The Power of Investing Early.
Why is it important to start to invest as early as possible?
Majority of the world’s population today, don’t prioritize investment especially at the age of 20’s. But this is honestly the best time to start to invest. But why people don’t do that anyway?
Oh maybe because they’re not aware of the possibility?
Afraid of the investment risks?
They prioritize differently, maybe?
While all of the above is true and valid to say yes, but the investment is still something we should impose on our lives no matter how old we are today.
The truth is, investment mentally starts at home. Why did I say that? this is mainly because we use the money for everything and every day – is that simple. But honestly, when did you start to be a way of the value of money as a child? I couldn’t remember it myself… all I could remember is that when I have some coins, then I can buy a piece of candy.
My point is, children should start to learn the power of investing as early as soon as they start to learn mathematics in school. So, when they reach the age of 20’s – that’s when earn already earn a more stable income – they’ll be more prepared and equipped on how to do it themselves.
Oh, just a quick check and tip – I started investing my daughter’s money when she’s only 1 year old. She’s already 9 years old today. And at her age, she is already used to hear the words “save, invest and let your money work for you someday“. So when she’s asked what she’s going to buy with all the money she gets from her birthday or Christmas, then she’ll definitely say “some of them, I’ll buy (something she wishes) and I’ll put the rest in my bank account”. That’s pretty cool as a parent to hear a child like that.
Well, our focus with this article today is about the young generation at 20’s. So if you are at your 20s today, the post is for you and I hope it’ll if you haven’t started with investment yet.
How Do Average People at 20s Use Their Money?
- Acquiring student loan for education
- Acquiring debts for a brand new car.
- Expensive travel
- Shopping expensive clothes & accessories
- Buying expensive smartphones
- Buying expensive shoes
- Going to parties with random friends
- Some are starting to build their own family
How Do Smart People at 20s Use/Manage Their Money?
- Completing education
- Getting work experience while studying
- NOT acquiring student loan
- Finding and getting a job in their career
- Saving and investing a portion of their money
- Developing communication and networking skills
- Finding a passion and making a business out of it.
- Establishing or joining a group of success-minded friends/community
- Maintaining financial stability
- Learning to manage the adult responsibilities
- Some starting to build their own family
- Acquiring a mortgage loan for their own house or apartment.
If you can see yourself as a smart guy/gal at 20’s, then congratulation. You truly have a brighter and stable future for the rest of your life.
However, if you can see yourself as an average ordinary guy/gal at 20’s, this is a perfect time for you to start. And please don’t delay it. And these are the reasons why and how.
Step 1: Leveraging the years
If you’re in your 20’s today, it is very important to know that time is truly your ally.
The power of compounding can help your money to grow as time goes by – because right now you’ve got decades on your own advantage.
Consider this: If you start saving and investing just $200 a month or around $2,400 a year – starting at the age 25, then by the age 65 you’ll have around $297,712.12 assuming a 5% rate of return per year.
But if you start to save/invest at the age of 35. Your $2,400 a year will be 163,739.57 at the same rate of return.
Step 2: Save your time
You probably heard about the stock market and it could sound so scary, but this shouldn’t have to be an excuse to delay your investment plans.
If you live in the US then you’re probably familiar with the 401K. However, if you live in Europe or any other countries, then the pension/retirement system would be basically different. But the concept is the still same – saving a portion of your income to be invested into your pension/retirement portfolio. You can set a higher amount as you wish and let the financial institution manage your portfolio for you.
As you learn more and you will, you can choose other investment types – like investing in mutual funds or index funds with a relatively low expense rate at 0.5% (the lower, the better). Mutual funds and index funds are more stable than the speculative single stock investment, as these types of investments are being managed by professionals.
Of course, there’s a risk in stock investment, but you’ll eventually learn the risk management. As a rule of thumb, always spread your investments to minimize your risk. So “never put all your eggs in one basket” – as the popular saying goes.
The key is just simply open an investment or retirement account as early as possible. Then, transfer money into it regularly and automatically every single month.
Step 3: Save more
Have you heard about the 80/20 % rule? This principle is being applied simply by allocating 80% of your total income goes to your regular expenses while the rest (20%) goes ONLY to savings and investments.
It could be difficult at the beginning but as soon as you get used to it, you’ll probably aim for a higher equation or maybe an inverted one: 20/80 % – where 20% of your total income could be enough to cover all your regular expenses. That would be awesome. That’s not impossible. Honestly, there are a group of people who are really devoted to living as minimalists to retire as extremely early.
And of course, there is also another popular and ideal approach which is practiced by religious and generous people – the 70/20/10 principle. The principle means that the 70% will be for all regular expenses, 20% for the savings and investments and 10% is for tytes or community donations.
Step 4: Be aggressive
Today, there are a lot of 20’s who have become more aware of their personal finances. There are at least 20% of the people at 20s who have their money invested in a money market or stable value fund. Of course, there are tied risks into it but this types of investment are more secure than just having money in a regular bank account and just be eaten by inflations year after year.
So get started to learn and invest as early as possible. Earn, save and invest as much as possible and gain financial freedom very soon!
So I hope you’ll be inspired today, please feel free to write below if you have any question or comment and I will be more than happy to help you out. Good luck and God bless.