Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

It’s easy to hit a financial crunch point during your 30s. For many people this is the decade they take on some of life’s biggest financial commitments, such as buying a home or starting a family, while still trying to progress in a career. This can mean taking on additional debt, through mortgages, car finance deals and credit cards, and juggling these larger outgoings can be a challenge.

Smart budgeting and a disciplined approach to savings can help, even if it’s just small amounts into an ISA or pension. Not only will this help many navigate the financial pitfalls of this tricky decade but can ensure finances are on a firmer footing for the years ahead.

Here are five common mistakes people often make at this age, with tips on how best to avoid them.

Thinking retirement is years away

Strictly speaking, it’s true that it will be decades before people in their 30s reach the state pension age, but this is precisely why it’s the perfect time to start saving for retirement. Money saved in your 30s has longer to grow thanks to compounding, meaning a pound saved now will be worth more than a pound saved in your 50s, assuming similar growth rates.

You’ll benefit from returns on your returns over time, which can help grow your retirement pot in much the same way that a snowball rolling downhill grows larger. People in their 30s may not have lots of spare cash, but saving small amounts regularly can help build a more secure future.

Being too cautious with your investments

When it comes to investing, time is on your side in your 30s. Not only do you have the benefit of compounding if you are investing over the longer term, but this also allows you to be more adventurous with your investment strategy when it comes to SIPPs and ISAs, opting for higher-risk equities over cash savings, which should help deliver better returns. Historically, shares tend to outperform cash over most longer term (10-year plus) periods, helping your savings keep pace with inflation, although there is likely be more short-term volatility in the interim.

However, this more gung-ho approach won’t be appropriate for all your savings. Many in their 30s will also be saving for shorter-term needs, for example for a house deposit, or to build up a rainy-day savings fund. If you’re likely to need this money within five years, stick to cash. The returns may be lower, but you don’t risk seeing the value of your nest egg drop just when you need to access it.

Not making the most of tax-efficient savings

For many in their 30s their financial priority is getting on the housing ladder. The average age of a first-time buyer is now 33 years and six months — a number that has crept upwards as property prices have risen and mortgage lending has become more restrictive. One of the main challenges 30-somethings face is saving enough for that all-important deposit. But tax-efficient savings plans can certainly help. ISAs allow people to save up to £20,000 a year tax-free, helping people get into the savings habit, and ensure they keep more of their returns.

Savers can also benefit from other tax-efficient savings, such as Lifetime ISAs and pensions. Lifetime ISAs are specifically geared to those saving for a housing deposit or retirement and offer a government top-up which is broadly similar to basic-rate tax relief, although the maximum saving is just £4,000 a year.

Pensions can be even more attractive when it comes to tax-efficient savings. Higher earners can gain tax relief of up to 40%, and if you save through your workplace you will also get employer contributions. Both of these can give a significant boost to the value of your savings over the longer term.

Underestimating the cost of starting a family

Family planning should perhaps include the financial aspects of having children, as most people seriously underestimate the likely costs. A recent report suggests that couples will spend around £166,000 raising a child to the age of 181. Of course, no one can realistically save this in advance, but it helps to have a plan for managing some of these costs to prevent financial stress later on. This includes covering any periods on maternity or paternity pay, where you may be on a reduced income.

Childcare costs have also risen faster than inflation in recent years, making the pre-school years particularly expensive, especially if one parent is working part-time or reduced hours. Make sure to claim any Child Benefit due and explore the government’s Tax-Free Childcare scheme to help mitigate some of these expenses.

Stopping pension contributions during maternity leave

Given the high costs of starting a family, it is unsurprising that many women stop contributing to their company pension while on maternity leave and may not opt back in once they return to work. This contributes to the gender pension gap, with many women having far smaller pensions than men by the time they reach their 60s, and facing poorer retirements as a result.

During maternity leave, try to keep pension arrangements in place, as this means you will also qualify for employer contributions, which during the period of statutory maternity pay will be based on your pre-leave salary. Your contributions will be based on a proportion of your maternity pay, which may be lower, unless you choose to pay more.

If you take unpaid leave, employer contributions may stop, depending on the scheme’s rules. But even if you’re taking an extended break from the workforce after this period, you can still contribute up to £2,800 into a pension each year, and receive tax relief, boosting this to a £3,600 contribution. If your partner is still earning, it may be better for this money to be paid into your pension rather than boosting their own retirement savings.

Similarly, if you are out of the workforce for a number of years caring for children, check your National Insurance (NI) record to ensure you are not losing entitlement to the State Pension. NI credits can be made if you are claiming Child Benefit during this period.

Read more from our series:

Source:

Child poverty action group. Dec.23

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of  Fidelity’s advisers or an authorised financial adviser of your choice.

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