When Should you Start Investing
When you’re young, you might not think too much about retirement. It seems like a long way off, but in fact, your youth is the best time to start thinking about setting yourself up for the future. When should you start investing? Probably much sooner than you think.
Why should you start saving for retirement when you’re still decades away from it? Investing in your late teens and early 20s is much more impactful than investing at a later age, even if you invest less money. Do you know why? It’s because of compound interest.
Let’s consider the example of two people investing $2500 each year into a tax-deferred account (assuming a roughly 10% return). One starts at age 18 and continues to invest until they’re 27, investing a total of $22,500. The other doesn’t start investing until they’re 27, but continues until he’s 65, for a total investment of $97,500. Now here’s what may surprise you: the person who started investing at 18 will have $1.5 million in the bank, while the one who began at 27 will only have $1.1 million. So even though the first person put in just a little over 25 percent of what the other person invested, they ended up with nearly half a million dollars more.
Investing 10-15 percent of your income each month when you’re young can yield a healthy retirement account when the time comes. Before you get started, though, create a budget and make sure you’re living within your means. Pay down high-interest debt, so that your debt to income ratio is low- preferably below 35 percent. Then make an appointment with a financial advisor, who can help you create a successful financial plan. Because you’re young, you’ve got plenty of time for your money to grow, but the drawback of being young is a lack of experience. Aligning yourself with a knowledgeable professional is one of the smartest money moves you can make.
If you’re over 18 and this information has caused you to feel hopeless, don’t throw in the towel just yet. The magic of compound interest can still help you. You’ll just have to make a larger investment because you’ve got less time. Even in your 40s, if you contribute the maximum allowable amount to a 401k, you should be able to retire comfortably in your 60s. You’ll have to prioritize your retirement fund, though, not siphoning it off to pay for college or accumulating debt. It’s also important not to make risky investments, but with the right financial advice, it’s possible to save for retirement at almost any age.
When you’re ready to create a strong financial plan for the future that will allow you to live the lifestyle you want to live, Nelson Financial Planning can help. As one of the best financial planning firms in Central Florida, we provide guidance and financial advice so that you can make informed decisions about your future. We believe you should enjoy your retirement, so we’ll work with you to create a plan for a stress-free future. Call (407) 307-3061 or contact us today to set up your free consultation.