5 money mistakes people make in their 30s

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 can this help people to navigate the financial pitfalls of this tricky decade, it can also ensure their 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.

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1. Thinking retirement is years away

Strictly speaking, it’s true that it will most likely be decades before people in their 30s reach 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, meaning a pound saved now will be worth much more than a pound saved in your 50s, assuming similar growth rates. 

If you invest £2,000 a year from age 30 to 60, you could build an investment pot worth around £133,000. By contrast, starting at age 50 and investing £2,000 a year until age 60 could result in a pot of only around £25,000.

In the first scenario you contribute £40,000 more, but the extra time in the market means you end up over £100,000 better off. In both cases, we assume an illustrative average return after fees of 5% a year, although investment returns are never guaranteed. People in their 30s may not have lots of spare cash, but these numbers show how saving small amounts regularly can help build a more secure future.

• Read more on the power of investing regularly

2. Being too cautious with your investments

When it comes to investing, time is on your side in your 30s.  This can allow you to be more adventurous with your investment strategy, particularly 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 longer term (10-year plus) periods, helping your savings to keep pace with inflation, although there is likely to be more short-term volatility. 

• Read: How to ensure your savings beat inflation in 3 charts

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.

• Read more on managing risk

3. 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 currently allow people to save up to £20,000 a year tax-free in either cash or investments (although, under current plans, from 2027 under-65s will only be able to save up to £12,000 a year into a cash ISA). This helps people get into the savings habit, and ensures they keep more of their returns. 

• Watch: Cash ISA overhaul: what can savers do now?

Savers can also benefit from other tax-efficient savings, such as including Lifetime ISAs and pensions. Lifetime ISAs are specifically geared to those saving for a housing deposit or retirement and offer a government top-up of 25%, although you can only contribute up to  £4,000 a year. Make sure to check the eligibility criteria and penalty for early withdrawals. 

Pensions can be even more attractive when it comes to tax-efficient savings. Higher earners can gain tax relief of up to 40%, or 45% if you’re an additional rate taxpayer. Pension contributions can be particularly helpful if your income is set to breach certain thresholds at which you lose valuable tax allowances or benefits. You can use contributions to bring your pay below those cliff edges. If you save through your workplace, you will also get employer contributions and some employers will match additional contributions you make over the minimum amount. This can give a significant boost to the value of your savings over the longer term. 

• Open a Stocks and Shares ISA
• Open a Self-Invested Personal Pension (SIPP)

4. Underestimating the cost of starting a family

Most people seriously underestimate the cost of having a family. Figures from the Child Poverty Action Group suggest that couples may spend around £250,000 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. 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.

5. 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 can worsen the gender pension gap, with many women having far smaller retirement pots than men by the time they reach their 60s, and facing poorer outcomes in later life as a result. During maternity leave, try to keep pension arrangements in place, as this means you will also qualify for employer contributions. Your personal contributions during maternity leave are based on what you’re actually paid (which may be lower than your normal pay) - but you can choose to put in more. 

Employer contributions should typically be paid as though you were still on your normal pay rate, at least during paid maternity leave.

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 and has spare cash, it may be better for them to put this into your pension rather than boosting their own retirement savings. 

Similarly, if you are out of the workforce for several 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 awarded if you are claiming Child Benefit during this period. 

Read more from our series:

• 5 money mistakes people make in their 20s
• 5 money mistakes people make in their 40s
• 5 money mistakes people make in their 50s
• 6 money mistakes people make in their 60s
• 5 money mistakes people make in their 70s

Source:

¹ Child poverty action group. Oct.25

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.