, revisit it to make sure it’s focused on what you want in your 30s. A financial advisor can  help you build or revisit your plan. Here are some questions you may want to discuss with your financial advisor when you’re in your 30s.

*All investments carry risk, including potential loss of principal invested.