Not too many people in their 20s are focused on investing their money, simply because they’re “too young”. But investing is not a matter of being the right age, but starting as soon as you can. While its benefits may not be seen during the earlier years of having a job, saving money and investing it in the right places paves the way to financial freedom and stability.
With so many things you need to spend for, like food, rent, transport, going out or partying with friends, and overseas trips, you will need to have a plan so you can really allocate money for investing while at the same time being able to pay for your basic needs and a few indulgences.
Here are the top 3 things people in their 20s can start investing on and some tips on how you can make it happen:
As the old cliché goes, we always need to “save for a rainy day”. It is always more convenient to use your credit card to pay for unexpected repairs or replacements, but that will only add up as more debt to pay for with increasing interest, which won’t help you save and grow your money at all. Instead, start saving an emergency fund and use the cash during the times you need to pay for a car repair or to replace the phone you got soaked on the beach. Make it a goal to set aside at least $1,000 for your emergency fund. The more liquid you are, the better.
You’ve probably heard this so many times already and you may have gotten so tired of this cliché, but it is true – time is your best friend when it comes to making investments. And yes, the best time to invest is always now. Actually, the soonest possible time is always the best. But unless you can time travel, the only best option we all have is now.
It is always best to start early with retirement savings. If your job offers a 401(k) plan, go ahead and sign up. If your company happens to offer 401(k) matching, determine the minimum contribution required and pay this amount at the very least. If you can contribute more, that’s definitely better.
If your employer does not offer a 401(k) or if you are self-employed, create a Roth IRA account instead and finance this with index funds. It is likely that your bank offers one. There are also online broker services like Fidelity or Vanguard which can assist you with managing your account. Contribute at least 5% of your gross income towards your retirement funds.
Student Loans Payment
At this age, most of your debt is most likely to be comprised of student loans. College debt may discourage young people from chasing their major life goals, such as getting married or buying their own house. So allow yourself to achieve financial stability by creating and executing a plan to settle your college debt as soon as you can.
It is ideal to settle all private variable loans first. While these variable loans have lower interest rates compared to student loans backed by the federal government, interest rate on these loans could climb up to 6% if the federal government decides to increase interest rates in the future, making it difficult to manage your loan payments.
For federal student loans, there are several loan repayment plan options available for you. While most people would be choosing the plan with the lowest monthly payments, this would lead to paying more on interest throughout your student loan’s lifespan. If you are financially capable, it is recommended that you allocate your income and savings towards paying off your student loan the soonest possible time.