As you enter your thirties your salary is likely to increase — along with your outgoings.
This can be an expensive time of life with more financial commitments. If you are starting a family, you will have even less money to spare.
Those aged 35 to 44 feel “particularly exposed” to higher living costs because of financial pressures such as mortgages and childcare costs, according to a survey of 2,103 adults by the financial technology company Iress.
Despite these financial priorities, this is also the stage of life when you need to think about long-term goals, including preparing for retirement.
Making good financial decisions in your thirties and early forties is essential. Here are some of the key things you need to think about.
Be prepared
When the costs of day-to-day-living are weighing heavy, an unexpected extra such as the car breaking down or the boiler packing up could cause serious problems for the family finances.
The best way to prepare is by having an emergency fund in place. Ideally you want this cash buffer to cover between three and six months’ worth of expenses.
Bear in mind that if you’re looking to take maternity leave, it could hit the household earnings hard. Alice Haine from the investment platform Bestinvest said: “Having a savings cushion can help supplement your maternity pay.”
Understanding what you can expect from an employer in terms of a maternity or paternity package is important too. “This will provide you with the chance to include that in any budgeting decisions,” Haine said.
You will need to check your company’s internal policies.
Build strong financial habits
As your family grows, you will need more money stashed away. Although your finances may feel pretty stretched, putting away small amounts regularly is a good habit to get into.
Under changes announced by the chancellor, the cash Isa allowance is to be capped at £12,000 from April 2027. But it’s business as usual until then, so you can shelter up to £20,000 this tax year and next. Interest earned is tax-free and easily accessible.
Top picks include Atom Bank paying 4.25 per cent on its easy-access Isa and Charter Savings Bank paying 4.09 per cent.
It’s important not to fixate on cash, though, because over longer periods investments have historically delivered higher returns, albeit with some volatility in the short term. If you have not started investing already, now really is the time.
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Analysis by the investment platform Bestinvest found that if you had invested £10,000 ten years ago in the Fidelity Index World P Accumulation fund, you would have £36,681 now (total return including dividends). If you had put your £10,000 in cash savings at average rates it would be worth £11,940.
Haine said: “Regular investing can be appealing for those reticent about putting a large sum of cash to work at a single point in time, especially if markets are volatile. Just be sure to choose a contribution level and investments aligned to your risk appetite and financial goals.”
And remember to review your investments so they continue to align with those goals.
Get clued up on childcare costs
Childcare costs can take a big chunk out of the family finances, especially during the early years.
Parents spend an average of £13,830 a year on their child from pregnancy until their 18th birthday, according to research by the investment platform MoneyFarm. For some, these expenses can be a barrier to re-entering employment. So make sure you take advantage of any help you’re entitled to.
Tax-free childcare is a government scheme providing financial support for childcare costs, worth up to £2,000 a year per child.
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Also, if your little one is aged between nine months and four years you may be able to get up to 30 hours of free childcare a week. Eligibility and the number of hours you get depends on your child’s age, whether you’re in work and how much you earn. As a guide, figures from the investment platform AJ Bell suggest the full 30 free hours could be worth up to £13,158 a year.
Be aware that the childcare might not be completely free because providers can charge for things like meals and nappies. Check carefully to find out how much the scheme might be worth to you.
If either parent earns more than £100,000 a year you will not be eligible for the tax-free childcare scheme, and the free hours drop from 30 to 15 each week.
This means you need to be particularly vigilant if a pay rise is going to push you over the £100,000 threshold. Laura Suter from AJ Bell said: “If you hit this threshold for tax-free childcare and 30 funded hours, it could represent a huge drop in support.”
Also note that child benefit, worth £26.05 a week for a first child and £17.25 for younger children, begins to taper when either parent’s income exceeds £60,000, and disappears entirely at £80,000.
Sean McCann from the investment and insurance firm NFU Mutual said: “If you’re the highest earner in your household with an income of more than £60,000, and you or your partner claim child benefit, you’ll need to pay the ‘child benefit tax charge’. For every £200 of income over £60,000, you pay back 1 per cent of the child benefit. Once your income reaches £80,000 you repay the full amount.”
As we explain below, however, a small pension contribution could take your taxable income back below these key thresholds.
