Investing in your 20's - good or bad?
So, you are footloose and fancy free, probably just graduated from university and ready to move onto the next stage of your life. Hopefully you’ve got a job but without a bond and family to look after, saving and investing may not be your top priority.
African Bank’s Group Executive: Sales, Branch Network Mellony Ramalho says it’s a wonderful time of life to still have fun and be carefree but at the same time be savvy enough to lay a foundation for financial success.
She shares goodfinancialcents.com blogger Jeff Rose's top five tips:
Tip #1: Unleash the power of compound interest by investing early
There is no doubt that compound interest is the most powerful force in the universe. If you invested just R5 000 per annum starting at age 20 and continued until you were 60 at an annual interest rate of 10.75% you would have R2 716 043 in your bank account. If you only started when you were 30 this amount would only be R948 604. Compound interest is the type of interest you accrue when the interest you earn on your savings or investments begins to compound on itself.
Tip #2: Consider investing as part of a broader financial plan
While investing early and often can help anyone in their 20's begin building wealth, that doesn’t mean investing is the answer to every problem. Carefully monitor your spending habits and make savings and budgeting part of your daily routine until you are more financially stable. Really look out for the best ways to save money.
Tip #3: Realise that money is a tool
If you’re in your 20’s and ready to build wealth, recognise that the money you earn is n othing more than a tool to make smart choices. You need to remember that while you’re trading your time for money today, in the future you will be able to use your money to give you the time to do more of the things that really matter in life. Set both short and longer term investment goals and then plan accordingly.
Tip #4: Ramp up your saving for retirement
Your 20's are a time when there are almost too many goals to save for. Your best bet is to start investing gradually then ramp it up as you age. Start with just 1 percent of your income, then increase the percentage gradually by 1 percent. By the time you reach your 30's you’ll be saving 10 percent of your income. By your 40’s, you’ll be saving 20 percent of your income. And if you get a raise every year, you may not even notice the difference.
Tip #5: Ignore all the Joneses in your life
Don’t try to keep up with Joneses – it only means you run the risk of spending money you don’t have. Choose your luxuries carefully and don’t fall into debt by financing everything with your credit card. Cash remains king. “You can start investing for as little as R50 per month and if you follow some of these simple tips you will be well on your way,” concludes Ramalho.