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The 6 Biggest Financial Mistakes 30- and 40-Year-Olds Make

By Will Paustian, CFP®

As a 30- or 40-year-old in the thick of wealth accumulation, you’ve likely got a lot of demands on your time. From getting established and moving up in your career to caring for your family and spending time with your kids, financial planning is probably the last thing on your mind. 

Unfortunately, putting off this process is often what leads many 30- and 40-year-olds to make costly financial mistakes. Don’t let lack of time set you back on your journey to financial independence. Here are the top 6 financial mistakes I see this age group make, and how comprehensive financial planning can help you avoid them.

1. DIY Mentality

There are so many free financial resources available on the internet that it can be easy to assume you can DIY your finances. After all, why pay for a service when you could just figure it out on your own? It’s a reasonable question to ask, but it’s not one that should be applied to your finances. Building a comprehensive financial plan is just not the same as changing your own oil or putting together a piece of furniture. 

Approaching your finances with a DIY mentality can often be more of a hindrance than a help. It’s not that the topics are beyond comprehension, it’s just that most individuals do not have the time, energy, resources, and knowledge to do it themselves.

At JGP, our goal is to make your financial goals a reality by making good financial advice more accessible. As fiduciaries for our clients, we will act in your best interest to manage your finances as if they were our own. Let us take the financial planning workload so you can focus on your career and your family.

2. Trying to Time the Market

Trying to time the market is another financial mistake I often see 30- and 40-year-olds make. Even though we have lived through a truly historic and unusual time in the last three years, the basic principles of the market still hold true. First and foremost: timing the market doesn’t work. There is no way to predict short-term fluctuations with enough accuracy that you can consistently make the right decision about when to buy and when to sell.

It’s normal to feel worried when you see your investment values fall during volatile times, but one of the biggest mistakes you can make is to sell your investments entirely. When you do this, you’re locking in the low value of your accounts instead of letting them rebound before you withdraw. 

As a younger population, one of your greatest financial assets is time. You likely have decades left in your retirement time horizon and more than enough time to let short-term fluctuations play out. Staying invested will pay off in the long term. 

In fact, over the last 15 years, someone investing $10,000 would have earned over $24,000 more if they stayed fully invested than if they missed the 10 best days in the market. Since no one can predict when those “best days” will be, it’s better to build an investment plan that you can trust and stick to even in volatile times.

3. Letting Your Emotions About the Market Influence Your Decisions

Have you ever been unable to make a decision because you were paralyzed with worry and anxiety about the future? This is just one example of how emotions can get in the way of daily decisions. I see this the most when it comes to putting idle cash to work in the market. 

Many 30- and 40-year-olds avoid putting accumulated savings into the market out of fear of volatility. But this mistake can be just as bad as timing the market because not only do you miss out on the chance to grow your money, but you’re actually losing money when you consider inflation. The purchasing power of $100 is significantly less today than it was 30 years ago and it will continue to erode as the cost of living increases in the future.

One way to combat this issue is to put your idle cash to work in the market. Sticking to a long-term investment plan is a good way to help keep your emotions in check. It can ground you during times of stress and remind you of what’s really important when you’re not sure what to do.

4. Not Working With an Advisor on Cash-Flow Planning

Your 30s and 40s are prime time when it comes to asset accumulation. You’ll likely have access to complex company benefits like stock options, restricted stock units, or even deferred compensation. You’re probably also going to buy a house or two as your family grows and your needs change. These are important financial decisions that many younger individuals don’t think twice about making on their own. But not involving a financial advisor in cash-flow planning or lending decisions is a financial mistake I see many younger individuals make.

A financial advisor can help you determine how and when to exercise your equity compensation and make sure you are doing it in a tax-efficient manner. We can also help you vet lending options so that you can feel confident in your interest rate and long-term cash flow. 

5. Not Being on the Same Page With Your Spouse About Finances

It’s no secret that money is a huge source of contention for many couples and disagreements over finances can be a major predictor of a future divorce. As a result, couples tend to put these conversations off at all costs and often don’t know how their significant other thinks or feels about money. This is a financial pitfall that younger individuals should do their best to avoid.

Not only does everyone have their own opinion on how to manage money, but most of us also have a unique financial personality. Some of us are savers, some are spenders. Some of us may be conservative, while others are more aggressive. 

Understanding both your own financial personality as well as your spouse’s is a crucial component of successful wealth accumulation. Take the time to discuss your financial priorities as both individuals and a couple, and outline what you want to achieve in the future. The more that you and your partner can be on the same page about what you are working toward, the more likely you are to make it happen and the less likely you are to let financial disagreements derail your overall plan (not to mention your relationship).

6. Not Taking Full Advantage of Your Retirement Accounts

Many younger people don’t realize that maximizing your contributions is one of the best ways to minimize your annual tax liability while building a solid nest egg for the future.

Don’t make the mistake of putting off your retirement savings because you still have time to contribute in future years. Depending on your unique situation, you may be able to consider one or more of the following tax-advantaged accounts:

  • 401(k), 403(b), and 457 plans: These accounts allow you to contribute up to $20,500 annually in 2022 ($27,000 if over age 50). This is a great way to defer taxes until your retirement years when you could potentially be in a lower tax bracket. 
  •  Traditional IRA: Contributing to a traditional IRA is another way to reduce your tax liability if your income is within certain limits. The 2022 contribution limit for traditional IRAs is $6,000, with additional $1,000 catch-up contributions for individuals over the age of 50.
  • Roth IRA: This is an attractive savings vehicle for many reasons, including no required minimum distributions (RMDs), tax-free withdrawals after age 59½, and the ability to pass wealth tax-free to your heirs. 

Are You Making Some of These Mistakes?

Are you in your 30s or 40s and making some of these financial mistakes? If so, there’s still time to get your finances back on track. At JGP Wealth Management, we specialize in walking clients through all of life’s major financial decisions, and we can help you plan for the future with confidence. Reach out to me at wpaustian@jgpwealth.com or 503-446-6450 to get started today.

About Will

Will Paustian is a financial advisor at JGP Wealth Management, an independent, fee-based financial advisory firm in Portland, Oregon. Since joining the JGP family in 2020, Will has played an integral role in the firm by combining his knowledge of the financial world with a strong and dedicated work ethic in order to help our clients achieve their financial goals. Will is known for his commitment to walking our clients through everything they face in their financial lives, celebrating their victories along the way. He specializes in serving executives and entrepreneurs, specifically in the food and beverage industry and business owners planning to pursue an exit, tailoring his solutions to fit their unique financial challenges and opportunities.

Will graduated from the University of Oregon’s Robert D. Clark Honors College with a bachelor’s degree in finance and entrepreneurship, minoring in economics and is a CERTIFIED FINANCIAL PLANNER™ professional. He was awarded the Stamps Leadership Scholarship and served as a student trustee on the University Board of Trustees. He also spent time abroad in the UK studying behavioral economics at the University of Oxford. When not in the office with clients, Will enjoys a wide variety of activities, from hiking and fishing to cycling and traveling. He, along with his family, enjoys the sights and sounds of Oregon, cheering on the Oregon Ducks and the Portland Trailblazers and exploring the unique restaurants and businesses around the Portland area. To learn more about Will, connect with him on LinkedIn.