Your 20s are a critical time in your life that can be challenging to navigate, financially speaking.
You might be making the most money you’ve ever made in your life while also starting to pay for things you’ve never been responsible for before. Plus, you’re probably juggling a number of financial goals, from thinking about continuing your education to buying a home.
Where do you even begin?
“My best advice for people in their 20s when it comes to money is to set up an automatic investment,” Ramit Sethi, self-made millionaire and star of Netflix’s “How to Get Rich,” tells CNBC Make It.Â
Though it can feel like the cards are stacked against you in your 20s — you’re probably not earning as much as you will later on, you might be questioning your career choices, you’re likely facing a mountain of student debt — the one thing you absolutely have on your side is time. Which is why it’s so important to start investing as soon as possible.
Regularly investing might sound intimidating, especially if you’re living paycheck to paycheck, but Sethi says even a small recurring contribution can set you up for a bright future.
Why it’s smart to invest while you’re young
Generally speaking, the more time your money is invested, the better. Interest allows the money you invest to grow over time, and compound interest provides even more potential for your money to multiply. Not only does interest grow on your original investment, but on the returns on that investment as well.
That means the longer you’re able to keep your money invested, the more it will grow.
Secondly, the stock market isn’t always in the green. When recessions hit, your portfolio may be down for a couple of months, or years, at a time. But historically, it has always bounced back. Investing early gives your money more time to recover from the dips.
Automating your investments can help you make investing a habit. You can do this through payroll at your job or by setting up automatic transfers to your investment account from your bank.
If you don’t have an investment account, you can open an online brokerage account in just a few steps. Retirement accounts like a 401(k) or individual retirement account (IRA) are great options to start with as well.
And you don’t have to contribute a lot of money when you’re getting started, as long as you start, Sethi says.
“If you are in your 20s, you have an amazing opportunity, even if your earnings are not that high, to set up your habits right,” he says. “As your earnings increase in your 30s and 40s, you can just turn that number up.”
Have fun while you’re young
Sethi’s second tip for 20-somethings: “Enjoy this season of life.”
“Don’t try to be 40 before you’re 40,” he says. “Your 20s are about getting to know yourself, going out with friends, taking cheap trips — I think you should do that. There are certain things you can do in your 20s that you will never be able to do again, and I encourage you to embrace that.”
It’s important to take steps to build financial security in your 20s, but it’s equally important to take advantage of the energy, time and opportunities you have during this period.
“One of my regrets looking back is that I didn’t have more fun,” Sethi says.
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