Tips for Investing in your Twenties
By Mike Baker
Whether you are a recent college grad with your first job or you have been in the workforce for a couple years now, practicing good financial habits is key to having financial freedom in your future. Here are some tips for investing in your twenties.
Create a budget
In order to make smart decisions on what to do with your money, you need to first create a budget to identify what your expenses are and if you are overspending on items that aren’t going to help you build wealth. Budgeting allows you to create a spending plan for your money, encourages you to map out goals, can keep you out of debt or help you pay down existing debts.
Speaking of debt, it is important to maintain focus on major goals in your life (saving for a house, retirement, funding college savings accounts) while working your way out of debt. Developing a plan to simultaneously pay off debt while building your assets for the future is important. Remember, not all debt is equal. Depending on the type and interest rate of your debts, you may not want to throw all your savings at paying down your debts.
Inflation is destroying your wealth
Inflation is the rising cost of goods and services over time, which averages 3% annually. When prices of rent, food, gas, and entertainment increase and your savings does not this will lead to problems in the long run. If you are not earning at least 3% in your savings account, the purchasing power of your money decreases. This means leaving all your money in the bank is a guaranteed way to go poor slowly. How do you protect yourself from inflation destroying your wealth? Investing.
Set-up an investment account and pay yourself first
Your Netflix and Spotify subscriptions are automatically taken out of your bank account every month, so why aren’t your investments as well? Pay yourself first by setting up a plan to automatically contribute a set amount into your investment account every month. Your future self will thank you.
Time is on your side
The best part about being young is you can unleash the power of compounding interest, once referred to as the eighth wonder of the world by Albert Einstein. Compounding interest is earning interest on top of your interest. The more time your investments have to compound, the greater your investments have the potential to grow. *To illustrate this, let’s say you start investing $400 a month at age 25 and don’t stop until you are 65 years old. If you averaged a 10% return during that time, you would have over $2.5 million dollars. Now let’s say you decided to wait 5 years until you turned 30 to start investing, you would have only $1.5 million. The key here is you lost out on over $1 million JUST by waiting 5 years. The power of time is harnessed by starting to invest when you are young. It is essential to having financial freedom in your future.
***The above is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.
Invest in your Knowledge
One of the best investments you can make in life is to invest in your knowledge. You might not be able to control the stock market, but you do have total control over how you invest in yourself. Read as much as you can and take advantage of the opportunity to learn from more experienced people around you. Ask questions about their understandings and experiences in life and learn from them. The more time you have to invest in your yourself, the greater your future reward will be.
Feel free to shoot me an email if you have any questions or comments. I assist a lot of young professionals and have no account minimums. One of the hardest parts of investing is getting started and I am here to help!
Securities offered through LPL Financial, Member FINRA/SIPC.
Investment advice offered through Gerber Kawasaki Inc, a registered investment advisor. Gerber Kawasaki and Gerber Kawasaki Wealth and Investment Management are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss.
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