We bring you six tips for managing personal finances in your thirties

We have often heard the saying that time is money, and there is one universal truth that all investors can agree on: the sooner, the better. At least when it comes to investing. Albert Einstein reportedly once called compound interest the most powerful force in the universe, and this concept is applicable at any stage of your investment career, regardless of changing personal goals and investments.

We can likely divide our entire lives into several key phases, and the one that is extremely important for personal investing is that in our thirties, according to Peter Lazaroff, Chief Investment Officer at the wealth management firm Plancorp, which currently manages assets of six billion dollars.

– Once you turn thirty, the looming worries about graduating, starting a career, and getting out of student debt are likely replaced by household concerns – said Lazaroff in a recent episode of The Long Term Investor Podcast, where he primarily spoke about marriage, parenthood, and the median age of first-time homebuyers at 33 years, according to the National Association of Realtors.

Lazaroff shared six useful strategies for managing personal finances in the podcast, particularly aimed at investors in their thirties.

– Your thirties are the time to start building lasting wealth to meet growing life demands. The financial decisions you make in those years will affect you for the rest of your life. With these strategies, you can plan for a successful retirement long before you finish your career – he said.

First and foremost, Lazaroff spoke about the importance of consolidating multiple investments, such as separate 401(k) or Roth IRA accounts, into one equally accessible platform.

– When everything is in one place, it makes it easier for us to see the role each investment plays in achieving your financial goals. It will also help you avoid redundancies and manage overall risk – Lazaroff believes, but he also warns investors to be very cautious regarding tax implications or closing costs that may be associated with account transfers.

What Lazaroff also mentioned as one of the useful tips is that young investors should have strategic approaches to debt repayment. Each individual’s financial situation should dictate their repayment priorities, but Lazaroff recommends prioritizing the repayment of private loans or high-interest debts that are not tax-deductible, such as credit cards. Only after that should they consider debts with private mortgage insurance and those with high-interest rates that are tax-deductible, such as some business or student loans.

Tax-deductible debt with a relatively low-interest rate, which he defines as anything below four percent, should be saved for last.

– It is crucial at this stage of life to have as little of this debt behind you as possible, but do not neglect investing while you are paying off debt – he added, and the third tip he mentions is that investors should maximize their retirement accounts.

Lazaroff believes that the ‘mathematically optimal order’ for maximizing retirement investments is as follows: first, you need to invest at least the minimum amount in your company’s retirement plan, then contribute to a Roth or traditional IRA that is tax-deductible, and invest the largest amount in the company’s 401(k) plan. Finally, contribute to a traditional IRA that is not tax-deductible because this way you can secure tax-deferred compound growth for yourself.

For those who have the option to invest in a health savings account, Lazaroff stated that this should be the second priority on the list.

– This account offers a triple tax benefit: a tax deduction on contributions, tax-free growth of investments, and tax-free withdrawals when used for medical expenses – he explained.

Then Lazaroff emphasized the importance of maximizing the use of your money.

– Investing while covering expenses can be a delicate dance, especially at a stage in life where financial responsibilities seem to multiply. The trick is to determine how much you can save while still having enough liquid cash to meet current needs – he said, adding that investors should keep cash to a minimum in personal investment portfolios to achieve returns as efficiently as possible.

Given that checking accounts do not earn high interest, Lazaroff does not recommend keeping more than monthly expenses in them. In fact, keeping between 25 to 50 percent of monthly expenses should be sufficient to cushion fluctuations. Regarding emergency savings, he advises having enough cash on hand to cover three months’ expenses.

Lazaroff also noted that investors should always expect the unexpected, as emergencies can be very destructive for those who are unprepared for them. He believes that appropriate life insurance coverage is crucial and recommends term life insurance instead of permanent, and he advocates for having an estate plan as this protects personal assets.

The sixth and final tip he mentioned on the podcast is the recommendation for investors to seek help from professionals, citing data from Vanguard showing that financial advisors can increase relative returns for individual investors by about three percent. However, if you do not have at least 500 thousand dollars in investment accounts, it is not worth having anything more than hybrid or robo-advisors, believes Lazaroff.

What is crucial is that the advisor does not just offer investment advice but provides ‘comprehensive wealth management’ so that you can get all your finances in order and maintain that order.