How to build wealth in your 30s

This article was originally published by MLC and has been reproduced with permission.

Key takeaways

• Investing with a long-term plan means you're less likely to be affected by short-term market fluctuations
• Keeping track of your expenses versus income can help identify possible savings to pay off debt
• Adding more to your super on a regular basis offers tax benefits in addition to improving your retirement.

To all the thirty-somethings out there, now’s your time to shine! These are the years that will shape the rest of your life.

If you’re looking for a bright future—that’s not held back by financial worry—here’s four simple tips to start building wealth now so you can chill later.

1. Consider long-term investing

Having time on your side—one of the great benefits of being in your 30s—can mean a great deal in the investing world.

Why? If you invest with a long-term plan, you’re less likely to be affected by short-term volatility.

With growth assets like shares and property, your chance of a negative return gets lower the longer you invest. In your 30s you’re in a better position to use that pattern to your advantage – to take on more risk to generate higher returns, if you choose to.

Shares

Generally speaking, shares outperform many other investments over the long term.¹

There’s also the benefit of dividends. If you invest in companies that pay dividends, you’ll benefit from part of the company’s profits paid to shareholders (generally twice a year). That can be handy income – or reinvested to keep growing your capital.

Property

Owning an investment property may be another way to generate a good income stream – with tenants paying you rent. This income may also help to pay off your mortgage so you can capitalise on another investment later in life.

Like shares, Australian residential property has delivered strong long-term returns.² While less volatile than shares, it’s important to note property values do change depending on supply and demand in the market.

2. Seek help from a professional

If you value the experience of experts in other aspects of your life, don't discount it when it comes to managing your life savings.

A financial adviser is not just someone who helps with investments. Their job is to help you with every aspect of your financial life—savings, insurance, tax, debt—while keeping you on track to achieve your goals.

More importantly, they can answer questions like:

• How can I pay off my mortgage faster and reduce my debt?
• What strategies can I use to build my wealth?
• What age can I stop working and retire?

If your to-do list is endless and you never quite have time to tackle your personal finances, a financial adviser may help to set you on the right track.

3. Gain control of your debt

Debt management is a crucial skill when it comes to managing money, saving and planning for the future.

Whether it's a credit card, personal loan or a mortgage you’re paying off, setting priorities and keeping track of your expenses/income to identify potential savings may help to pay off debts sooner. And the sooner you pay off your debts, the more money you can invest for a better lifestyle in future.

Set priorities

If you have more than one outstanding debt, consider working out how much you can repay on each, based on the minimum repayment owing.

Alternatively, if you’re able to repay more than the minimum, look at prioritising your debts. You’ll need to think about the type of debt you have—an investment loan or personal debt—and how much is owing. If you only have personal debt, you could prioritise repaying debts with the highest interest rate first, given these will be costing you the most.

Keep track of expenses and income

Having a clear picture about what you earn versus what you spend can highlight areas where you could save more. Whatever income you’re able to save can then be allocated towards your debt.

There are budget planners and phone apps you can use to track your spending. Alternatively, you can simply download your bank statements and keep a record of your receipts.

3. Add more to your super

Super is one way to generate wealth over the long-term due to compounding returns. Compound returns is the way your balance increases if you give your investment time for the growth you got this year to grow again next year – and the year after that and the year after that.

In your 30s you’ve got time to get compound returns on your side. One way to maximise this benefit is to contribute more into your super on a regular basis. You can do this using your before or after-tax income and there may be tax benefits that come with this too.

For example, if you contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction.

Be mindful of contribution caps though. They limit the amount of super contributions you’re able to make each year if you want to avoid paying tax at your marginal tax rate rather than the concessional rate of 15%.

References

1. Livewire: Australian sharemarket wins gold - 5 March 2019 https://www.livewiremarkets.com/wires/australian-sharemarket-wins-gold

2. ASX: 2018 Russell Investments/ASX Long Term Investing Report - June 2018 https://www.asx.com.au/documents/research/russell-asx-long-term-investing-report-2018.pdf