When it comes to investing, the earlier you start, the better compounding works. Creating the habit of investing in your 20’s would have solved much of the financial stress many people experience most of their adult life. When you learn how to invest in your twenties, and in such a way that your money grows exponentially on its own. And what that means is that a person who starts investing just a few years earlier could end up with many times more money when it comes time to retire than they would if they just started later in life.
Now, if you’re in your 20s, and you are wanting to get a head start on investing, here are a few tips to help you out.
1. L E A R N to Invest Requires KNOWLEDGE
Oh big surprise, right? So you’re going to need to understand how to figure out how investing is done. You got some choices here, right? And I’ve kind of gone through an awful lot of the things you’re going to have to look at. So let me just give you some advice about what 35 years of doing this. There’s a family of investors that started with Ben Graham. And then to Warren Buffett and Charlie Munger down through these teachers down to me, and for me to thousands of students about a kind of investing strategy, that is the best in the world.
This is where the millionaires and billionaires come from, it’s a strategy you can use whether you’re starting your own business, buying a franchise or building one, whether you’re buying a house or the one next door to rent it.
This strategy of investing, we call rule number one. It is the compounding effect of money. This is the number one investing strategy in the world that you should learn as early as possible so that you have your whole life ahead of you to compound money.
Now, after you start learning about how to invest, then you must learn how to control your cash. So the first things investors in their 20’s must do is:
2. Pay Off Your Student Debt
Right now, student debt is such a common burden for people in their 20s. And I want to apologize to you, from my entire generation, for screwing all you guys on your college tuition. If you still have outstanding student debt, paying it off should be your primary investing goal.
That’s a real shame. Because I’ll tell you, man, when I went to college, it was a lot cheaper. And since then the cost of living has been about 3% per year, colleges have gone up at 8% per year. And I know that doesn’t sound like that big a difference.
But it’s the difference between going to school for $1,000 a semester versus going to it for 20,000 a semester. And the same way that sound investments grow your wealth exponentially, this debt that you’ve had to incur, is also increasing exponentially. And it grows larger and larger as the years go by. It’s brutal, and I feel for you.
So before you wade into the stock market, just gotta get out from under that burden, every way you can think of it just start by eliminating that debt, because it’s going to hold you back in the long term. If you haven’t started a side gig and designated your profits towards paying off student debt, I highly suggest you do that. A lot of our students have been able to flip their way out of their student debt within a year. With platforms like Stock X, eBay, Etsy, Amazon, etc. this is a really doable goal.
3. Set Up a Retirement Account Now!
Get into some form of retirement account, they call it a qualified it accounts, you got a company 401k plan where they match your funds, that’s an okay one, not a super fan of that unless, of course, they allow you to invest your money any way you want to. And more and more of them are doing that. But if you’re in a 401k program, where they match, and then you’re forced to invest in mutual funds, I’m afraid that within the next couple of years, you’re going to be given it all back.
So I would strongly urge you to invest where you can get control of where that money is going in someplace other than mutual funds, I would put it into a Roth IRA or regular IRA, where you’re managing the money. Roth is fantastic. So for one K’s are great if they’re going to match and match and match and all that.
But once they’ve matched, then you’re in this ridiculous investment if they force you to put money in a mutual fund.
With a Roth, man alive, they’re fantastic, because you pay taxes on the money before it goes into the Roth. But then you never pay taxes on the growth of that cash. You got a Roth IRA and you got a regular IRA. The key thing is you get your money into a place where you can control it.
You must have the ability to pick and choose your investments using the principles that Ben Graham and Buffett and Munger have taught us. That way, you’re going to get the maximum returns. As for why and a Roth IRA is preferable for individuals in their 20s, as opposed to, let’s say, a traditional IRA. Ross requires you to pay the taxes on your contribution first.
And you’re in a lower tax bracket in your 20s, typically, so people in a higher tax bracket in their 50s, maybe should use a regular IRA, because they might be paying 35 or 40%. Tax. If you’re paying 20% tax, you want that money in an IRA to grow without taxation on its own.
