Generational Wealth - How to Build Wealth in Your 30s
You might be set in your career in your 30s, but what about your financial health? If you haven't started working towards building generational wealth, it's time to consider it, as it takes time to build wealth to pass down to your loved ones.
What Is Generational Wealth?
Generational wealth consists of assets you pass down to future (or from past) generations. It can include standard assets, such as stocks, bonds, and other securities. It may also include real estate and businesses.
Most generational wealth passes down to your heirs when you pass away. Most inheritances are tax-exempt; however, estates worth over $12.92 million (as of 2023) are subject to estate tax.
Money vs Wealth - What’s the Difference?
Money is a means to an end, while wealth is the accumulation of assets that grow over time. You measure wealth by the fair market value of your assets, such as stocks, real estate, and currencies (less any debts you may owe).
Money is what you receive from these assets and securities when you sell them, and is how you get what you want, whether products or services.
Examples of Generational Wealth
Generational wealth can look different for every family. You can pass generational wealth down after you die or while alive.
When you pass generational wealth down after you die, it's a part of your estate, and your will determines who gets which assets. If you pass generational wealth down while you're alive, it can look many different ways, including:
Gifting money - You can gift up to $17,000 per person or $34,000 per couple (as of 2023) without incurring any additional taxes on that money (beyond what you otherwise paid)
Paying for college - When parents or grandparents pay for a child's college education to avoid student loan debt, it's an example of generational wealth (and also potentially a “gift” for tax purposes)
Family business - Keeping a business within the family and passing it down to each generation is a sign of generational wealth
How to Build Generational Wealth in Your 30s
You might think in your 30s, it's impossible to build assets, but with the right habits, you can start early. The earlier you start saving money, the easier generational wealth-building gets.
Pay Yourself First
It might feel wrong to pay yourself first, but it pays off tremendously. So before you pay bills, buy groceries, or go shopping, transfer money to your savings account. Make this a regular part of your budget and a non-negotiable.
Paying yourself first ensures you save money every month. If you wait until afterward, you might find you have no money left to save.
Communicate With Your Partner
If you're in a serious relationship or married, it's vital that you talk about money with your partner. Talking about money ensures you're on the same page, working toward similar financial goals, and making smart financial choices.
Talking to your spouse about money can feel stressful, but it's one of the most important discussions you can have. To make it easy, set up a money date each month. Use this time each month to discuss financial concerns, the positive changes you've made in your finances, and what you might need to work on to achieve financial freedom and generational wealth.
Maximize Retirement Savings
In your 30s, you might not be thinking of retirement yet. After all, you just started life as an adult, right?
Now is the perfect time to think about retirement savings, though. The earlier you save, the higher your compound earnings will be. The more compound earnings you have, the more money you'll have during retirement.
Here are some easy ways to maximize retirement savings:
Contribute to Retirement (401K, IRA, Etc.)
Make room in your budget to contribute to your retirement account, whether a 401(k), 403(b), or IRA. A popular rule of thumb is that, ideally, you should contribute 10% to 15% of your income toward retirement, but if you can't, then contribute what you can.
Employer Retirement Match
If your employer offers an employer match, strongly consider taking it. For example, if your employer contributes 3% of your income to your 401(k) or 403(b) if you do, and you make $75,000, make sure to contribute (at least) $2,250 per year to your employer-sponsored plan to get the match.
Increase Savings
As your income increases, increase your savings in your retirement account. You must abide by the IRS limits for 401K and IRA contributions, but if you have room to increase your savings, do it.
Set Up an Emergency Fund
An emergency fund helps cover unexpected expenses if you lose your job, fall ill, or your home or car needs major repairs.
You increase your net worth when you don't have to borrow a personal loan or rack up credit card debt, thereby avoiding high-interest debt. Consider saving at least six months of monthly expenses to ensure you are covered.
Utilize an HSA
A Health Savings Account helps you save money tax-free for eligible medical expenses. You contribute the funds pre-tax, and the funds grow tax-free. If you withdraw the funds for medical expenses, you don't pay taxes on the funds.
The even better news is HSA funds don't expire. In other words, you don't have to use your funds in the year you contribute. So if you start investing in an HSA in your 30s and roll most of it into retirement, you will have less to worry about when paying medical bills and more time to enjoy retirement.
Budget
If you don't have a budget, make it a priority. But even if you have one, consider revisiting and revamping it now that you're in your 30s.
Consider your short and long-term goals when creating your budget, and also look for areas you can cut back on so that you have more money to put toward your financial goals, including building generational wealth. Budgets are meant to be used but also changed as your life changes, so revisit them often.
Reduce Debt
In general, you’ll want to get out of debt as early as possible. The high interest rates you pay on credit card debt are an opportunity cost for saving for other financial goals.
