Laying a sound fiscal foundation must be the goal in your 30s

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Save rather than spend. Buy stocks and hold them for the long term. This formula for investing while you’re in your 30s sounds straightforward. However, not everyone between the ages of 30 and 39 is in the same financial situation. Depending upon your personal circumstances, different priorities will apply. In the meantime, here’s a plan for putting first things first.

“Paying off debt makes a great deal of sense for people in their 30s,” says Joe Haywood, a financial planner with AFP Group in Los Angeles. “Often, young people get their first credit cards [in their 20s] and spend more than they should. Then they get trapped by the interest payments. Paying off those debts frees them from a tremendous amount of stress.”

Suppose, for example, you and your husband have a total income of $70,000 and $16,000 in credit card balances. Although that may sound manageable, you would have to use about one-third of your annual after-tax income to pay off that debt. If the balance isn’t paid off, the interest will continue to accrue at about $3,000 per year.

The benefit of paying down debt is a no-brainer. If you have a credit card balance where the interest rate is 18%, paying off that loan is the equivalent of earning 18% after taxes, since the interest on a credit card loan isn’t deductible.

“[While] I recommend shrinking debt, I also think some of your savings should go into an investment account,” says Haywood. “Rather than repay $10,000 worth of debt this year, you might repay $8,000 and put $2,000 into your own fund. That way, you feel like you’re doing something for yourself and not just paying off other people,” he adds.

There are psychological as well as financial rewards in owning your own place. You’re building equity with each mortgage payment while the federal government provides tax deductions for property taxes and mortgage interest. Eventually, you may cash in on a true bonanza. A married couple can pocket up to $500,000 in profit tax-free from the sale of a home that is their primary residence. For singles, it’s $250,000.

To help them get started on the road to home ownership, Lois and Erik Hudson, both 38, of Los Angeles, plan to tap their retirement accounts. “I think we’ll be able to get a house with a $10,000 down payment because we’re working with a local program for first-time home buyers,” says Lois. “We’ll borrow the money from our retirement plans.”

Such borrowing often makes sense, says Anita D’Aguilar, an assistant vice president and financial consultant with Merrill Lynch in Los Angeles. “When you borrow from your retirement account, you pay yourself back, which may be better than paying interest to a third-party lender. Usually, you can arrange to have the payments taken out of your paycheck.”

That was the route taken by April and Elgin Mosby, both 33, also of Los Angeles. “When we were ready to purchase our house, we borrowed the money for the down payment from

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