The Worst Money Mistake You Can Make in Your 30s

worst money mistake

When it comes to saving for retirement, many 30-somethings are falling short, according to two new surveys. Only 36 percent of millennials have retirement accounts, according to a Jan. 7 survey by George Washington University and PwC. Furthermore, only 20 percent of millennials ages 25 to 34 are on track to have enough saved for a comfortable retirement, and just 23 percent of Generation X (whose youngest members are in their mid- to late-30s) are saving enough to cover more than 95 percent of estimated retirement expenses, according to a Fidelity Investments study, also released Jan. 7.

This might not come as much of a surprise — especially if you are a 30-something. After all, it’s a point in life when there are so many immediate demands on your budget that it might seem hard to find extra cash to save for the future.

“When you’re in your 30s, you’re so overwhelmed with all these things converging in your life at once,” said Kathleen Hastings, a certified financial planner and portfolio manager with FBB Capital Partners. “You’re looking at a wedding — or paying off a wedding. You’re looking at paying off student loans. You’re looking at buying a house.”

As a result, saving for retirement gets put on the back burner. That’s a big mistake, though, said John Sweeney, executive vice president of Retirement and Investment Strategies at Fidelity. “You should be prioritizing your own retirement before you prioritize other goals,” he said.

Why You Need to Start Saving Now

If you’re not planning to retire for at least 30 years, you might wonder what the rush is to start saving now. “You have to realize that time moves fast,” Hastings said. “The next thing you know is you’re 55 years old, you have 10 years to go and you haven’t saved enough.”

Plus, because time is on your side, it’s actually a lot easier to have enough saved by the time you reach your 60s. That’s because the earlier you start saving, the less you have to set aside each month. “You have to save three or four times more every decade you wait,” Hastings said.

Consider this example from Fidelity: At age 25, Bob starts contributing $33 a month to a 401k, then contributes just 1 percent more each month until he reaches 67. If he earns a 7 percent annual rate of return, he’ll have $3,870. If Suzie starts saving at 35 with $50 a month, then a 1 percent monthly increase, she still won’t have as much as Bob at age 67 — just $3,210. And if Andrew starts saving $58 at 45, then increases his contribution 1 percent each month, he’ll only have $1,880 by the time he’s 67.

“The biggest opportunity a 20- or 30-year-old has is time,” Sweeney said. “The value of compounding is so impactful.”

Read: 10 Reasons Millennials Spend More Than They Earn

What Happens If You Put Off Saving

If you’re still not convinced that you need to start saving now, then ask yourself this: Do I want to work for the rest of my life?

If you don’t have a large enough nest egg to cover living expenses for 20 to 30 years, you will have to continue working. Yes, Social Security will likely be around by the time you retire. However, the payouts might be reduced because of the funding shortfall the program faces. Even the current benefits, though, aren’t enough to provide a comfortable lifestyle in retirement.

Currently, the maximum monthly benefit for someone at full retirement age is $2,787. The average monthly payout now is just $1,341. Even if you live on less in retirement than you do now, it might not be enough for you to get by on.

How to Save Enough

How big of a nest egg you’ll need for a comfortable retirement depends on many factors, including the age at which you plan to retire and what sort of lifestyle you want in retirement. An online calculator, such as the Fidelity Retirement Score, can help you see if you’re on track for the retirement you want. If you’re not, here’s how you can get there.

1. Pay Yourself First

The best way to save is to have a certain amount automatically deposited into a retirement account each month — either directly from your paycheck into a 401k or similar workplace retirement plan, or from your bank account into an individual retirement plan. Hastings said that you need to consider retirement savings as part of your monthly fixed expenses that must be paid first before any discretionary spending.

2. Aim to Set Aside 15 Percent Annually

On average, millennials are saving 7.5 percent of their salary, according to the Fidelity survey. This is an improvement from their 5.8 percent savings rate in 2013, but still not as much as they should be saving. Sweeney said you should aim to set aside 15 percent of your annual salary. That percentage can include any match you get from your employer for contributing to your retirement plan.

Don’t be discouraged if you can’t set aside that much now. However, you should aim to increase the amount you save each year to reach that goal. You can do this by funneling any pay increases or bonuses into your savings account and continuing to live on the same income, Sweeney said.

Read: 10 Big 401k Questions to Ask Your Employer

3. Have Age-Appropriate Investments

Having the right investments also can improve your retirement readiness, so you need to review your asset mix. “One of the biggest mistakes a young investor can make is being too conservative,” Sweeney said. He recommended that 90 percent of your retirement portfolio should be in stock mutual funds. As you get closer to retirement age, you can shift more of your assets to bond funds.

4. Look for Extra Sources of Cash

If your current income barely covers your expenses, Hastings said you should consider getting a second job to boost your earnings so you can save more. Or you can look for other sources of income, such as renting out a room in your house. It can be easier to do these things in your late 20s or early 30s before you start a family and can’t afford to give up your spare time to work more — or a spare room.

5. Don’t Borrow From Your Retirement Account

More than 20 percent of millennials with retirement accounts took loans or hardship withdrawals from their accounts in the past year, according to the George Washington University and PwC survey. If you’re making an effort to save, though, the last thing you want to do is sabotage yourself by raiding your account before retirement.

“You’re losing the opportunity for those assets to grow,” Hastings said. Plus, you will have to pay yourself back with interest — which can be lower than the rate of return you would’ve gotten if you had left the money in the account. So you’re shortchanging your retirement savings.

It might seem daunting to save enough for a comfortable retirement. But as Hastings said, the earlier you start saving, the easier it is. So take advantage of the time you have to build your savings.