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Top up your pensions
With an eye on investing for the long term, a very wise move at this time of life is to top up your pension. In your thirties, your pot has plenty of time to grow, so if you can increase your contributions now you’ll thank yourself later. You won’t be able to access your funds until you are 57.
Remember that with a pension, tax relief is applied at the saver’s marginal rate. For higher-rate taxpayers, every £1 in a pension can cost as little as 60p.
Suter said: “For some, a small contribution could also prevent them falling into a tax trap. If you’re close to an earnings threshold that means you’ll lose some tax breaks or government support — such as for childcare — you can contribute to your pension to reduce your effective income, and once again be eligible.”
Pension contributions can also help with child benefit. McCann said: “The child benefit tax is based on your level of income after pension contributions. Reducing your income to £60,000 or below through pension contributions can be a very effective way of dealing with this tax. Similarly, making donations to charity via Gift Aid can also help reduce your income when it comes to assessing whether you’re liable to pay the child benefit tax.’’
Take advantage of salary sacrifice
While the chancellor announced in her autumn budget that the amount of salary a worker can sacrifice into a workplace pension is to be capped at £2,000 from April 2029, there is still time to benefit from this valued feature.
Salary sacrifice allows employees to exchange part of their salary in return for an employer contribution, so you don’t have to pay national insurance on it. This means you can put more into your pot without it costing you. Using salary sacrifice can help to take your salary below the dreaded £100,000 threshold, which will mean you can still take advantage of tax-free childcare and the 30 hours of free childcare.
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Haine said: “Salary sacrifice can reduce income tax and lower national insurance contributions for both employees and employers, making pension saving even more tax-efficient. Not every employer offers this but if it’s available to you and affordable, then taking advantage while you are able to can be a sensible step.”
Saving for children
Failing to make use of Junior Isas or a Junior self-invested personal pensions (Sipp) means missing out on tax-free growth and, in the case of pensions, automatic tax relief.
Suter said: “Over time, not starting early can cost families tens of thousands in lost compound growth.”
You can save up to £9,000 per child in a Junior Isa account each year, and the money grows tax-free until they turn 18.
Suter said: “Another option for the very long term is a Junior Sipp, which allows contributions of up to £2,880 per year, with government tax relief topping that up to £3,600. Just note that the child won’t be able to access the money until at least age 57.”
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You may not have much cash to spare, but squirrelling away even a small amount into a Junior Isa every month could give your child a valuable head start in life. You can choose between cash or investment (stocks and shares).
According to analysis by AJ Bell, tucking away £500 a year into a Junior Isa (just over £40 a month), is well worth it. After five years your child could have a pot worth £2,900, and if it was saved for the full 18 years, they would have almost £15,000. This assumes the money is invested in stocks and shares, and earns a 5 per cent annual return after charges.
Suter said: “Someone who is able to put away the full £9,000 Junior Isa allowance each year, earning the same 5 per cent return, could have £52,200 after five years or £266,000 after the full 18.”
Managing a mortgage
The average age of a first-time buyer in England is 34, rising to 35 in London, according to government figures. So, if you are in your thirties you are likely to need to budget for the costs of buying and running a home for the first time, including a mortgage.
Borrowers with small deposits are seeing a rise in product choice, but be sure to choose a deal that leaves you room in your monthly budget. A broker can help you to find the right mortgage.
Some young parents may even be ready to take the next step up the property ladder at this point in their lives.
While some second-steppers have found conditions tough of late, things are starting to feel easier, according to Nicholas Mendes from the mortgage broker John Charcol.
He said: “Rates have come off their highs and lenders are competing again, so there’s more choice and sharper pricing than we saw through much of the past couple of years.
“Buyers with some equity behind them are finding the numbers stack up more readily. In many areas, price growth has also cooled, which makes upsizing negotiations a bit more realistic.”
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Put protection — and a will — in place
Becoming a parent should prompt you to review the protection polices you have in place. These will usually include life insurance, and you might also want to think about income protection and critical illness cover that could pay out should you become ill and unable to work.
Another essential is a will.
Jonathan Harris from the specialist firm Forensic Wills said: “Those with young dependent children often assume that they will automatically be looked after by immediate family in the event of both parents passing. But this is not the case. If you die without a will and you have minor children, the court will appoint a guardian — and this may not be the person you would have wanted.”
With this in mind, don’t delay getting this vital document in place.