How to Start Investing Young: Five Best Early Financial Tips

Psychologist and author Meg Jay, Ph.D. said in her book The Defining Decade that the foundation you build during your twenties will define the rest of your life. She urges those in their twenties to take themselves seriously because even if it seems like they have all the time in the world at that age, wasted opportunities—especially on the financial aspect—will lead to a future full of regret.

In your twenties, you might be a fresh college graduate or a young professional in the workforce. As you gain work experience and see the “real world” for yourself through these years, you also gradually transition to having the roles and responsibilities of older adults like your parents. This also means having more bills to pay for your wants and needs, so investing in your twenties is vital if you want to have the lifestyle as well as financial freedom you hope to have in the future.

If you’re already thinking about investing young, then you’ve got the right thinking. Having more time to build your wealth is a huge advantage over most people who started investing only during the late years of their lives. It’s exciting to see a portion of your monthly income grow into hundreds of thousands of dollars as time goes, much more if the power of compound interest is unleashed through early investment.

For example, if you’ve invested $300 per month starting at twenty years old and been able to manage an 8 percent return until you turn sixty, you would have more than $1 million. If you’ve invested your $300 at thirty years old, you will only have $440,445 when you reach sixty. That’s a difference of more than $550,000 in returns!

Now that you’re thinking about starting to invest early, here are smart investing tips from top financial planners that will help twenty-somethings like you in investing for the future.

Tips:

Ensure the stability of your financial budget before investing

You have to make sure that your finances are in order before entering into an investment plan. This means taking into account your monthly budget for your expenses. Also, it’s difficult to invest when you haven’t set aside money for the emergency fund and have unpaid debts like credit card bills and student loans.

In short, you have to get an overall picture of your financial health. Knowing how much you are receiving and spending per month helps you in making sensible investment decisions and expectations. Honestly, assessment of your spending habits is also necessary. Remember, you cannot invest yourself out of poor spending habits.

Remember that investment doesn’t lead to an overnight rags-to-riches story

It’s best to invest for the long-term. The usual ideal time span is at least five years, but keeping it to more than ten years is also advised by most financial planners.

Hard-earned cash will most likely be gone if placed in hot-shot stock trades, and you don’t want that to happen. If you consistently make an effort and right financial decisions over the years, you will eventually achieve your well-deserved financial freedom. Patience is a virtue you have to possess when investing money.

Divide your goals into short-term and long-term lists

The moment you understand that money is a tool you can use to lay the foundation of a life you want, you should divide your future goals into short- and long-term lists. Doing so helps in choosing ideal investment schemes specifically for every goal. You can opt for short-term investment goals like saving for a house through conservative investments such as Bank CD’s, Savings, or Money Market Funds.

When it comes to long-term goals like retirement and achieving financial freedom, a more aggressive investment scheme is advisable. With time on your side, you will also learn to study the ups and downs of the stock market to achieve these long-term goals.

Automate your investments and spend less

Automate your investments so that they can take care of themselves. According to Coretegic Capital’s financial advisor Anthony T. Reynolds, setting up an automated savings plan helps people condition themselves to “save consistently all the while paying first without having to decide between delayed gratification and instant gratification.”

Learning to live on less becomes easier when you’ve made all your investments automatic. When you’ve decided to make saving and investing a priority, you won’t have to be anxious about retirement savings.

The best and easiest way to automate investments for young people in their 20s is to sign up for a work-sponsored 401(k) plan and have funds deducted from their payroll on a monthly basis. You can also set up a traditional high-yield savings account or an automatic investments in a brokerage account.

Moreover, employers who offer a 401(k) plan can also help you. Financial planner Christopher Clepp of Strategic Financial Group says:: If your company offers a 401(k) with a match, contribute at least as much as they will match. There’s no better way to start building towards retirement than with the free money available through a company 401(k) match.”

Strive to invest in yourself

Matthew Jackson, the financial advisor of Solid Wealth Advisors, said that “the #1 place you have total control over your investments is in yourself.” He also suggests investing in your personal and professional growth, may it be in ethic, skill set, or wealth of knowledge.

You cannot lose in self-investment. Going back to school, earning significant kinds of certification and degrees like masters and the doctorate degrees open more doors for a pay increase and job opportunities. Attending conferences and reading books that support your growth as an individual will lead to having more developed skills you can use for everyday life.

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