These 8 tips will give you a solid foundation on how to invest your money in your 20s and achieve financial independence.
No matter how old you are, investing can seem intimidating and scary. It isn’t something inherently known or taught to the masses. Maybe you’ve heard of your parents or grandparents talk about investing and you think it’s only for the old and the wealthy.
However, truth is the most important time to invest is when you’re young. Why?
Because time is on our side. Rather than time working against us, we can and should have it work in our favor.
If you want to know how to invest in your future then check out these 8 ways to invest your money in your 20s:
1) Get an Education or Learn a Technical Skill
Have you ever heard that your best investment is yourself? It’s true!
An education is the absolute most important investment you can make in yourself while you’re in your 20s. Find a passion or interest that you want to pursue and take the steps to become learn the skills or get a degree in that field.
An education doesn’t necessarily mean a 4-year degree. There are thousands of jobs that only require technical training or a 2-year program (or less). You also don’t need to go to the most expensive university to get a good job.
Consider attending a community college or a state university for in-state tuition. State universities and community colleges are fantastic values for your money and you will thank yourself once you graduate because you won’t have a massive amount of student loans.
I had the choice of attending an engineering college or a state university. I ended up choosing the state university because of the thousands of dollars I would save in the long run because of cheaper tuition and cheaper room and board.
You don’t need to attend an Ivy League school to get a great job after college. Look for a college that will give you the best value for your money. I promise that paying hundreds of thousands of dollars in tuition isn’t the only way to get a good-paying job.
Side note! After investing in yourself and getting an education, there are a couple of things you need to do next. You need to have a strong financial foundation before you start investing money.
If you start investing with a weak foundation, then your financial foundation will have cracks and will take longer to build. Make sure you take care of these things first before you start investing for the long-term:
1a) Build up a 3-6 Month Emergency Fund
Everyone should have an emergency fund - and that means everybody. If you don’t already have a nice stash of funds set aside for emergencies, then work on saving up for that as soon as you can.
It’s best to have 3 to 6 months of expenses in your emergency fund. This includes your rent, car payment, utilities, food, insurance, etc. If your income stopped today, this fund would need to last at least the 3 months for it to do its job right.
1b) Pay Off Your Consumer Debts
Before you get into serious investing, be sure to have all your consumer debts paid off. Get rid of any credit card debt that you have and consider making a plan to pay off your student loans as soon as possible.
Student loans and credit card debt can easily rack up thousands of dollars of interest over time. If you start investing but still have consumer debt, you’re losing more money in the long-run.
You are able to build more wealth over time by paying off your consumer debts first and then investing wholeheartedly afterward.
Once you have your debt paid off, then it’s time to dive headfirst into investing for your future.
2) Invest up to Your Company’s Match for Retirement
If you have a killer job with benefits and they offer a free match for a 401K or some type of retirement plan, then take it!
They are offering you free money which is pretty hard to come by. Often times there’s a mandatory waiting period from when you are first employed until you can start participating in the company match.
Most companies typically offer a 3-5% match. Contribute up to their match in funds and then invest the rest in a good old Roth IRA.
3) Roth IRA
Chances are you’ve probably already heard of a Roth IRA, but do you know what a RothIRA actually is?
Simply put, a Roth IRA is a retirement account that allows you to contribute after-tax money and it grows tax-free. You can then withdraw your money once your 59 and a half years old.
This means that you will not be taxed a single cent on the money you withdraw after59 and a half. Typical 401(k)’s tax you out of this world when you withdraw from them. You will be able to save a substantial amount of money by investing in a Roth IRA over a traditional 401(k).
And the younger you start, the better. Compound interest is our greatest friend while we are in our 20s. Every year you wait to start investing can equal tens of thousands of dollars you lose in the long run.
Checkout just how much your retirement can grow to with this cool Roth IRA calculator. Aim to invest 15% of your annual income into your retirement accounts. This will allow you to retire very comfortably once you reach the young, ripe age of 59 and a half.
4) Real Estate
If you are in your 20s and are sick and tired of renting, then consider saving up and buying a place of your own. Have you ever thought about how much money you spend on rent? Add up how much you’ve spent in the last year alone on rent.Rent money adds up quickly!
You can either buy a place for yourself, buy an investment property, or house hack and do both!
If you know you’re going to be living in the same place for the next 5 years or more, then consider saving up to buy a place to call your own. Depending on the area you live, you will need at least a 5% downpayment and then 3-5% of house value for closing costs.
My wife and I bought a house to live in for a year and then rent out after we leave town. We are currently in the process of fixing it up with has been a real adventure.
We’ve been putting a lot of sweat equity into our home and have done a lot of DIY improvements. We’ve been able to save a lot of money doing it ourselves and have learned a ton along the way.
5) Index Funds
If you want to invest more on top of your Roth IRA or company match then index funds are a smart way to go.
An index fund is similar to a mutual fund but it is a broad representation of a market index. For example, a common index fund is an index fund for S&P 500. This fund then follows the performance of all the companies within the S&P 500.
Index funds are a great thing to invest in while in your 20s because they are typically low cost and they are highly diversified investments - meaning they have abroad exposure to many different companies.
If you’re looking for a good company to hold your portfolio then consider getting index funds through Vanguard. You won’t be disappointed with Vanguard. They made the first index fund for individual investors and they have over 50 different index funds you can choose from.
6) Invest Your Time in a Side Hustle
If you want to increase your income or you’re just bored, then consider picking up aside hustle! A major part of this website and why I blog is to flip things for profit. I will buy books or cell phones locally and then sell them for a profit. Then, I write about it.
If this is something you’re interested in learning how to do, then check out my post on how to flip cell phones for profit.
Other side hustles can include delivering pizza, getting a part-time night shift at a grocery store, or being a tutor. If you’re interested in side hustles, then check out 70+ Ways to Make Money on the Side.
7) Invest in Lifelong Learning
Once you’ve learned a skill or finished college, does that mean you’re done learning? No way! You would be a lot less interesting if you just decided to stop learning new things in your 20s.
Decide to have a life-long learning plan. Consider picking up and trying a new skill every year. Have a regular reading plan like a book a month or 20 minutes of productive reading every day (productive doesn’t mean Facebook or Twitter :)).
I know that college seems to take all our learning interests for a good amount of time, but be sure to channel some energy and invest that into more learning.You will pick up new skills and new hobbies and you will thank yourself later. If you’re looking for interesting hobbies to pick up, check out 7 Productive Hobbies that Can Make YouMoney.
8) Invest in Starting a Business
If you are business-minded and want the freedom of working for yourself, then starting a business is a great plan. You can even turn a side hustle into a full-time business if the side hustle is that good.
Your business doesn’t have to be revolutionary either. Find something you’re good at or know you can make a decent profit from. Research this field and figure out what you need to get started.
Make sure you don’t go into debt to start a business. Cash-flow from the beginning and that will save a lot of heartache and pain for you. There’s nothing worse than a failing business with a huge amount of debt on top of it.
If you want a website for your business or want to start a blog then consider using Webflow. Webflow is what I use for my personal website and I love its usability and style. If you’re a student, they’ll even give you a discount for the first year!
Knowing these 8 smart ways to invest your money is only the beginning. Nothing will actually happen unless you make a plan and act on it.
You don’t need to try all of these investing tips at once. Just pick one or two to start and stick with it.
The most important thing you can do to invest is to start - and start today. Time is on our side while we are young. It will make a huge difference in your life and the lives of your family if you start investing in your 20s.
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