3 Steps to Recover from a Late Start to Investing in Your 30s

We’ve all heard the advice that you need to start investing as early as possible, but the fact is that many of us are late to the game when it comes to starting to invest.

If you missed getting on the investing train in your early twenties and are now consumed with anxiety every time you see one of those charts about how the 20-year-old investor is going to become a millionaire, while the 30-year-old investor will never be able to catch up, keep on reading, my friend, because there is hope for you.

Here are 3 things you can do as a 30+-year-old investor to start investing, maximize your earnings, and become a millionaire before retirement.

1. Stop Putting Investing Off

Pour one out for the earnings you’ll never receive because you didn’t start investing in your twenties, and then move the fuck on. If you don’t start investing now, 40-year-old you is going to have an even harder time preparing for retirement, so stop wallowing in your sorrows and start investing.

Remember the anxiety-inducing chart about the 20-year-old investor whose earnings blow the 30-year-old investor’s earnings out of the water? Well, the same principle applies to a person who starts to invest as a 30-year-old vs as a 40-year-old. Take a look at the graph below. 

You can see from this graph just how important it is to start investing right NOW! The person who starts investing $100/month at 30 will have $226k at 60, while the person who starts investing $100/month at 40 ends up with only $76k at 60. That’s a difference of $150k in earnings, and the 30-year-old investor will only contribute $12k more! So yes, the 20-year-old’s earning will be even higher than this, but your options now are to end up like the 30-year-old investor or the 40-year-old investor. You take your pick. 

2. Stop Trying to be Debt Free

Becoming debt-free is a goal for many people and being debt-free is great, but not if you’re foregoing investing to do it. Needing to be debt-free before investing is a myth that is perpetuated by many in the debt-free community, but it’s terrible advice. 

The problem with this approach is that the opportunity cost of the earnings you could have received from investing your extra cash instead of paying off debt is WAY HIGHER. Let’s break down what this actually means.

Opportunity cost is the loss of a potential gain from other alternatives when one alternative is chosen. In our scenario, you have two options. You can use your extra cash to pay off your debt or use it to invest. If you choose to pay off your debt, the opportunity cost is the earnings you could have received if you had invested that money instead. If you choose to invest, the opportunity cost is the interest you could have saved if you had chosen to pay off your debt instead. 

When evaluating multiple opportunities, you should choose the option with the highest return, and forego the opportunities that would provide lower returns. Otherwise, you’re going to lose money. Let’s make more sense of this by looking at some numbers.

Let’s say you have $100k in debt at an interest rate of 3.5% on a 15-year loan. If you’re only making the minimum payment of about $700/month on that loan, you’ll end up paying almost $29k in interest over those 15 years. Spending $29k on interest sounds like a total waste of money to you, so you decide to instead pay $1,000/month so you’ll only wind up paying $18k in interest and save $11k. 

While a savings of $11k is nothing to scoff at, let’s instead look at the opportunity cost of investing that extra $300/month over 15 years. Let’s assume you invest in the S&P 500 and receive an annual return of 10%. Over those 15 years, you will earn $70k in interest! Earnings of $70k vs a savings of $11k? I’ll take the earnings of $70k, please. Not to mention that you can continue to make even higher returns from the money you’ve invested long after these 15 years have passed.

Since the opportunity cost of investing far exceeds the benefit of paying off your loans faster, you should choose to invest vs pay off your debt earlier. The further and further you keep pushing investing off, the harder it will be to get the earnings you’re looking for by retirement. (Reference the graph above again if you need a reminder.) 

Contrary to a lot of popular financial advice, debt freedom does not build wealth. If you want to make more money, you’re going to have to start investing.

_{*If you have high-interest debt, like credit card debt, it may make more sense to pay that off before investing, so make sure to evaluate your specific options before choosing a path.}

3. Don’t Take on Any More Debt

While you should 100% start investing before becoming debt-free, that doesn’t mean that you can continue taking on debt to finance purchases because you can afford the minimum payments. Debts are financial obligations. That means that you have to make all of your minimum payments each month no matter how much money you have. The more of these obligatory payments you keep stacking up, the more of your money is going to be tied up in debt payments.

This is super important for later investors because you have some catching up to do. If you want to get anywhere close to the earnings 20-year-old investor you would have made, you’re going to have to contribute a lot more money.

We already saw in the earlier example that a 30-year-old starting to invest $100/month will have $226k at 60, but an investor who started at 20 and contributed $100/month is going to have a whopping $632k at 60. That’s $406k more! So if you’re late to the investing game and want to make up that $406k, you’re going to have to up your contributions.

To get to $632k by 60, a 30-year-old investor will need to contribute $280/month. That’s almost 3X what the 20-year-old investor needs to contribute, so you’re going to need to find that extra cash somewhere. A great place to find extra cash is from former loan payments.

Like I said earlier, debt is a financial obligation, so the more payments you are making toward your debt, the more of your money is tied up. As you start paying off your loans, you’ll begin to free up more money that you can then allocate toward your investments. The best way to figure out when you’ll have your loan paid off is to use a loan payoff calculator. Once the loan is paid off, you can use an investment calculator to look at how moving that money into your investments will affect your earnings.

Here is an example.

You have the following loans (assume 3.5% interest on all of the loans).

• Car – $7k loan balance at $300/month payments
• Student loans – $16.5k loan balance at $300/month payments

Plug all of the loan info above into a loan payoff calculator and you’ll find that your car will be paid off in about 2 years, and your student loans will be paid off in about 5 years.

Now let’s assume you’re 30 and you start investing $100/month this month. (assume 10% annual return on investments)

Here is your contribution schedule and potential earnings.

• You contribute $100/month for 2 years before any loans are paid off = $2,644 earnings in year 2
• Once you’ve paid off your car, then you start investing $400/month (current $100/month contribution + former $300/month car payment.)
• $400/month contributed for 3 more years = $20,277 earnings in year 5
• If you continue to contribute $400/month until you’re 60, you’ll earn $775K! Congrats! You’ve now beaten the 20-year-old investor’s earnings!
• If instead, you increase your contributions to $700/month ($400/month contribution + $300/month former student loan payment) once you’ve paid your student loans off then at 60 you’ll have $1.17 MILLION!!

So you don’t have to start investing as an infant to see huge returns. You just need to be strategic about how you allocate your money. By starting to invest today, paying your minimum monthly debt payments and investing the rest, and increasing your investment contributions as you pay off debt, you’ll be able to out-earn a young investor who starts earlier and is far less strategic about their investments. So what are you waiting for? Go open your investment account so you can become a millionaire and live your dream retirement!