Guestpost by Rahil from Sheppard
Most of us are maturing into adults while we are in our early twenties. While it is wonderful to be growing, it is also the period when many of us join the job market with the awareness that we must work hard and earn good money in order to pay our expenses and live the lives we wish.
Early in your 20s is also the time when you may assure that you will be affluent in your 30s and beyond by taking a few wise moves. You may do this by putting your money to work for you by following a disciplined investing strategy.
You must have heard when you were in your early twenties that time is on your side and your money can compound. Actually, because of the power of compounding, if you start investing at the age of 20 and invest until you are 55, your total corpus will be considerably bigger than if you start investing at the age of 25. You won’t see anything at first. However, owing to compounding at a later age, if you start investing early, you will experience incredible profits.
[Jonathan: Time is your friend when it comes to investing]
What is the appropriate investment amount?
The first step is to save as much money as possible to invest. You may do this by dividing your money into three categories: Necessities, desires, and savings.
Set aside a certain amount of your salary for savings. The rule of thumb guideline is 50:30:20, 50% for necessities, 30% for desires, and 20% for savings. However, given that many of you work from home, you may be able to set aside a bigger portion of your earnings for savings.
You will be disciplined if you set aside a set amount for savings. In addition, you must be disciplined in your twenties to reap higher benefits later in life. The amount of money you wish to save each month should be a reasonable amount. You should improve it, Spend money but don’t go overboard!
[Jonathan: Automating your finances will make that discipline easier 😉]
Prior to making an investment, consider the following factors
- To begin with, it is not advisable to begin investing straight away. Instead, you should pay off your obligations (credit card bills, loans, etc.) because these entail paying exorbitant interest rates.
- Second, double-check that you have life and health insurance. Unexpected emergencies need the use of insurance coverage.
- Third, keep an emergency fund on hand. This can be equivalent to 3-6 months’ worth of earnings. Along with investing, an emergency fund can be established.
- At Last, make an investment in yourself. Learn new skills or invest in new equipment to help you generate more money.
Make uncertainty your ally
Many investors make the mistake of avoiding risk, despite the fact that it benefits them over time. While investing in stocks can be riskier than, say, putting your money in a savings account, stocks have shown to be a much more profitable investment over the long term.
Of course, investing in stocks will virtually always result in short-term losses. That’s why, if you need money in the next five to ten years, investing in the stock market is frequently a lousy decision. When it comes to long-term financial goals like retirement, though, history suggests that you’ll come out ahead in the end. One of the most important reasons to invest in your twenties is that you’re thinking long-term, allowing you to take advantage of all that growth. Bonds are low-risk, low-return assets that can be used to offset the risk of equities.
Investing can also help safeguard your portfolio from inflation, which can cause your money to lose value year after year.
Estate Planning is crucial
Many individuals appear to spend more time arranging a trip, buying a car, or even picking a restaurant to eat supper at than they do decide who will inherit their possessions once they pass away. It may not be as interesting as planning a vacation or reading restaurant reviews, but you won’t be able to choose who inherits all you’ve worked so hard for if you don’t plan ahead.
Estate planning service is beneficial to everyone, not just the wealthy. Even if you don’t have a nice home, a large IRA, or valuable art to leave behind, if you don’t have a plan in place, settling your affairs after you die could have a long-term and costly impact on your loved ones.
[Jonathan: Depending on where you live, you can consult a local notary as well]
Increase your investments rate progressively
Starting where you are is acceptable, and even if it means setting aside $100 or less per month, you’re still saving money. The goal of our basic investing suggestions is that you will need to save more money over time.
Use a retirement calculator, especially one that provides you a monthly savings target, to figure out how much you should aim for. Then take small steps to get there. One of the simplest methods to do so is to increase your savings rate whenever you receive a raise.
While investing keep something for your retirement
Keep track of how well your plans are performing. At least once or twice a year, go over your portfolio. If a plan has been underperforming for more than a year or two, you should consider selling your shares and switching to a higher-performing scheme in the same category.
Take money out of your stock mutual funds at least two to three years before you retire, and put it into safer choices like bank deposits, government-sponsored schemes, or debt mutual funds for the following five years. This is to guarantee that a spike in stock market volatility does not jeopardize your retirement planning.
After retirement, you should evaluate your status and make investing decisions. Only if you have a sizable capital to cover your living needs and a high-risk appetite you can continue to invest in stocks. With a long investment horizon, of course.
In short, why should one invest?
Investing gives financial stability in the now and the future. It enables you to increase your wealth while also generating inflation-beating returns. Compounding is also advantageous to you*.
Furthermore, investments have the ability to help you achieve your financial objectives, such as acquiring a home, developing a retirement fund, and establishing an estate planning, to name a few.
Investing instills financial discipline by establishing a habit of putting away a specific amount each month or year for your investments.
[Jonathan: Compounding is the fact that you earn money on your money plus its already realized returns, making it grow exponentially over time]
About the Author
Rahil is content writer at sheppard.tt, with Sheppard you can enjoy sound financial advice along with the freedom and flexibility to invest the way you want.
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I would like to thank Rahil once again for encouraging us to take the right financial steps early on! In the long run we will all benefit from investing consistently in the market and let’s not forget to think ahead and plan inheritance (but one step at a time!)
If like Rahil you wish to collaborate for guest posting or sponsored posts please do not hesitate to reach out by e-mail jon@joneytalks.com and of course, for everyone, do follow us on social media as well for more great content, check our Facebook, Instagram, Twitter, and join our e-mail list. I would love to connect with you!