Your next 10 years: Buy diapers or pay the mortgage?

I recently decided to get serious about putting away money for my retirement and my kids’ education. I know what you’re thinking. Smart idea.

You bet. But you’ll be less impressed once I tell you my age.

I just turned 40.

Forty! I can just picture financial planners out there shaking their heads. Don’t I know that starting to get serious about personal finance at 40 is like picking up the violin as a teenager and thinking I’ve got a shot at playing with the New York Philharmonic? What have I been doing? Just imagine how fat my RRSPs would be if I had spent the last 10 years filling them up. Just imagine the savings account I could have amassed if I had diligently banked a tenth of my income each and every year.

I look at things a bit differently. At 40, I think I’m doing just fine. I’ve got a house, a wife and three kids. We get by on one middle-class income — comfortably. A big reason is that throughout most of my 30s I eschewed the financial advice given to people my age.

I’m no financial wizard, mind you. I’m a journalist and until joining MoneySense last summer I wrote about advertising and the Internet, not annuities and insurance. But I’ve learned from experience that your 30s are not the decade to worry about getting rich or paying for retirement. There are more important priorities. If you take care of them, you’ll enter your 40s in remarkably good shape.

But first things first. If you have yet to hit your 30th birthday, I can assure you that, financially speaking, you are about to experience one tough decade. In your 20s, your biggest dilemma was deciding between buying beer or textbooks. In your 30s the choices get frighteningly real. Shortly after our son was born 11 years ago, I made several bleary-eyed trips to the drugstore in which I paid for diapers and baby formula with a credit card because I wasn’t sure we had enough money in our bank account to cover both those necessities and the mortgage payment going out the next morning.

Kids, of course, are one big reason people struggle at this age. The average Canadian couple is around 30 when they start a family. It costs them nearly $60,000 to raise a child to the age of five. Even if one parent stays home to save on day-care costs, your finances take a hit because you have to get by on one income rather than two.

Right around the time most of us are changing our first diapers, we’re also buying our first house. Mortgage payments, property taxes, home maintenance and other home-ownership costs swallow 48% of a typical family’s pretax annual income. The double-whammy of children and a home are overwhelming for thirtysomethings, says Debbie Gillis, a credit counselling coordinator with K3C/ Kingston Counselling in Kingston, Ont. “Suddenly you feel like an adult, and it’s a big slap in the face.”

I can relate to Gillis’s assessment. My wife and I were 29 when our first child was born and we bought a house. We thought we were in good shape. We had no student or credit card debt and our car was paid for. But we were surprised how quickly our financial position began to unravel, especially after we decided that my wife would stay home rather than go back to work. Our income was chopped in half and that was a shock.

Owning a home turned out to be an even bigger shock. It wasn’t the mortgage payments, which were about equal to what we had been paying in rent. It was the maintenance costs. Our house was close to 90 years old and our big green monster of a furnace soon conked out. A new one set us back $4,000. Then our roof leaked and we had to reshingle. That set us back another $5,000. We put most of these repairs on our credit card and home equity line of credit.

As our bank account dwindled, we tried to make every penny count. We clipped coupons and cranked down the heat on winter nights. We didn’t go out to a restaurant or the movies for three years, and while other young parents took their toddlers to Disney World, we spent three days camping in a provincial park at a cost of $30 a night.

Here’s the insanity, though. We were far from broke. Both of us were still putting up to $3,000 a year into RRSPs. We had started buying mutual funds in our 20s and we were afraid to stop. We were bombarded with advice warning us that by not saving enough now, we risked spending our old age in the poorhouse. Trouble was, it felt like we were already in the poorhouse.

A lot of people get stuck in the same trap, says Gillis. “I’ve seen people who put money aside for retirement and then they miss a mortgage payment.” As silly as that sounds, you can understand why people try to do everything at once. Not only are thirtysomethings expected to buy a house and raise a family, but most self-help books and personal finance articles preach a lengthy checklist of other must-do’s: build your career, save for retirement, put away cash for the kids’ education, pay down your student debt, escape credit card debt. Oh, yeah, and load up on life insurance, too. Fact is, even a couple earning an above-average income can’t accomplish all these goals simultaneously.

So how do you survive your 30s? It took some trial and error but my wife and I eventually found that following three rules makes a huge difference:

You can’t do everything at once

So don’t try. Raising kids and building a career are stressful enough. My advice? Concentrate on those two priorities in your 30s and give yourself a pass on some of the other stuff. That’s not to say you should spend wildly or ignore your finances. But rather than take a scattershot approach to money, focus on one goal at a time. For most of us, the first and most important goal consists of simply getting out of debt — student debt, credit card debt, car loans and mortgages. Gillis points out that some of her clients make the mistake of trying to save money for their kids’ education while still paying off their old student debts. That makes no sense at all. Better to tackle your own debt first, then worry about helping your kids out.

Or consider the situation my wife and I found ourselves in. While we were shoving money into our RRSPs we were also going into debt to do home repairs. What were we thinking? We were paying 6% interest on our line of credit and 18% on our credit cards. Meanwhile, the annual return from our RRSPs was hovering at 2% to 3%, and we wouldn’t see any of that money for another 35 years. It took us a couple of years to realize what we were doing, but we came to our senses at last and stopped contributing to our RRSPs until we had paid off our debts. Finally, we could breathe.

Take small steps. Then repeat

After we got rid of our debts, we decided to make our mortgage the next priority. Whenever we had extra cash, we paid down a part of our principal. A couple of thousand dollars a year has added up and we expect to have our entire mortgage paid off in 14 years rather than 20. Our next goal: saving for retirement and our kids’ education.

No matter what your priorities are don’t feel guilty about accomplishing them slowly. “To some degree your 30s are a time of debt accumulation rather than asset accumulation, and as long as it’s good debt like a house or a reasonable car loan, that’s okay,” says Scott Ellison, a certified financial planner in Halifax. If all you can afford to put into your RRSPs is $100 a month, “that’s better than nothing,” he says.

Relax. It does get better

Ellison, who is 38 with three kids, says that while our 30s might be the most stressful period of our lives, there is light at the end of the tunnel. By the time most people reach 45 they’re in much better shape financially. Your salary is higher, your kids no longer need expensive day care, your mortgage is dwindling. “In your 30s your long-term financial goal should be to end up with no debts and no mortgage by the time you retire, and for a lot of people time really does take care of that,” he says.

I know what he means. At 40, I’m still a long way from watching my kids move out. Even though my son will be turning 12 this year, we added to our family two years ago with twin girls. And we bought a bigger house, too. But by doing one thing at a time, my wife and I are in a position to comfortably handle all our responsibilities — and even contribute to our RRSPs as well. I enjoyed my 30s and I’m looking forward to enjoying my 40s even more.