9 Investing And Money Management Tips For Young Adults
For younger readers, I want to urge you to start investing in your 20s.
So today, I’m going to give you my thoughts on exactly how to go about it. That is, investing money in your 20s.
But don’t let the word investing scare you off. This is just good old money management advice whether you are in your 20s or 30s.
This article is for the beginning investor about the basics of getting started investing. Or for anyone who wants to manage their money better.
I will keep it simple and make investing easy for you. To do so, we will discuss:
- What assets to buy in your 20s
- The best options for money in your 20s and 30s
- How to prioritize your investment dollars in your 20s
How I Got Started Investing In My 20s
With a push from my Dad, I started investing in my 20s. Thank goodness he took the time to talk to me about it. And thank goodness I listened.
His investment advice was simple at the time. “Pay yourself first and use that money to start an emergency fund,” he said.
Looking back, his advice for a beginning investor like me was priceless and timeless. My Dad could take a complex subject like investing and made it easy for me to understand.
Now, with decades of investing experience under my belt, I have never looked back. On second thought, maybe I would have done a few things differently?
But let’s be positive. The most important thing I did right was…
I STARTED INVESTING IN MY 20S!
And, you can get started investing in your 20s too if you keep it simple and make investing easy. So let’s not delay your journey. There is so much more. Please read on…
Why Start Investing In Your 20s? – Time
The fact is that most investment returns come from time. And they come from the power of compounding investment returns. This is also known as compound interest.
Yes. You can get lucky with a high flying stock. Or, jump into the latest cryptocurrency and make a bundle. But this is not where the long-term real money is made.
So, use your greatest asset, time. Use the time you have in your youth to its fullest. Leveraging time and getting started investing in your 20s makes investing easy.
Resource: How compounding returns can make your rich by Peer Finance 101
Affiliate Link Disclosure: I may get paid commissions (at no cost to you) for purchases made through links in this post.
How To Prioritize Investment Money In Your 20s
The beginner investing tips discussed below are listed in my recommended priority order. But, I know you need to start investing with little money. I understand. Yes, I was in my 20s once upon a time too. And, had little extra money.
So, with whatever money you have, start with the first investment option. Then, move to the next.
When you are out of money, pause. Don’t try to move on to the next investment option until you have maximized the options before it. Investing will be much easier if you focus on one priority at a time.
It may not work exactly like this for you. After all, it is not a perfect world. But let’s try to bring a little order to the world as best we can.
Let’s get going now. We will start with the most important investment:
Investing Made Easy: #1 Invest In Yourself!
The best investment you can make is in yourself. I can’t make investing any easier than this.
Your active income, from whatever you choose to do for a living, will be your cash generator. This cash provides the basis for making smart investments in your 20s.
Understand what you can dominate to make a good living. Find out what you are good at. Then, put in the time and effort to be great at that skill.
Take advantage of every training opportunity you have access to. What options does your employer offer? Either on the job training or more formal continuing education are both beneficial.
I will never forget the words of an executive recruiter I knew back in my younger days. After I took a new job, I called to let him know I had come off the job market for the time being.
What did he say after he offered his congratulations? Well, I will never forget. He said…
“learn as much as you can”
The best thing about learning on the job is it has no out of pocket cost to you. So, it is an ideal way to start investing in your 20s when you have little money.
Resource: 20+ Creative ways to invest in yourself from Vital Dollar
Start Investing In Your 20s By Building An Emergency Fund
To make investing easy, your next investment priority is building an emergency fund. Why? You know, stuff happens.
People lose their jobs without notice. Health issues can come up and accidents occur. Also, cars breakdown and can need costly repairs. These are just a few examples.
One rule of thumb is to save 3-6 months of living expenses. Set this money aside in a risk-free high-interest savings account.
A high-interest savings account should be one of the first assets to buy in your 20s. Then, don’t touch that money unless you have an emergency.
So, my second investing tip for beginners is to build an emergency fund.
