Easy guide to help us start investing in our future.
I am thinking of the typical fresh out of school nurse or tech starting their career in their 20’s. This is who I have met with the most. They worked their tails off to get to this promised land only to find that they have painful student loans and unaffordable housing. Often they arrive to this place in life with the deferred maintenance that goes with being a poor college student. It is easy to purpose your new more substantial paychecks and credit to replace an old car or upgrade the college furniture and wardrobe. They can’t possibly appreciate that their financial future will largely hinge on the decisions they make at this critical juncture. Purchasing a new vehicle and upgrading to new furniture and a vacation here or there and don’t forget the latest iPhone you totally deserve! Credit and credit cards. They will drastically push back their ability to buy their first home or start an investment account. Their ultimate loss is the most key investment ingredient. Time.
The time to start is always yesterday. Time is the most critical variable in an exponential growth curve. The investments of our 20’s are the most impactful because of the quantity of time for them to grow. Time is frequently also the least appreciated investment variable, especially by the young who can always worry about the future later. The later we start our investment and retirement accounts, the more futile our financial futures look.
First steps:
1.) Get out of high interest credit card debt at all costs. Interest rates at just under 30% are common. Work overtime, take call, work holidays and live on beans and rice until those high interest cards are gone!
2.) Immediately participate in the retirement account at work (401k or 403b) by contributing at least enough to maximize the employers match. This critical step gives us the most time to allow our exponential growth curve to reach it’s potential.
3.) Start a brokerage account to start investing or saving for a down payment on a first house. Once clear of runaway credit card interest and taking the free matching contributions from an employer’s retirement plan, build up funds that can be used as a down payment for a home.
4.) Qualify for a mortgage and buy that first house. No more money wasted on rent. House values typically go up exponentially which is another reason time is so critical.
5.) Convert our income stream (cash) into assets. Cash loses value due to inflation every year. Wealth is obtained through ownership of assets. I like to keep enough cash for emergency savings and short-term expenses. I use balances beyond savings to purchase assets such as index funds which I can then use to buy rental properties when the index fund balance is high enough to use as a down payment.