As you’ve likely read from a hundred articles before, investing in your 20s is an excellent idea. It sets your finances up well for the future. These investments will help you fund your retirement, make big purchases like cars and homes, and face different financial emergencies.
So, how does one start to invest in their 20s? This article will help you find out.
Emergency Fund
Speaking of emergencies, having some money saved up for unexpected expenses like job loss or a natural disaster is a necessity. This is the first investment you should consider in your 20s, just when you start working. Not only will this save you in certain situations, it will also develop in you the habit of regularly saving money.
There’s some argument about how much people should save for their emergency fund. The general consensus is that you should have at least three months’ worth of spending money. Of course, you can save more, depending on how much you feel would be enough for you.
Retirement Fund
When it comes to employer-sponsored retirement plans, the younger you start the more you’ll be able to make the most of the tax-free compound interest. This may often come in the form of a 401(k). Many employers even match their employees’ contributions up to a certain amount or percentage.
Even if you can’t max out your 401(k) contributions at the beginning, you can always start small and work your way up. While your career progresses, you should develop a plan to raise your contributions. If you don’t make the most of this opportunity, you will miss out on essentially free money.
There are many 401(k) calculators on the internet for you to check just how much you can potentially save. Here’s one from the American Association of Retired Persons website.
First Home
The emergency and retirement funds may sound simple and, more importantly, feasible enough. However, when there’s talk of buying property, those under 20s are often skeptical. But it can be done.
Buying a home in your 20s can give you a ton of benefits down the road. Yes, it can be difficult with entry-level salaries, paying off school loans, and just the overall desire to enjoy your 20s. But if you put in the effort, it will surely be a worthwhile investment.
First, you need to save up for the down payment. You should aim to save at least 20 percent of the value of the property you want to buy. This will help you get cheaper monthly payments on your mortgage.
Stock Market
Here’s another investment opportunity that may incite different reactions to different people. Some are all so eager to try their hand on making aggressive plays. Some are repelled by the inherent risk there is in stock investment. But when you’re in your 20s, what’s important is you start.
According to Investopedia, the rule of thumb when it comes to investing in the stock market, specifically whether to invest in stocks VS bonds, can be deduced from a simple calculation. You have to subtract your age from 100. If you’re 25 for example, you can invest 75 percent into stocks and 25 percent into bonds. Although this may not work for every investor, it makes sense when you consider that younger investors tend to have more risk appetite.
Whether you choose to invest in blue chip stocks or try your luck on emerging businesses, just make sure that you do your research well.
Conclusions
Investing in your 20s is one of the smartest and most responsible things you can do at that age. Whether you choose to follow one, two, or all of the tips here, it will definitely be beneficial for you in the long run. Do your due diligence and start investing.