Create a debt payoff plan that allows you to pay your debts off in as short of a time as possible. Focus first on credit card debt, as it usually has the highest interest rates, but you can work through other debts, including student and personal loans. Meet with a qualified financial advisor if you need help making a plan.
Smart Investing
Investing is important at any age, but the younger you are, the more time your assets have to grow. Plus, you can have a higher risk tolerance since you have more time to reach your goals. The closer you are to your goals, the less risk you can take because there's less time to make up for any significant losses.
As you think about investing, consider the following factors:
Investing Risk vs Reward- Always look at your risk versus reward, as well as your risk tolerance. It's important to take some risks, but don't overdo it, or you risk losing everything. It's usually best to diversify your portfolio to have an appropriate mixture of 'risky' and stable investments. A financial advisor can help you figure out the best allocation given your goals and financial situation.
Safest Investment Options - Always consider what historically have been the safest investment options, and consider including them in your investment account. This may include CD’s (Certificates of Deposit), high-yield savings accounts, high-quality bonds, or other low-risk investments. These are your stable investments that offset the risk the other investments generate.
Highest Return Investments - Every investment portfolio should include some potentially high-return investments. However, to get high returns, you must be able and willing to take high risks; this is why diversifying your portfolio is the key to the best outcome.
Form Good Money Habits
Forming good money habits now will pay off when you're older, and you'll be grateful for your sacrifice.
Good money habits include:
Learning to save money
Only spending what's in the budget
Talking to your partner before spending money
Saving for large purchases instead of using credit cards or borrowing money
Avoid Lifestyle Creep
Living below your means is important and harder than it sounds.
Lifestyle creep happens when you naturally increase the cost of living expenses to meet your rising income. Instead, bank most or all of any extra money you receive, such as bonuses, tax refunds, or a raise.
Just because you make more money doesn't mean you should spend it. Instead, consider depositing it in a high-yield savings account or CD, or investing it. This allows the money to grow even more, giving you more money later/in retirement than if you spend it to achieve instant gratification.
Monitor Your Credit Score
Your credit score is an integral part of your wealth-building strategies. You'll need a good credit score to buy a house, get insurance, and sometimes even get a job.
Everyone gets free access to their credit reports weekly, so take advantage and keep an eye on your accounts. Ensure all information reported is accurate, and take immediate action if you notice any negative information, such as missing a payment or overextending your credit lines.
The Importance of Goal Setting
Goal setting is important both personally and as a couple. You'll live a happier and more fulfilling life when you have goals to reach, especially when you achieve them! Goals encourage you to constantly work harder, make smarter choices, and learn to live a happy, wealthy life.
Personal Goals
Personal goals can be anything from having a certain amount of money for retirement, achieving FIRE (Financial Independence, Retire Early), buying your dream house, or helping your family. It's good to have independent financial goals and to strive for financial freedom individually, but if you're married or otherwise in a committed relationship, couple’s goals are important, too.
Couple's Goals
If you're married, it's important to be on the same page as much as possible. Of course you won't see eye to eye on everything financial, but checking in with one another periodically is important.
Together, you can create financial goals and measure your progress. Not only does it help you achieve financial freedom, but it also brings you closer together as a couple when you're able to have shared goals and pursue and achieve them as a team..
FAQs
How Long Is a Generation?
Typically, a generation refers to a period of 20 to 30 years when kids are born, go through childhood, and grow into adults.
How Much Does the Average 30-Year-Old Have Saved?
The average (median) 30-year-old has $8,500 saved across all assets.
How Much Should You Have In 401(k) by 30?
A general rule of thumb is for 30-year-olds to have at least one year's salary saved in their retirement account or close to it. If you haven't saved that much, don't worry, but start saving sooner rather than later.
How to Build Wealth in Your 30s - The Bottom Line
Building wealth in your 30s isn't as hard as it sounds. When you know how to build wealth in your 30s, you can take steps immediately to make it happen. It's mostly about being consistent, regularly upgrading your efforts, and checking in with yourself (and your spouse) to ensure you're making smart financial decisions.
If you want to learn how to make your money work for you and need that friendly nudge to get started, take advantage of my complimentary financial counseling consultation!
Want to level up your game around money in your relationship? My free quiz will help you learn your Couple’s Money Personality Type AND how you can grow from there!
Adam Kol is The Couples Financial Coach. He helps couples go from financial overwhelm or fighting to clarity, teamwork, and peace of mind.
Adam is a Certified Financial Therapist-I™, Certified Mediator, and Tax Attorney with a Duke Law degree and a Master's in Tax Law from NYU. He is a husband, dad, and musician, as well.
Adam's wisdom has been shared with The Wall Street Journal, the Baltimore Ravens, CNBC, NewsNation, and more.
