Investing in your 20’s are an odd time for young or potential investors. You might still be in college or starting off your career, but both scenarios usually pose a problem when it comes time to scrape up a few dollars for a retirement account. Luckily, you have lots of options to get stated earlier so you won’t be stressed about catching up later.
Make a Budget
If you haven’t already made a budget for yourself, then now is the time. Whether you’re still in school or in the work force, having a budget will help you set financial goals, stay on track and plan for the future.
Write a list of your monthly expenses, and be sure to add any that you’ll have to pay in the future. For example, if your college loans are coming due, you’ll want to know when that’s happening and add it to your budget. The last thing you want is for an extra $100 in payments to creep up on you before you’ve had a chance to prepare.
Making a budget will also help you know when bills are due, and will help you make other important decisions, like how much rent you can afford once you graduate. If you see there’s room in your budget for a few small investments, even if you’re in college, it’s a good idea to get started sooner than later. For example, if you can spare $5 a month, you can invest in an Acorns account. By only investing $5 a month, you’ll have a thousands ready for you when you decide it’s time to retire. Or if you have a slightly larger amount, like $20, you may want to open up an IRA account to help your retirement planning as well.
Still have some left over? Save it in your emergency fund for a rainy day.
Leverage Your Success
Did you get a raise at work? If you’ve been sticking to your budget, have your savings in place, and are overall content with your expenditures, then make the most of a raise and invest it. This is a popular saving method people use to maximize their newfound income. Since you’ve become accustomed to life on your current budget, you simply take the increased monthly amount and invest it.
This is when it might be smart to either talk to the financial institution where you do your banking or bring in a financial professional to make sure you won’t be taxed too heavily on any capital gains from your investments.
Use Your 401(k)
Don’t forget to make use of 401(k) programs at your work, particularly if they offer an employer match. If you don’t maximize your contributions, then you’re essentially throwing away free money, which is never a good idea.
Worried that you won’t be at your job long enough to see a significant return on your investment? It’s ok; if you invest under a certain amount while you’re with the company, then you can either roll those funds over into the 401(k) with your new employer, or take the cash from the check they’ll send you and open up an IRA account (check with your 401(k) institution to learn the exact amount you should be under). Even if you’ve been with a company for awhile and choose to leave, rolling your 401(k) over to a new account is always an option.
The key is to not let your specific job situation deter you from cashing in on and investing free money.
Understand Your Risk
The most important thing for young investors to remember is that they are very risk tolerant. This past year when the Brexit decision was announced, a few friends called me to ask what happened with their 401(k)s and if they should pull their money out. If you’re in your 20s, that answer will nearly always be no. The markets have shown throughout history that the economy will bounce back, even in the darkest of times. Your portfolio may show more losses now, but if you’re patient it will come back around.
If you’re still uneasy about getting involved in some of the more riskier investments, like real estate for example, that’s ok; there are options for you. Treasury bonds will appreciate over time, and you stand nearly no risk of losing money from them. The only reason these might lose value is if the interest rates don’t rise but inflation does, and those things can’t happen long-term or the economy as we know it wouldn’t work. These are also safe options because you can cash them in at a bank even if they haven’t matured and gained value.
Your 20s are a volatile time, but it’s smart to put away even $5 a month if you can manage it. There are a number of money moves millennials should be doing right now. Over time, that money will grow, and you’ll be better off for having made that decision. And if the markets seem scary to you, don’t worry, you have lots of time to recover from any risks… but only if you start now.