You ‘re probably enjoying the greatest freedom you’ll ever know if you’re in your twenties. You could be graduating from college and going on to the next level of your adult life. You ‘re gainfully working, but you do not have to pay a mortgage, a wife to satisfy, or kids to look after.
This decade of your life marks an age of carefree joy in several ways – the last decade you ‘re going to have before you take on the typical positions and obligations of other, older adults like parents. But, if you’re doing it right, your 20s are offering more than a time to experiment – they ‘re offering the chance to set up yourself for life. Investing in your 20’s can sound dull, but start.
If you’re still young enough to have fun but still ready to lay a groundwork for the kind of lifestyle you ‘re hoping to have in the future, now is the time to begin preparing. But, where and how do you start? Here are 7 tips from top financial planners across the country to invest:
#1 Exploit the influence of compound interest through early investment
When you’re in your 20’s, it’s easy to believe you’ve got all sorts of time to put together your financial life. You could live another 60 or 70 years very easily, right? What will make the difference if you put off investing a while? Unfortunately, waiting can make a difference in a country. Financial consultant Mitchell Bloom of Bloom Corporate, LLC is offering this example to show what you’ll miss if you wait:
Let’s say you’re investing $300 a month starting at age 20, and not stopping until you’re 60. You would have more than $1 million dollars in that account alone if you managed an 8 per cent return during that time. Now let’s presume you have waited to get going until you were 30. At the time you hit age 60, you ‘d have just $440,445 in your account. Those first ten years that you missed out on will cost you more than $550,000 in returns – even though you just skipped $36,000 and 10 years of deposits!
That is the magic of compound interest, a phenomenon once lauded by Albert Einstein as the world’s eighth wonder. Compound interest is the type of interest you gain as the interest you receive on your savings or assets starts to build up on yourself.
“Compound interest is the greatest force in the world.”Jude Wilson – Financial planner at Wilson Community.
However, it’s important to note that it’s power comes with time-if you don’t start investing when you’re young, you’ll squander. If in the future you want to be financially secure, then you need to harness this strength and put it to work. When you don’t, you ‘re going to miss out on gains that you will never get back.
#2 Consider saving as part of a more comprehensive financial program
While early investing can often help anyone start building wealth in their 20’s, that doesn’t mean investing is the answer to every problem. As Seattle Financial Advisor – Josh Brein says, all facets of their financial wellbeing are considered as the best thing any young person can do.
Will you need to pay off student loans? Credit cards which are only growing? You really can’t contain a spending habit? If you are stretched too thin financially, and particularly if you have an over-spending problem, investing may not be the best option.
“You can’t work the way out of debt or the bad habits of spending.”Josh Brein
That is why Brein says his best advice to young new investors is to spend less time thinking about the next hot product and more time thinking about simple spending patterns, debt, savings and budgeting. The bottom line: When you drown in debt and don’t have your expenses under control, a fully funded pension plan won’t set you up for life.
#3 Understand that money is a tool
When you’re in your 20’s and are ready to create wealth, it all begins by realizing the money you earn is nothing more than a device, AspenCross Wealth Management’s financial advisor – Eric C. Jansen says. Rather of thinking about the money you earn as the solution to your problems, think of it as an instrument that you can use to build the life and lifestyle you want through smart spending, savings and investment choices.
“The early learning to become a committed saver and investor is the secret to living the life you want. If you trade your time today for money, you will be able to use your money in the future to give you the opportunity to do more of the things that really matter in life.“Eric C. Jansen
Jansen recommends splitting your goals into short-term and long-term bins, with the money you receive as your tool and guide, and selecting investments that will help you achieve them. Conservative investments such as bank CD’s, savings, or money market funds are considered for short-term investment goals such as saving for a house. You’ll want to save more actively for long-term objectives like retirement and/or financial freedom, because you have time on your side to survive stock market ups and downs, he says.
#4 Ramp up the savings as you grow
Your 20s are a time when there are almost too many savings-for-goals. You may want to purchase a home, buy a new car, or travel the world-all at a time when you can plan for the future as well. That’s why Whitehouse Wealth Management financial advisor – Alex Whitehouse says your best bet is to start investing slowly and speed it up as you age. It will help you to save on retirement while still allowing you to save on other goals.
“Start with just 1 per cent of your income, then slowly increasing the percentage by 1 per cent.“Alex Whitehouse
You’ll be spending 10 per cent of your salary by the time you hit your 30’s. You’ll save 20 per cent of your salary by your 40’s. So if every year you get a raise you may not even notice the difference.
#5 Ignore the Joneses in life
“Don’t try to catch up with Joneses… or the Kardashians. Instagram, Facebook, Twitter & Pinterest are full of photos and stories of the unblemished lives of your friends and strangers.”Jamie Pomeroy – Financial Analyst at FinancialGusto.com
Unfortunately, fear of losing out has a way to get youth to try to keep up. This can result in spending money you don’t have, racking up debt, and naturally offsetting “boring” responsibilities such as saving and investing for the future. Your globetrotting friends may look like they’ve got it all, but their lavish lifestyles may not include enough retirement savings, chances are good. Their journeys into Thailand? They’ve definitely been funded with a credit card.
“Tune out the distractions and tune into solid advice to drive you to find money to start investing in your future.”Jamie Pomeroy
#6 Invest in Yourself
Regardless of what happens with the stock market or the bitcoin price, there’s one aspect of your life where you have absolute leverage. “The #1 position where you have complete leverage of your finances is in yourself,” says Solid Wealth Advisors’ Colorado financial advisor Matthew Jackson. He recommends that you invest in your life, professional and financial development in whatever manner you think suits. Why? For what? Because the greatest investment you’ll ever make could be investing in your work ethic, ability set, or wealth of information.
“Read as many books as you can and attend conferences that help you learn. More importantly, make sure to put the right advice into your everyday life. Few things will get you faster wage raises or new prospects than improving your skills extensively.“Matthew Jackson
You can’t actually lose if you believe in yourself. If you’re in your 20’s, it’s still not too late to go back to school, get a valuable credential that could improve your career or start over in an industry you’ve always admired.
#7 Automate your investments and learn to live with less
Wherever you are on your personal finance journey, one of the best moves you can take is to optimize your investment so that it can take care of itself.
“The creation of an automatic savings program would help train yourself to save more regularly when paying yourself first without having to decide between deferred gratification and immediate gratification.“Anthony T. Reynolds
The best – and easiest – way to automate investments for young people in their 20’s is to sign up for a work-sponsored retirement plan and have the funds deducted from the payroll each month. You can however also set up automatic investments in a brokerage account or a traditional high-yield savings account. When you’re making all of your savings automatic, learning to survive on less is much easier. It’s also a lot easier to build real wealth when you’ve made a priority to save and invest rather than an afterthought.
Conclusion: If you can get into the habit of regularly saving and investing during your 20’s, you will never have to think about saving money or retirement savings again.
By Jeff Rose via Forbes.com