Time is money, so they say. And there is no specific time when someone should start making money in their lifetime. The best time is now, or you will forever languish in poverty. Investing and making money does not matter where you are, your working conditions, the kind of salary you earn, or your age.
The respect you deserve after investing and having a growing saving account is undoubtedly unmatched to someone who solely depends on the monthly salary or daily wages. Make a choice. You can learn some useful money-saving tips and investment options from legit lenders, such as A1 Credit.
Investing in the early 20s is one of the great achievements for anyone who dreams of enjoying retirement years. Citing a bit of financial advice from Anthony Pellegrino of Goldstone Financial Group in Oakbrook Terrace, investing in your 20s at an average rate of 8% of returns, you can save as little as 12% of your salary, and retire before hitting 60 years.
This will allow enjoying the benefits of early retirement. Embracing investments in the early 20s is a great idea, if only you learn the tips herein.
1. Come Up with Investment Goals
First step: set your investment goals. You cannot decide to invest when you do not have a target in your mind. First, analyze all the available opportunities and choose the best investment that will suit you. Work towards it. Look at all the ultimate experiences you want to have for the coming years and design a reliable investment plan.
For example, someone would wish to travel every month, buy a car before hitting 30 years, or even retire in early 50 and settle in Woodlands with their families. Create an investment goal that will see all these expectations come to reality.
Additionally, identifying your investment goals comes hand-in-hand with creating a long-term savings account. An account that is much different from a short-term goal-saving plan that you can easily withdraw money and spend on buying a new phone or take your partner on a date. Someone in their 20s thinking about investing should adopt the culture of saving. Saving as much as they can to accomplish their long-term goals effectively.
2. Having an Emergency Fund
Creating an emergency fund is an investment idea that can cushion you against any unexpected situation. As a young working adult, you never know when you will be laid off, or when a natural disaster will hit your company. Set aside something that will hold you whenever such a situation occurs. Building an emergency fund will also motivate the habit of saving in you. Someone would ask how much they are supposed to save for an emergency.
The idea of saving towards an emergency fund is both mathematically and emotionally explained. Mathematically because there is no exact amount you are supposed to stack in your emergency kitty. You could start with $200 monthly in a highly-yield saving account, and you are eligible for other benefits like annual rate returns.
Emotionally because that is a small amount of money to make you sleep at night. It would help if you worked harder to increase your savings. Someone in their early 20s should aim for an emergency fund that is at least equal to their six months of their salaries. They can keep that money in a stable large-cap stock mutual fund and wait for returns.
3. Finding A Good Broker or Robo-Investment Plan
In the present world, finding a good investment broker has become an easy thing, both online and offline platforms. There are plenty of offline brokerage and mutual firms such as Charles Schwab (SCHW), Fidelity Investments, and Vanguard, offering extensive historical services and low management fees.
For those willing to join online platforms, we have Robo-Investment platforms such as Betterment, Acorns, Ally, Wealthfront, and Robinhood. Such robo-based technologies will enable you to manage your portfolios at a lower fee and have no minimum balance. This is an investment plan to create wealth by plowing back the saved money in your investment portfolios.
4. Opening an Individual Retirement Account (IRA)
Opening an individual account with a company’s retirement plan is another ideal way of investing in the early 20s. The idea is beneficial because your taxes will be deferred up to retirement, and your company may also contribute a certain percentage to your account.
There are two retirement plans to choose from: the traditional IRA and Roth IRA. The conventional IRA or 401(k) contributions are taxed after withdrawal, while Roth IRA contributions are taxed before going into investment accounts. Roth contributions, therefore, are tax-free on withdrawal.
As a young investor in your early twenties, you are recommended to opt for Roth IRA, since your tax bracket increases as you continue to make more money along the way. Therefore, it is beneficial because the money going into the account is already taxed, and you will withdraw it tax-free. This is the right way of avoiding the stress of paying taxes after retirement. Moreover, contribute at least $6,000 yearly in Roth IRA.
5. Don’t Forget Short-Term Savings
Apart from a long-term saving plan which you must have, open another short-term saving account that is easily accessible. The savings should not be prone to market fluctuations. These are the savings you can easily use to cover emergency issues without tempering with your emergency fund and long-term saving plan.
Although they do not earn as many returns as the money you put equities, savings with high-yield savings accounts, CDs, and money market accounts significantly impact your financial position. See your money grow as you enjoy the returns, and withdraw it anytime the need arises.
6. Involve a Financial Advisor
If you find it challenging to create a working investment pan, choose to involve a trusted financial advisor. Although human advisors are expensive, they will take you through establishing your goals, assessing all the investment risks, and choosing a brokerage account that fits your requirements. Involving an advisor in your investment plans will help you understand the journey and eliminate the excitement.
All you have to know is that investing should be viewed as a tedious journey for you to realize the importance of the time taken.
The Bottom Line
Investing in the early 20s is one of the most exceptional financial commitments any young working adult should make. It comes with many benefits like financial freedom and enjoying early retirement. Anybody in 20-something should have short-term, mid-term, and long-term goals and start working towards them.
Beginning with at least retirement accounts and an emergency fund is the quickest way of growing your money as you enjoy the benefits attached to savings like annual returns. After getting all the necessary tips, sit back, and wait for your retirement age.