Resource: How much cash should you keep from My Own Advisor
Payoff High-Interest Debt
My third investing tip for beginners is to pay off high-interest debt. It is a great investment option for a 25-year-old. It’s the next step in our easy investment plan for young adults.
What am I talking about? I am talking about credit card debt.
According to this personal finance website, “The Balance”, the average credit card interest rate recently exceeded 21%. So, paying off your credit card debt is one of the best investments you can make in your 20’s.
Why is that? Even professional investment managers rarely achieve investment returns over 21%. And by paying off your credit card debt, your return on investment is guaranteed.
Tough Choices With Your First Investment Dollars
What should you do first? Build an emergency fund, or pay off credit card debt?
When it comes to getting your investment up and running, this may not be an easy investing decision. Both debt payoff and establishing emergency funds are very important investments to make in your 20s.
But if it were me, I would build the emergency fund first. At least, build it to a minimum level. 2-3 months of living expenses.
Why? If you have an emergency and do not have a fund in place, you are likely to incur more credit card debt to survive.
So, get the minimum necessary emergency fund in place. Then, start paying off credit card debt.
You can always go back later and add to your emergency fund. On the other hand, you will never get the interest paid on your credit card debt back.
Resource: On debt & spending in her 20s from Smile & Conquer
Next, Your Employer-Sponsored Retirement Plan Makes Investing Easy
Most employers sponsor qualified retirement accounts. They are also known as 401(k) or 403(b) plans for US investors.
These plans offer several advantages. First, your money can be invested before any taxes are taken out.
For example, let’s say you invest $10 and you are in the 22% tax bracket. That means you save $2.20 in taxes. So the $10 investment costs you only $7.80 out of your pocket. This is a great way to stretch your investment dollars in your 20s when you are trying to start investing with little money.
Furthermore, your money grows without being taxed until you take withdrawals in retirement. This puts more of your money to work each year. Since you do not have to pay taxes on any of your investment gains or dividend income.
Finally, most companies will contribute to your retirement account. It is called a company match.
So, my 4th investing tip for beginners is to make sure you participate at the minimum level to maximize the company match. This is part of your compensation package. Don’t waste it.
Frequently Asked Questions About Employer Retirement Plans
Want to know how to invest in your 401(k) in your 20s? To make the investment process as easy as possible, I recommend you talk to a human resources professional at your company. They can help you get started.
Here is another common question. What investments should I purchase in my 401(k) during my 20s?
I say stick with stocks at such a young age. You have the time to withstand the ups and downs of the stock market. Over the long run, stocks have higher investment returns.
What stocks should you buy in your 20s? Look for a low-cost index fund that invests in the S&P 500 stock index or the total US stock market index. These types of funds are normally available in the typical employer-sponsored retirement plan.
Beginner Investing Tip #5: Open and Fund An IRA Account
There are legal limits to how much you can invest in your company’s retirement plan. If you are lucky enough to be able to max out your retirement plan at work, then you have options available for making more investments to retirement accounts in your 20s.
What is that? You can open and fund an IRA in your 20s. There are two types of IRAs.
First of all, there is a tax-deductible IRA. This type of IRA works similarly to your company’s retirement plan. Specifically, contributions are made pre-tax.
Then, there is a Roth IRA. In the case of a Roth, your contributions are made after-tax. But you never have to pay another penny of tax even when you take withdrawals in retirement. So, investing in a Roth IRA in your 20s is a great option.
In both cases, your money grows without being taxed during your pre-retirement years. And with a Roth IRA, there is no tax liability when you start making withdrawals during retirement.
Just like your employer-sponsored retirement plan, look for a low-cost index fund that invests in the S&P 500 stock index or the total US stock market index.
Open And Fund A Health Savings Account
Although not investment, you should have health insurance in your 20s. However, there is an investment angle when it comes to health insurance.
Choose a high deductible health insurance plan. Why not? You will probably never be healthier than at this point in your life.
So, you can choose to self-insure some of the costs with a higher deductible. Your insurance premiums will be lower. And after all, you have an emergency fund just in case something happens.
