The Only Guide On Investing You Need
How to never worry about money in your life by starting on your 20’s
Photo by Fabian Blank on Unsplash
First, you need money. It doesn’t matter how great you are at saving money if you don’t make any.
“It takes money to make money” — Sol Luckman
Here are some actions you can — and should — take to achieve your ultimate goal of financial independence.
Stay Out of Student Debt
Nowadays, college is becoming more and more disposable. A few years ago, if you had a college degree you could easily find a job. Now, not every employer is looking for a college degree. Nowadays, employers tend to look for more experienced workers, but if you do not have any experience, that’s ok too, they also like people that can work as a team with the rest of their employees, not just as individuals.
If what you want to do or are passionate about requires specific learning or if you actually need a college degree to do what you want to do with your life, by any mean, go to college. If college isn’t necessary for you, save yourself those $50.000 and think about what you can do instead.
Get Some Experience
If you are fresh out of high school and still haven’t quite figured out what you wanna do with your life, don’t go to college, get experience somewhere first. This experience has 0 cons and a whole lot of pros. You get experience in something — even if it isn’t what you end up doing — , you figure out what you want to do with your life, it’s great for your resumé and you might get paid for it.
Imagine someone comes up to you and tells you “Hey, I’ll give X amount of money if you come get a buttload of experience and if you don’t like it you can just walk away”. There’s no downside. Even if you end up not liking it, you get paid for it and if you think about it, you have 3 options: Go to college and suffer for 4 years to be left with $50.000 in student debt, stay at home doing absolutely nothing or get some experience while getting paid.
Stay Out of Consumer Debt
This is the biggest problem in today’s capitalist society. You end up working 8 hours a day, 5 days a week to buy stuff you don’t need and when we start doing that is when we get ourselves in debt.
Do you need a brand new car or can you get away with a beatdown 2001 Volkswagen Polo? Do you need that $5 Starbucks’ coffee or can you make some coffee at home for 30 cents? Do you need that new leather jacket or can you go through this winter with those 4 jackets you have?
These little things make us waste money that otherwise could be invested and make us more money but some people chose to make their money cost them even more money by using money they don’t have. Consumer credit is not a good credit to use if you don’t have self-control and if you don’t know what the hell you are using it for.
Build Your Credit Score
Debt is bad and all, but building yourself a nice and juicy credit score is dependent on getting some short term debt. By short term, I mean a month.
What you want to do is put your monthly bills — water, electricity, gas, etc — on your credit card and when those payments are due with the bank you HAVE to pay it. If you don’t pay it off when it’s due, your credit score will go down and you will have to pay the interest rate.
That’s not what we want at all. We want to build a juicy credit score so that you can buy a house with the lowest mortgage interest rate possible.
Live Like a Broke College Student
Your 20’s are the best years of your life to save money. I don’t care if you make $15.000/year or $300.000/year, you need to live like you make as little as you can live with. No matter how much you make, you can save something if you live like a broke college student by not buying coffee at Starbucks, not going out to eat every weekend or by not getting in debt unnecessarily.
I understand that there is a lot of people who make just as much as they need to live and I understand that is rough and for those people, I recommend working on your career first and then worrying about saving a lot of money. Don’t make more money and start suffering from lifestyle inflation and you’ll be ok.
Save as much as you can. Most financial gurus say you should aim for 50%, but if you can’t, just save as much as you can.
Track Your Spending
You can’t know how much you need to live if you don’t track your expenses, right? Mint is a widely recommended app for tracking your expenses. You just connect your bank account to the app and it will show you how much you are spending and on what.
If you don’t want or can’t connect your bank account to the app you can just put it in the app yourself, just remember to track everything. Don’t think “Oh it’s just a cup of coffee” or “I’ll track it later”. Do not forget anything.
Take Risks
In your career, in your relationships, in everything. If there is a time for taking risks, it’s your 20’s, for sure. If it ends well, great. If not, you have the time to make up for the mistakes you made. You shouldn’t start a family without having your shit together and you can only have your shit together if you take risks, otherwise, you will end up depressed and remorseful when you are 45 for not taking any risks and now being stuck in a dead-end job with no motivation whatsoever to keep working.
“Life shrinks and expands on the proportion of your willingness to take risks and try new things” — Gary Vaynerchuck
Where should you invest?
Now that you are saving some money you need to know where to put it so that it can make you more money.
Remember this simple equation: Money + time = More money.
Index Funds
It’s just like investing in individual stocks, it’s the same process, but instead of putting your money in 1 company at a time, with index funds such as Vanguard S&P 500 ETF, you can invest in hundreds of company all mushed together. Imagine investing in Amazon, Apple, Facebook, Microsoft and all of the rest of the SP500 by buying 1 single index fund.
There is a problem with index funds though. They are the second safest investment you can make, but it’s also the second least profitable.
Bonds
Bonds are titles issued by the government to get money from the people. In return, you are granted an interest rate that may vary. The range in uncertain depending on the federal reserve’s interest rate or the ECB’s interest rate. I could explain to you the dynamic of it all but I would need to explain too much about economics 101 and no one would care. What you need to know is this: It’s the safest and least profitable type of investment. Most people who put their money in bonds put it there as an investment that’s made with money that may be needed in the short term — i.e. up to 10 years.
Real Estate
There are a lot of types of real estate investments such as flipping, renting, remodelling it in the meantime, etc. There are a lot of real estate investors that have different strategies, do some research and find out what is best suited for the money you have to invest and for the type of person you are when it comes to investments: do you want a high risk, high reward deal or low risk, low reward? That all depends on your understanding of yourself. You have to understand and imagine how you would deal with a down market or something going wrong with the remodelling, etc. How you imagine yourself dealing with the problems that may occur is what determines the type of real estate investor you are.
Investing is hard and dealing with the ups and downs of the stock market can be a very difficult thing to deal with emotionally. It’s your entire life savings invested in an unstable, news and consumer trust dependent market.
Determine how you would deal with the lows and then you can determine what kind of investor you are. I, personally, like more risk, because I too am young and have time to build my life up if shit hits the fan.
The older you are the less risk you want to take. If you are 50 years old and have just started investing, you probably don’t want to put all your life savings in individual stocks (no one should do that, but just for an argument’s sake), you probably want to go down a peg on the risktaking and go towards index funds and government bonds.
Real estate is also a very capital dependent investment. If you have $20k+ saved up, you are good to go and get yourself a nice mortgage interest rate for your investment, but if you have $5k, getting a good mortgage interest rate can be hard even with a great credit score, just because you are putting so little for a downpayment that the banks need to up the interest rate a safety measure.
Needless to say, you do what you feel like you can with the money you have. Do your research more thoroughly than a few Medium stories. This is your money we are talking about, it’s not a joke, it needs to be taken seriously.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
