Why You Should Start Investing in Your 20s?
Student loan payments, rent, building a career — many facets of the early adult years take up our time and attention. With such immediate concerns to deal with, it's no wonder many twenty somethings would put investing at the bottom of their to-do list. So, considering all the other priorities of establishing your adult life, why should you start investing in your early 20s?
Well, taking advantage of the long investment horizon your 20s provides gives you time to build wealth over decades and a chance to learn about the markets, maximize compounding returns, and take some risks along the way. Isn't that last one what your 20s are all about.
If you need help figuring out where to start, you're in luck. Financial advisors at U1 are ready to discuss your financial goals and help you determine the best investment paths. In the meantime, let's look at all the reasons behind the importance of investing early for young adults.
Long-Term Investment Gains
Most investments earn interest on every dollar you put into them. But did you know that you can also earn additional interest on your accumulated interest? This is known as compounding interest. Learn more about compounding interest.
Say you invest $500 into an investment account with an interest rate of 6% each year. After one year, you’ll have $530. After two years? $561.80. That’s because year two earned you 6% interest on your initial investment — plus the $30 in interest you earned the previous year.
As you can see, you don’t have to put more money in the account to keep earning interest on the previous year’s interest. But, if you did invest $500 a year, imagine all that compounding interest after 20 years. Or 40 years!
The best part about investing early is that you don’t need a giant lump sum to get started. Even a modest $50 per month is enough to get the ball rolling for your financial future.
As a general best practice, many financial experts recommend investing about 15% of your after-tax income. So, what does 15% look like for a 20-something? Let’s say you just entered the workforce and make an average of $2,000 monthly after taxes. That looks like $300 per month.
Of course, after rent, groceries, and entertainment, $300 might feel like a lot. But that’s another argument for the importance of investing early for young adults. Any amount is better than none. You can start with $150 (or less) and still have time to work your way up.
Creating a Sound Financial Foundation
Overnight millionaires are few and far between. A robust financial foundation takes time to build. And in that time, you can develop many financial habits to strengthen your savings ability further.
Practicing different forms of saving and investing, researching the types of investments you most align with, and learning how to recover from investment mistakes or stock market dips are all the more valuable when you give yourself time to experiment.
The decades of life ahead of you will present endless financial choices, and you might not always make the right ones. But if you take the initiative while you still don’t need to apply wrinkle cream, you’ll build stronger habits and develop the knowledge you need to avoid financial mistakes when you’re older. Get started today with our Money Market savings accounts and Certificates!
Source: Your Money Further: https://www.yourmoneyfurther.com/personal-money-solutions/investing/why-you-should-start-investing-in-your-20s
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