Since as long as you can remember, people have been asking you about your future. What will you be when you grow up, where will you go to college, and when will you retire. One thing required for all of those things is money. If you read about personal finance online, it can seem like every, single website is telling you to “Save for retirement” and “start investing.” We know that advice is great, but how are you supposed to do that when you barely have enough money to live?
Investing in your 20's can seem scary and overwhelming, and worse yet like something we have nothing but time to do. Investing isn’t as difficult as you think, and though you have more time that doesn’t mean you should wait.
Step 1: Sign Up For 401k And Get Company Match
Your company's 401k is the easiest way to start investing in your 20’s.
Call or go to your HR department and they will gladly help you through the process. Most companies have an online option (something all we 20 somethings appreciate).
It may be that your company plan has high fees so you don’t want to put all your investments in. If that’s the case at least invest enough to get the company match. A company match is essentially free money, or rather money you’re owed. Don’t cheat yourself out of money you’ve earned.
Step 2: Max Out Tax Deferred Plans
For 2017 the maximum contribution to a 401k is $18,000 allowing you to lower your taxable income.
If the fees are too high you can do two things. First, you could go to your HR department and ask them to switch the investment company to one that has lower fees. That does work but not always.
The second and easier option is to simply open your own plan at an investment firm. Fidelity, Charles Schwab, etc. You won’t have the ease of having the money come out of your paycheck automatically but you will have the tax savings.
Step 3: Educate Yourself
The person who cares most about your money is you so make sure that you are as educated as possible. An advisor can help but can be expensive and won’t care about your money as much as you.
Books are a great way to educate yourself. Go to the finance section of any bookstore and you’ll see “investing for dummies” and the like. Some books I recommend are The Little Book Of Common Sense Investing, and MONEY Master the Game. There are a ton of others but those two are the best in my opinion.
Podcasts can be invaluable as well. Many finance bloggers have started finance podcasts and talk about investing, getting out of debt, and the like. Cherry pick the episodes on investing and you can learn a lot in a little amount of time.
Step 4: Open Taxed Investing Accounts
Once you have saved the maximum in your 401k you’re not done there you will need to open another account. You may even be able to open them at the same place your tax deferred account is making it simple to keep track of everything.
You may go to a different broker so you don’t confuse yourself or “mix” the accounts. It’s your preference but for me, I like having everything in one place.
Step 5: Buy Index Funds
I am not an investing genius but I know that Warren Buffett is. So I take very seriously what he suggests for people to do, and what he wants to be done with his money when he dies, investing in index funds.
An index fund put simply is a fund you buy that owns a large portion of the stock market in smaller amounts. So instead of buying a stock of Google, Apple, and Snapchat, you buy an index fund that includes those in the fund.
These work because of how simple they are, they don’t work fast, it isn’t exciting but it’s the best way to grow your investment in the long term.
Step 6: Have Patience
We get instant satisfaction from our phones, our games, our everything. It has become more and more difficult for people to wait for anything. So it’s important to note, especially in your 20’s, that investing will take time.
You will start investing now, and you won’t touch that money for decades. You will live a long life, have many jobs, a marriage, kids, all before you start to withdraw your investments. Yes, you can do it earlier and some do but the longer you hold on to it the richer you become.