Investing in your 20s has more benefits than you can imagine. Your 20s is an amazing time of your life. You’re breaking into the workforce, the world is your oyster, and there are just so many things to enjoy. However, while it might seem like you have all the time in the world, getting started in investing is hugely important. Investing early in your life will allow you to build savings and gain financial wealth readily available for your retirement. It also allows you to create emergency savings when unexpected events happen such as a job loss or a medical emergency, which can tax your finances.
There’s a wide range of ways to invest in your future. Let’s look at some investment tips that can help you get started.
Investing in Your 20s: Enjoy Your Retirement Later
Jump on the 401(k) Bandwagon
When you get that first job, you may have access to a matching 401(k) plan. This is your first taste at getting into the right investments. By placing money into the 401(k), your employer will match those contributions, usually up to a certain amount. This retirement account has tons of advantages. First, your money grows tax-free. Second, the money comes right out of your paycheck before taxes. Third, the money moves with you when you change jobs. You can either keep it in the old employer’s account, roll it into the new employer’s 401(k) plan, cash it out, or invest it into a Roth IRA.
Check Out Other Investment Options
If your employer doesn’t offer a 401(k), it doesn’t mean you can’t invest on your own. Talk with a financial planner about other investment options you can take. There are Traditional IRAs, Roth IRAs, mutual funds, stocks or ETFs. Each investment vehicle has their own advantages and disadvantages. For example, a Roth IRA has an income cap for individuals and married couples, yet contributions are taxed so you can withdraw earnings tax-free. So, it’s important to research each one in order to decide on the best investment for your financial needs.
Get Rid of Your Debts Quickly
You’ll more than likely be dealing with student loan debt and credit card debt during this time. Get rid of it all. Paying only the minimum will extend the length of time you carry it because you have to pay off the interest first. You want to pay that down as quickly as possible so more of your payments go toward the principal. So pay more than the minimum and then keep your other debts manageable until they reach zero.
Set Up a Savings Account
When investing in your 20s, you may also have some extra money squirreled away to pay off any emergencies. You can create a savings account and use it to pay for unexpected car repairs, medical expenses, or other issues that spring up. This strategy will work in your favor so you don’t have to tap into your 401(k) or other investment options. You can also set up multiple savings accounts if you want to save money on big purchases like real estate. Traditional banks, as well as credit unions, have savings account options and varying interest rates.
Increase the Amount You Save Away
You don’t want to just save the same amount every year. The more you place into a savings and investment account, the more compound interest will accrue. Set a goal to invest a certain amount of your income, then raise it by a set amount each year. By the time you reach middle age, you could be increasing your earnings at a fantastic rate. Also, this gradual increase won’t tax your current financial situation to the point where you struggle with your daily expenses.
Don’t Let Shiny Luxuries Lure You Out of Your Investment Path
There are tons of things you want to do with your first paycheck in your 20s. Buy a new car. Go on an expensive vacation. Travel around the world. But don’t let these luxuries drain your savings too much. Create a budget, look at your financial status, and save more than you spend. If you successfully manage your cash flow, you can enjoy a nice vacation or get a great car later without getting into too much debt.
Investing in your 20s is possible. It just takes dedication and motivation. Consulting with a financial planner can help you create the right budget plan for your lifestyle and your retirement goals. This will then allow you to build your wealth for the long term. When the right time comes to retire, you will have retirement savings large enough for your golden years and also to your beneficiaries.
What other benefits can you gain from investing in your 20s? Let us know in the comments section below.