Many employers offer high deductible plans. Ask your human resources representative about it. A high deductible health insurance plan has a couple of advantages.
First, you can open and fund a Health Savings Account (HSA). Like a 401(k) or deductible IRA, you invest money in this account pre-tax. And, your money grows without being taxed thereafter. Finally, if you withdraw the money for qualified health care expenses, it is never taxed!
So, my 6th investing tip for a beginning investor in their 20’s is to open and fund an HSA.
Resource: What Is An HSA?
Consider Buying Your Primary Residence As A Beginning Investor In Your 20s
I’m not a big real estate investor. And, I have never considered my primary residence an investment.
But, we all need a place to live. And, a good real estate agent can make investing in your primary residence easy.
That said, buying a modest home or condo in an affordable area can be a good long term investment. It can be one of the best physical assets to buy with your money. Make a down payment and it becomes equity in your real estate.
Rather than paying rent, your mortgage payments increase your equity ownership in your home over time. And hopefully, the value of your home appreciates over the long run too.
Be careful here. Owning your residence can be expensive. Repairs, renovations, association fees all add up. And if you have to sell, real estate commissions will take a chunk out of your equity.
Resource – Single female buyer tips for your first condo from GenYMoney
Invest In The Stock Market – Stocks To Buy In Your 20s
You might be surprised that my last investing tip for a beginner is the stock market. After all, I do focus a lot on dividend stocks and the stock market in my articles here at Dividends Diversify.
And since you are young with time on your side my emphasis is on stocks rather than bonds. Bonds, as part of your investment strategy, will become more important when you are a little older.
So, if you have made it this far and still have money to invest, you are a 20 something-year-old investing star.
Investing has come easy for you. And, you are on the doorstep of aggressive investing in your 20s.
So, it’s time to open a brokerage account and invest more money in stocks. Online brokerage accounts are free and easy to open.
I like dividend growth stocks. Why? For the income, these investments provide and their long-term growth potential.
But, if you are not up to picking stocks, go for low-cost exchange-traded-funds (ETFs).
Resource – How to invest in dividend stocks from Reverse the Crush
You Can Start Investing In Your 20s With Little Money
As I said at the beginning, getting started is the most important thing. After all, every journey starts with a first step. By making investing easy for you, I hope you can and will get started.
You do not need a lot of money. Leverage your employer for all the free training and knowledge you can get.
Save $5 a day. Then, get your emergency fund started by putting $150 in your high-interest savings account each month.
You can also save some money by signing up with Rakuten. Get discounts on almost everything you buy online. That includes Amazon purchases.
Best yet, Rakuten will also give you $10 cash for signing up and making your first purchase. It’s free money in your pocket! $10 to start investing in your emergency fund!
Resource – Read my Rakuten review here
Summary – Start Investing In Your 20s
I know I have thrown a lot at you. And, it may seem overwhelming.
But, just take a deep breath and tackle each of these investments one at a time. For example, get started investing in yourself and building your emergency fund when you turn 21.
Then, each year, work on the next investment option. By the time you turn 30, you might be surprised and happy with what you have accomplished.
Making money in your 20s matters, especially when it comes to investing. Remember, you have time on your side. Don’t waste it!
9 Investing Tips For Beginners
Do you want to start investing in your 20s? If yes, the list below represents the best assets to invest in for a 25-year-old. It’s your step by step easy investment plan.
- Invest in yourself
- Build an emergency fund
- Payoff high-interest debt
- Contribute to your employer-sponsored retirement plan
- Open and fund an IRA account
- Open and fund a health savings account
- Consider buying your primary residence
- Invest in the stock market through a brokerage account
- Stick to your plan
Resources To Start Investing In Your 20s, 30s, Or Any Age!
- M1 Finance for free online brokerage accounts
- Webull as another free brokerage account option
- Save money for your investments with Rakuten
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- US Savings Bonds for safe passive income
- What are REITs and why you should invest in them
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