It’s hard to exaggerate how valuable it is to start to save during your 20s for the journey toward retirement.
The years following graduation from college or university (taken that you started early) are not always for savvy financial moves.
Call it a pipe dream or time for flexing and being youthful but what your 20s should be known for is saving and most importantly, INVESTING.
It’s hard to exaggerate how valuable/priceless your 20s are. Giving the long road to retirement, saving throughout that decade can be likened to putting an extra engine in your car. You’ll rev your returns by starting early.
We understand how hard it is to get funds/money while still in or fresh out of college/university. Especially given the situation of things in the country, but then, having a mindset/knowledge of savings and investing in your 20s could keep you motivated and disciplined when you start earning funds.
Smart Investing Tips for your 20s
If you’re still young enough to have fun but yet ready to lay a foundation for the kind of lifestyle you hope to have in the future, the time to start planning is now. But, where and how should you get started? Here are some investing tips to help you on the way.
- Release the power of compound interest by investing early.
What difference will it make if you put off investing for a while? Usually, one would think you have all kinds of time to get your financial life together in your 20s. You could easily live another 50 or 70 years, right?
Allow me to burst your bubble. Waiting can make a world of difference. Here’s a financial example to illustrate what you’ll miss out on if you wait:
Let’s say you invest N10,000 per month starting at age 20 and do not stop until you’re 60 years old. If you managed an 8% return during that time, you would have more than N5million naira in that account alone. Now let’s say you waited until you were 30 to get started. By the time you reached 60-years-old, you would have a little over N3.6 million in your account. Those first ten years you missed out on would cost you monies in returns (interest) – even though you only skipped N1,200,000 and ten years of deposits!
Albert Einstein once lauded as the eighth wonder of the world, a phenomenon he called the magic of compound interest. The type of interest you accrue when the interest you earn on your savings or investments begins to compound on itself is what you Call Compound interest
Financial planner, Jude Wilson of Wilson Group Financial, says “One of the most powerful forces in the universe is compound interest,”. It is important to note that its power comes with time – time you’ll squander if you don’t start investing when you’re young.
If you wish to be free financially in the future, then you have to understand this power and put it to work, else you will miss out on gains you can never get back.
- Deliberate on investing as part of a broader financial plan.
While investing early and frequently can be of great help to anyone in their 20s to begin building wealth. It does not necessarily mean investing is the answer to every problem. The best thing that any young person can do is consider all aspects of their financial health, says Financial Advisor Josh Brein.
Are you in debt? Do you have loans to pay off? If you have a habit of spending beyond your means or above your set budget, We would not recommend investing as your best option. The reason is that you simply cannot invest your way out of bad spending habits or debts.
Josh Brein says his best advice for young clients who plan on starting an investment is to worry more about debts, fundamental spending habits, savings, and budgeting. In other words, a fully funded retirement account will not keep you financially free if you are in debt and do not have a disciplined control habit.
- Understand that money is a tool.
This tip cuts across all ages; if you are ready to start building wealth, it begins with understanding that the money you earn is a tool and nothing more. The most general thought is, “money earned is a solution to your problems”; instead of having this thought, think of money as a tool that you can use to create the life you want by making smart choices with respect to Savings, investing and spending.
The key to living the kind of life you desire in the future is learning to become a meticulous/diligent saver and investor early! In the process of trading your time for money today, this money will be able to buy you time in the future to do things that matter to you.
It is advisable to have financial goals and divide them into short and long term buckets while choosing investments that will help you actualize them. For short term investment goals, like saving for a car, education, etc. consider conservative investment, such as Target account or Fixed Savings Account or Money Market Funds.
Long term goals like financial independence and/or retirement plans. You might want to invest aggressively as time would be on your side to withstand the fluctuations of interest rate on money market instruments. A fixed deposit account is an ideal way to start.
- Increase your savings as you age.
Your 20’s are a time where you feel you have a lot of time on your hands and too many goals to save for. While planning your future (Family, house, car), you also want to live your life having fun (vacation, party) and somehow have a savings plan for all these.
The best way to go about it is to start investing early and gradually increase your savings as you age. This will help in saving towards your retirement and also save for other goals.
- Ignore all the Kardashians in your life.
Social media is full of pictures and stories of your friends, colleagues, and acquaintances “perfect” lives. Apparently, peer pressure has a way of making young people try to keep up with trends, especially that of fashion and technology; this can lead to spending money you do not have, increasing debts and of course putting away with boring responsibilities such as like savings and investing.
The contact you have across your social media timeline might seem like they have it all together. Still, there’s a chance that their expensive lifestyle does not include sufficient savings for the future or retirement. Not all that glitters are gold. Tune out any kind of distraction and tune in to concrete advice that will help you find money, save and start investing in your future.
By starting a saving culture early, you might find yourself going on that vacation to the Caribbean someday and paying for it in cash. Avoid keeping up with the Kardashians.
- Invest in yourself.
No matter what is happening in the money market or economy, there is an area of your life where you have total control in your investments, and that is in YOURSELF.
Investing in your skillset, work ethic, or wealth of knowledge might as well be the best investment you will ever make. There is no way you can lose when you invest in yourself. Go back to school, get a certificate, learn that language, start a new hobby, advance your career, start in an industry you have always admired.
For more information on investing in yourself, read our article on How to make the best use of your time in your 20s
- Automate your investments, then learn to live on less.
One of the best steps you can take in your personal finance journey is automating your investments so they can take care of themselves.
Financial advisor Anthony T. Reynolds says – “Applying to an automated savings plan will assist in conditioning yourself to save steadily while paying yourself first without having to decide between delayed satisfaction and instant satisfaction”.
The best and easiest way for young investors to automate investments is to sign up for Direct Debit Mandate, which will have the funds deducted from your salary account every month into your savings/investment account.
Once all your investments are automatic, it will be easier to learn to live on less. It is also easier to build wealth when one has made savings and investments top priority, rather than an afterthought.