A Guide on How to Start Investing in Your 20s

A Guide on How to Start Investing in Your 20s

You are never too young to be an investor. As a young adult, investing is a way that you can do to develop a good spending habit and prepare for your future. In your 20’s you’re starting to build the life that you would want to live five to ten years after, and your decisions will have an impactful effect on your financial decisions and your overall being. You are in a position where you could lead your life and mature enough to educate yourself about how you should handle your finance responsibly. So, do not wait until you’re older to invest, the right time is now.

How Do I Start Investing?

If you’re eager to find ways how to maximize your savings, here are some tips on how you start investing in your 20’s:

Be Disciplined.

Discipline is much easier said than done because managing your finance can be extremely difficult. In this day and age, shopping and buying non-essential things are easily accessible for anyone who has an internet connection, by just one tap, you can simply make a purchase. Most of the time we are confused about what we should want and disregard what we truly need. So, if you want to stop the money drain, become more disciplined and have higher chances of reaching your financial goal.

  • Always pay off your credit card bill every month.
  • Always have room to save something.
  • Always stay focused
  • Determine your wants and needs
  • Live a sustainable life
  • Avoid the peer pressure to spend

Set Your Goals.

When setting your goals, you must identify what do you want to achieve and how will you achieve them. Once you identify your aim, you have to figure out whether it is a short-term, mid-term, or long-term goal to develop your financial strategy to achieve it. Bear in mind that your goals can be very difficult if you don’t teach yourself how to manage your time and money properly.

  • Short-term goals are goals that you can achieve in 12 months or less such as learning a new skill, painting a room, or any small projects. 
  • Mid-term goals are goals that take a bit longer to achieve such as to graduate from college, buy a house, or have a baby. 
  • Long-term goals are important goals you have for a successful career such as be your own boss, finding a life partner or save enough to retire. 

Save! Save! Save!

If you want to be fully equipped during financial emergencies, saving is the key thing to do. In our daily lives, it helps us to pay for large purchases, avoid financial debt, and reduce financial stress. For us to be able to invest, we need to have the money, and we can only get the money if we saved it. There is no concrete format on how you should do that but make sure you’re saving while also having fun. Do not deprive nor punish yourself, because having financial freedom while saving is essential for your financial and physical well-being. 

Invest in Your Emergency Fund

Today, everything is uncertain and when life happens, your financial state is going to be affected whether you like it or not. Sometimes, there are just moments in your life that are out of your control such as COVID-19 lockdown where some are lost their job or forced to work remotely. So, it is important to be financially ready or having backup money in case of financial problems in your life suddenly comes such as medical emergencies or paying for home repairs that you should have money for it.

So, how are going to plan your Emergency fund? You do not have to save tons of money for an emergency fund but ideally, you should save for at least three to six months’ worth of your living expenses. Set aside a fixed amount of your monthly income and once you have withdrawn money from your emergency fund, make sure to replenish it as soon as you can. It is great to have an emergency fund, it will be your financial safety net, so you don’t have to resort to credit cards or loans. After you have completed your emergency fund, you can open another account specifically designated for your retirement plan. 

Open an Individual Retirement Account (IRA)

There are countless investment opportunities out there but when it comes to your retirement, you should be wise. An Individual Retirement Account is a special requirement account where you pay the tax on money that you will be putting in that account, then all of your future withdrawals will be tax-free. If you think you will be paying higher taxes in the future, an IRA is a good investment and the right time to start is now. Typically, a single person has a limit of $140,000, while a married couple has a limit of $208,000 as of 2020. 

After the completion of your IRA, you can start putting some of your savings in investments where your money could grow and work for you. 

Consider Seeking Financial Advice

Seeking financial advice for people in their 20s, 30s, 40s is never a bad idea. It is always good to be informed of the topics you lack knowledge of. If you’re planning on buying a home, starting a family, getting rid of bad debts, enjoy retirement, or just basically provide for your family, seeking professional advice is good because they can offer help, organization, and planning your finances for a better future.  

Final Word

Start your journey in investing by having the right mindset and discipline, but take one step at a time. Your plans will likely change over time, but getting started by investing early in your 20’s is one of the most important decisions you will ever make. Investing early will not only keep your money up with the economic inflation, but you will also gain benefits of a decades’ worth of compound interest on your monthly contribution.  

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