6 Money Traps to Avoid in your 30s
vemuda.com - If you are in your 30s then by now you should have found a steady source of income for yourself and maybe your family (if you have one).
At this point in life, it doesn’t really matter whether you earn this from a job, or from running a small business or even from an investment you made.
|Source: unsplash.com by Sofia Holmberg
As long as you have some cash-flow coming in every month, you should be fine in terms of giving yourself and your family the basic necessities for life. This type of income is what I like to call “kitchen income”.
Now, I am sure you are hearing this term for the first time, and I’m pretty sure you probably won’t find this term in any of your finance courses or even on the internet.
So let me explain to you what I mean by “Kitchen income” and why knowing about this could potentially help you avoid money traps in your 30s.
So back to our topic; I left you pondering over what “kitchen income” means and how it applies to you. Well, “Kitchen Income” is what you earn by slaving away your hours for someone you are working for.
You could argue with me that “slaving away” is a harsh term to use, but I will respond that a 9 to 5 job is just that. What you do is that you set a price on yourself and you sell 8 hours or more of your day at the very minimum on that agreed-upon price.
Now, don’t get me wrong!
I am not saying that it’s a bad thing to do, actually, I highly recommend everyone to get a job, and I will never tell you not to take a job.
Every person has different circumstances. Obviously, you are in your 30s with a very young family to take care of, or it could be just yourself and starting something of your own will take time, money, and patience.
While you plan your future and how you will go about it, you cannot neglect the bills and necessary expenses. So, it’s perfectly alright to take up a job to earn that “kitchen income” first.
So now, you must have a fairly good idea of what I mean by kitchen income. Basically, it’s an income which you earn to meet your current basic expenses like putting food on the table, renting out a small home, sending your kids to schools and so on.
Some people might be earning more income from their jobs, so they have more “kitchen income”. Getting to mid-adulthood demands that there is a shift in your priorities.
No longer can you say “yes” to just about every part your friends invite you to, nor should you probably be careless with your money either.
However, now that you have successfully figured out how to earn your “kitchen income”, it’s time to plan your financial future.
It’s time to start making or acquiring assets which will give you income in the future when you quit or job or retire. Although you might currently have a decent income, now is not the time for you to let your social obligations strip it away. Your goal should be to create assets for yourself which will provide you with future income.
How long do you think you can continue earning kitchen income?
If you are currently in your 30s and in your prime, you might be earning more than your peers.
However, this could be because you are working harder and longer than your peers, maybe even for 14 hours in a day.
But honestly, how long do you think you can continue working that hard in a day?
You see, as a person gets older, their ability and capacity to work significantly declines. An average 40-year-old person cannot productively work more than 8 hours a day. Once you enter into your 50s, that productivity declines to like 6 hours a day.
So now that I have your attention, and have maybe gotten some of you worried, the question now is; what should I do?
My advice for people in their 30s is that it’s high time you shift your priorities from just making “kitchen income” to “creating an asset” for yourself.
The only way for you to do this is to avoid the money traps that you will face in your 30s, and instead, save some of your income and focus it on creating a future asset for yourself.
So below are six money traps that you should avoid at all costs.
1. Buying a car out of your price range
I remember when I got a promotion along with a handsome raise to take up my salary to $10,000 a month, I was ecstatic.
Naturally, the first thing that I did was to buy a Mercedes AMG sports car on an instalment. I was tired of going around the city in my old Toyota. Yes, I admit, the Mercedes felt great for the first two weeks.
The new car smell was something to die for. The praise and approval I got from my family over my first big purchase was great.
All of this lasted only for the first two weeks; after which, no one really cared that I owned a Mercedes and I started to question why I had spent over 90 grand on such an expensive car.
It lost 30% of its value in the first year and 50% by the third year. I am not saying that you should never buy an ‘expensive car’ in your life.
I have two supercars parked in my garage today, but that is because I can afford it now. It represents less than 0.5% of my net wealth today. I have achieved what they call “financial freedom”.
Now, of course, none of that is true, it’s just a dream I’ve had for a long time. But the premise still holds.
A lot of people, especially in their late 20’s and in their 30s spend a lot of money, on an expensive car they can barely afford and will probably need to take it out on an instalment.
But Why do that?
Why do you want to financial strangle yourself due to social obligations?
Just because your friends are driving new cars does not mean you need to do the same. If your friends tease you about your Toyota, believe me when I say that it means you need to change your friends and not your car.
Once you get rich enough that buying an expensive car is like going to the grocery store and picking up something, then that is the right time to splurge on an expensive car.
2. Buying a house out of your price range
This is one of the biggest strains on one’s monthly income. Although investing in a house can be a very good and practical expense, there will come a point where you will have to face diminishing returns.
You see, with a big expensive house comes big monthly payments, unless of course you somehow managed to get a great mortgage with low-interest rates. A big house, out of what you can realistically afford will put you and your family in financial strains.
You might not even have any money left for emergencies or for investing, after paying the mortgage.
It’s advisable that you explore your local market more and find properties that are selling on a bargain or are what Warren Buffett describes as “value purchases”.
Don’t buy expensive properties as they have already appreciated a lot in value, and thus they probably won’t appreciate much more in value. But instead, look for cheaper properties which still have a lot of potential to appreciate.
3. Spending too much when going out
These are the little things which can really dent your savings and your goal of “creating an asset” and “financial freedom”.
Once you start earning a decent income in your 30s, you tend to upgrade the restaurants you dine in, the hobbies you indulge in or even the stores you shop in, this is called lifestyle inflation.
And it’s a habit if not can control can seriously get out of hand and lead to problems along the road.
4. Having an expensive significant other
All of us want to marry that beautiful model walking up and down the ramp of our favourite fashion show. Before you go down on one knee and propose to her, think for a moment.
Is it financially viable for you to do so?
You might be thinking right now that I am a little insane for mixing love with finances. Well, the rules of the capitalist economy we live in are simple.
The glorious and glamorous model wife will have expenses and guess what?
You will have to bear them after marriage. Sage advice is to go for a simple girl, who knows and values the same financial goals you aspire to.
Try your best to keep her happy with the smaller things in life. Even if you plan on doing something big for her, remind her that it will not be a regular thing. Even then, remember to stay in your budget.
Share your financial position with your wife and keep her involved with the finances of the house. This will empower her to think more about saving money for the future of her kids.
5. Paying too much credit card bills
This is one roller coaster ride you don’t want to take. In this modern age fueled by technology, it’s very easy for you to access your credit card and make payments for things you cannot otherwise afford.
It’s also surprisingly simply to max out your spending limits on your current credit cards and apply for new ones and start racking up more debt on that as well.
The interest payments on these credit cards alone will keep you poor for the rest of your life and strip away any chance you have at attaining financial freedom. The key to managing your debt is simple – keep your expenses below your income.
6. Not investing
Like I told you at the start of the post, you cannot become rich on your “kitchen income”. This is the income you earn by slaving away your working hours and just barely managing your lifestyle.
Financial advisors; advice people in their 30s is to live on a tight budget, save most of their income and start investing it in long term assets for yourself and your family.
Even if you are earning $400,000 a year, own a supercar and a luxury home, but you end up living hand to mouth and are always waiting for your next paycheck, you cannot call yourself rich. Learn to live on a budget, save money for your future and start investing at a young age.
However this doesn’t mean that you can’t have some fun, you should set aside a certain percentage of your paycheck just for entertaining yourself and family.
Well that’s it for today’s post, let me know in the comments below; some money that I missed. Thanks for reading I’ll see you in the next one.