When you think about investing, your mind might immediately go to the suits of Wall Street or even something your parents did in order to boost their retirement fund.
You might think you’re too young to start investing if you’re just in your 20s. But no matter how old you are, you probably wish you could have a little more money to rely on, right?
Even if you have a steady job in your 20s, it doesn’t always bring you the income you really want or maybe even need. While research has shown that millennials are savvy when it comes to saving money, with 71% already saving for retirement, investing is a different story. The idea of investing can be intimidating at first, but you don’t have to stress over it. In fact, you don’t even have to have a lot of money to get started!
Getting Ahold of Your Finances at an Early Age
While it’s true that retirement probably isn’t even on your radar right now, that doesn’t mean you should ignore the importance of financial planning in your 20s. Again, most millennials are good at saving, but if you’re not actively taking steps to save the money you do make, you should know it’s not as hard as it might seem. Yes, it can be tempting to hit the drive-thru after work every day or buy the most expensive cable package so you can catch every episode of “Big Little Lies.” But saving doesn’t mean you have to go without the things you love in life.
It’s important to create a budget for yourself. This will make it easier to know what you can spend each month, how much you can save, and how much you can invest. When you create a solid budget, you won’t spend money you don’t have, you’ll be prepared for emergency situations, and you’ll have a clear blueprint on how to reach your financial goals.
Already saving? Do you have a budget in place? Great! The next step is to dip your toe into investing. Again, you don’t have to have a ton of money saved up to get started. Do you have an extra $50? You could be good to go!
The good news is that you can actually get started investing online, with the help of robo-investors. One of the most user-friendly options for people starting out with little money is Betterment, which requires no minimum to get started and offers a very simple platform that will lay out your options for you.
If you don’t want to branch out on your own, talk to your employer about your options. You might not think you make enough money to put into a 401k or other retirement plan, but you probably do. You can actually put as little as 1% into your plan (you won’t miss it!). Plus, that 1% will give you a tax deduction, so it’s a win-win. You can make a plan to increase your contribution each year or as you make more money. Soon, you’ll be investing in your future without losing what you have now.
Where to Invest?
Another reason many young people choose to avoid investing is that they think their only option is to invest in stocks. First of all, stocks don’t have to be intimidating. If you’re just getting started, don’t be afraid to make a “safe bet” with stocks that are typically pretty steady. They might not have the biggest payout, but they are often less risky. You could also invest in something that is growing in popularity and with a lot of hype.
When assessing stocks, take some time to research which stocks are most likely to give you a good return on investment without putting your money at too much risk. Focus on developing a diversified portfolio, as putting all your eggs into one basket can spell disaster. Follow the advice of leading value investors — like Warren Buffett, who argues that you should only invest in what you understand. Choose stocks based on your interests or your passions.
If you really don’t want to invest in the stock market, that’s okay. One alternative is to invest in a life insurance policy or life settlement policy. When you invest in a life settlement policy, you’re buying a life insurance policy from someone to give them a specific lump sum payment. As an investor, you have to take certain things into account if you want to make a smart life settlement investment. This includes the person’s age, health, and other details. When that person then passes away, you collect the death benefit of the original life insurance policy.
Life insurance can be a smart investment because you don’t pay taxes on the interest. You can even borrow against the cash value if you want to buy a house — something you might be starting to think about in your 20s! Finding different ways to reduce your tax liability, like making charitable donations or finding other tax credits available to you, is another great way to save and use that money to invest.
One of the biggest disadvantages, though, is that life insurance policies often cost a lot and have high fees. Considering the pros and cons can help you to make a more informed decision about where you want to invest and what will work out best for you both now and in your future.
The Journey Toward Retirement
Taking active steps to plan for your financial future now will make life less stressful as you continue to get older. Plus, you’ll get to see your finances grow over time, which is an exciting journey to be on!
Don’t be afraid to take some risks, but keep things simple and ask for help from professionals when you need it. Use the tools accessible to you to create a retirement plan you can start working toward now.
When you create a blueprint for saving and investing, it will seem far less intimidating. You’ll be able to retire comfortably without having to worry about managing a limited income in your golden years.
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