4. Create a Budget
This is important. And I am the wrong person to teach you about it. I am the worst budgeter on the planet and horrible at savings goals. So if it’s any consolation, you can still get wealthy even without doing this. However, when I first started, I didn’t have a budget, but I had a discipline of living on very little money.
That is kind of what I’m talking about here. I strongly suggest that you create a budget so that you are forced into a limited amount of spending and sticking to it is one of the things that’s going to help you get disciplined about your investing. So here’s what I would suggest, from every single paycheck, designate a certain percentage that comes out right off the top. In other words, pay yourself first. And I know you’ve heard that everybody’s heard that. But you must do it in your 20s.
Because those dollars you’re saving and putting away in your 20s money compound at a level that is hard to comprehend later on in life.
Yes, I know you could live on it better, you could have a better car, you could have better clothes, you could take some trips that you want to take, but that money that you’re putting away now, that turns into millions of dollars later on.
5. Establish Savings Goals
If you don’t think that’s important, let me just Q you up here, Warren Buffett was in an elevator going up with a bunch of insurance guys. And one of these guys said they were watching Buffett looking at a penny on the floor of the elevator. And he said I was wondering if Buffett was going to bend over and pick up this Penny, right this billionaire.
He didn’t do it, he didn’t pick up the penny and then the doors opened up, Buffett stepped out that he looked back at these guys before the doors closed, he reached down and picked up the penny. And he just held it up to make sure all of them saw what he was doing. He said “beginning of the next billion” as the elevator doors closed. The point is that Buffett understands the power of compounding, he understands the power of a little money.
And today, what that means to you is that 30 or 40 years from now is millions of dollars. So setting a budget is very important to get the money into an investment account before you spend it. In addition to setting a budget that includes the money, you’re going to pay yourself first, you also want to set specific investment goals.
How much money do you want to have invested by the time you’re 30? How much can you see pulling out, keeping the belt tight, keeping focused because that money is going to make you very rich someday? And how much money do you need to invest each month or each year, to achieve that goal, if you set a savings goal and you push yourself to achieve it, you’re going to find it much easier to stay motivated and push yourself further.
And I would say this if you are having trouble figuring out what’s the best way to go lean toward just saying I’m going to put 10% of the money that I make goes right into the kitty goes right into my investment account right off the top and just stick with that 10% every time. So let me give you an example of how important it is to put money aside now and invest it.
Let’s say that you are going to go through, you know you’re going to double your money 20 times throughout a lifetime. All right, so you got $1,000 Now you’re going to double it 20 times. All right, let’s just walk through this thousand dollars is 2-4-8-16-32-64,000. Right? Hundred 128,000 to 256,000 to 512,000 over a million. That’s 10 doubles. Then 2,000,004 million, 8,000,016 million 64 million hundred 28,000,300. And whatever that is 250,000,500 million $1 billion $1,000 doubled 20 times is a billion dollars. Now think about that for a second, if you take this thousand dollars, and instead of buying a new whatever. Putting it away where you could double it 20 times in your lifetime as Buffett has. He has done much better than that.
If you just took $1,000 and bought a refrigerator with it. And that refrigerator 30 or 40 years later, cost you almost a billion dollars. Please wake up and understand what I am saying, this is not pie in the sky, this is real!
The power of compounding is crazy, in terms of making you wealthy. Yeah, you might not double 20 times they only double 10 times it becomes a million dollars. Do you want to give up a million dollars to have a refrigerator? I don’t think so! So now I’d love to hear from you guys. Do you have investing goals set for yourself? How much of your income do you take off the top for savings? Are you on a budget?
So, leave a comment below with your answer and I’ll be sure to follow up with you. And thanks for reading this article. Now go play. If you enjoyed this article and you feel it was valuable in teaching you more about investing when you’re young please share it with someone.