If only I would have known that when I was younger! How many times have we thought that when thinking about finances and investments? Of course, you’re never too old to start investing, but the power of compounding interest is something you just can’t get back. So, if you are on the younger side or would just like some ideas to grow your money, follow along to find out what I wish I knew about money when I was younger.
Think About Tomorrow, Today
If you start thinking like this in your early twenties, you can retire with millions of dollars in savings and retire early. That is not an exaggeration, it is fact. Granted, there will be bumps in the road but if you are able to stick to the plan it will work out in your favor.
Stay Out of Debt
Easier said than done, right? At some point you may have to take out a loan for a home, which is understandable. However, there are financially smart ways to do that. One example is going for a shorter loan and avoiding the 30-year albatross. But other debt can and should be avoided. But what about a car? Buy used and save bunches of money when you drive it off the lot. How about education? There are plenty of less expensive ways to get a degree than spending $20,000 a year on school and housing. Online schools and Community Colleges offer great value. Credit card debt needs to be avoided at all costs. Those interest rates on credit cards are so outrageous it will cost you your financial future.
Build Wealth
It is all about building wealth and saving for the future. The easiest way to build wealth is…yep, start when you are young. Compound interest is your friend and the earlier you begin to save and invest, the more it can work for you.
Reviewing the chart below, it makes sense that Chris would end up with the most money. But the amount he has invested is much larger than the amounts invested by Susan or Bill.
Interestingly, Susan, who saved for just 10 years, has more wealth than Bill, who saved for 30 years.
That discrepancy is explained by compound interest.
Invest For Retirement
When I was in my early twenties, I had an older work colleague tell me “start putting your money in the 401(k) now, you will be glad you did”. I thought to myself, “that crazy old man, I’ll have plenty of time to save for retirement”. Yep, I wish I would have listened. I have been blessed to have been able to save for retirement but it sure would have been easier, and more profitable, if I would have started then.
Sure, you are young and want to have fun. You can still have fun, just be frugal about how you do it. But most importantly, start saving for retirement the day you start working. The ROTH IRA is the single most important investment you can make when you are young. Since you will likely be in the lowest tax bracket in your younger years, take the money you have already paid taxes on and put it in a ROTH. You can then let it grow, tax free, for the rest of your life.
There are limits to how much you can put into a ROTH IRA each year so you can also invest in a Traditional IRA. The best part is, you can convert the Traditional IRA to a ROTH IRA, you’ll just have to pay taxes on the conversion. I can honestly say, missing out on the ROTH IRA is my biggest financial regret from my younger years. Check out this article explaining the benefits of the ROTH IRA.
Don’t forget to invest in stocks and don’t be afraid to take risks. When you are young, you can afford riskier investments with the possibility of larger returns. That is because if you lose some money you have plenty of time to recoup your losses.
If you are lucky enough to work for an employer that offers a 401(k), be sure to take advantage of it. If the employer offers any type of matching funds, max it out. That is like free money or a pay raise.
Health Savings Account (HSA)
If you have a high deductible insurance plan, which if you’re young and healthy you should have, invest in an HSA. The HSA is another outstanding investment opportunity because you fund it with pre-tax dollars, interest grows tax free, and take it out tax free. You do need to spend it on medical expenses for it to be spent tax free but there is a pretty good chance you will need it. It rolls over year after year and it is your money.
Lively HSAs are fee-free for individuals and families. Sign up today and start saving for your health.
Skip the Gucci
Stop worrying about what other people are doing or what they think. If your friends think less of you because of the brand your jeans are wearing, find some new friends. Spending money on clothes, when you are young, can really put you behind on your savings goals. Leave your insecurities at the door and buy clothes on a as needed basis, instead of the latest style.
Learn to Cook
The money we spend on eating out can get out of control, without even realizing it. Keep your dining out to a minimum and cook your meals at home. You can cook more than you need an take leftovers for lunch the next day. Spending $10 a day on lunches can take a huge bite out of your retirement savings. Just think about it, $10 a day for 5 days is $50 a week. $50 a week for say 50 weeks is $2500 per year. Of course, that doesn’t include your dinners, morning coffee, or late-night snacks.
Speaking of Coffee
Those $3-$4 coffees are another detriment to your savings goals. Make your coffee at home and bring it with you. You can buy a whole can of coffee grounds for the same price as a single cup at your favorite coffee shop. Invest in a coffee maker and cup and you could save hundreds of dollars in one year!
Make a Budget and Follow It
Most people will just roll their eyes when you mention budgeting their finances. It is not the most enjoyable experience in the world, but it does really help. If nothing else, it will show you how you are spending your money and that alone should be enough to make you rethink some purchases. The more you’re not spending the more you’re saving.
Just Say No
If you don’t need it, don’t buy it. It is a simple theory. Care less about what your friends and neighbors are buying and care more about what you’re saving. As a young adult, the temptation of spending money is real. There are always friends to go out with and parties to attend. That is a quick way to bust up those saving goals. We’re not suggesting you become a hermit, just be smart about it and pick less expensive options.
Build an Emergency Fund
Unexpected expenses happen, a lot. Be prepared by building an emergency fund that you can access quickly. Expenses may be health related, car or home related or maybe loss of employment. A good starting point is around $1,000. If you can slowly increase that amount, that’s great because you have no idea what the future holds so just be prepared for the unexpected. A general rule of thumb is to have 3-6 months of your salary as an emergency fund. Everyone’s situation is different so just be prepared.
Get a Side Gig
Earn a little extra cash. Whether you are in school or working a full-time job, chances are you’ll have a little spare time to make some side money. There are a lot opportunities online or other work from home jobs that will allow you to work on your schedule. This extra money will allow you to fund your early goals for saving for retirement. This article gives you some ideas for making extra income.
Make Yourself Marketable
Never stop learning. If you currently have a job, chances are there are some training opportunities with your organization. Take advantage of these free classes to help bolster your career, whether it is with the current company or another job down the line. Companies will spend thousands of dollars on each employee every year giving them extra training. Use those resources, even if you plan on going to another company in the future. It will look great on a resume. There are also a lot of learning opportunities online, some of them free, that will help you build knowledge to stand out in your career choice.
While you are young, building wealth is very important to the future you. You must choose between wants and needs and act accordingly. Common sense goes a long way when you are in your younger years and looking toward the future.
Thank you reading “what I wish I knew about money when I was younger”. Please leave a comment with any other ideas or a request for future article. Feel free leave your email at the bottom of the page to be notified of article updates.
Related Articles:
Retirement Saving Tips To Help You Retire Better
Why You Should Be Investing in an HSA
The Benefits of a Roth IRA and How to Start Saving