Taylor Studniski suggested that, as a young adult you might not have enough money to start investing. That's where you can benefit from a savings account and a budget. Investing in stocks and high-yield savings accounts can help you grow your money over time. Learn how to start investing in stocks and make a plan. After completing the five ideas below, you'll be well on your way to investing.
Young adults should invest in growth-oriented assets to benefit from compounding, or the increased value of investments over time. Safe, interest-bearing investments simply can't compete with the compounding effect of growth-oriented investments. The S&P 500 index has returned an average of 10 percent a year since 1926. Investing in real estate can provide growth-oriented returns at an early age, when it is easier to afford risk.
While stocks have higher growth potential than bonds, CDs and mutual funds are low-risk, safe investments for young investors. They are also FDIC-insured up to $250,000. Growth-oriented assets provide unique opportunities for young investors, as market crashes have historically provided the highest average rate of return. When young, you can take advantage of these opportunities to diversify your portfolio beyond stocks. You can invest in private real estate deals with as little as $5,000.
Developing a budget as a young adult can be challenging, but it is vital to develop financial literacy. This includes establishing savings accounts, paying off credit card debt, and setting long-term goals. Most financial planners suggest that young adults reserve three to six months' worth of living expenses in cash. These savings accounts should cover essentials, such as food and shelter, in case of an emergency.
Taylor Studniski’s opinion, creating a budget is an essential part of personal finance, and it starts with being honest about what you need and what you want. For example, if you are a newly-employed professional, you should take a look at your expenses and debt. Similarly, college students can compare their expenses to their allowances. By doing this, they can get an idea of how much they can spend, and whether they can put that money towards their savings or investments.
When you are young, you might not think of investing, but investing as a young adult can help you get ahead of the curve. You should have some liquid cash in your savings account so you can handle emergencies without tapping your investments or going into debt. You may already have credit card debt, so you need to prioritize paying off those first. A 20 percent interest charge on a credit card will reduce your net earnings significantly, so it's best to pay off the balance as quickly as possible.
One of the major drivers of growth in investing is compound interest. This interest accumulates over time based on the initial deposit and the interest from previous periods. For example, if a stock you invest in goes from $10 to $15 in a year, you will have invested $5 extra, and your investment will have grown by 10%. Investing in the stock market can be intimidating, because many people think they need a lot of money or spend a lot of time learning about finance and investing. But it's possible to start small and invest a few dollars a month.
There are many advantages to investing in high-yield savings accounts as you're a young adult. In addition to a high interest rate, these accounts may also have limits on their interest rates. Some banks use tiered interest rates, meaning that higher rates are paid to larger balances. In addition, some banks require you to maintain a minimum balance in the account before you can start earning interest.
The amount of money you should have in a savings account at age 30 depends on your personal situation and financial goals. Many experts recommend saving three to six months of living expenses. Others suggest saving 15% of your income. While opening a savings account does not affect your credit score, deposits and withdrawals from new accounts will. Make sure to check with the financial institution to see what type of effect it will have before you open one.
CDs offer a stable place to keep your savings, and you can benefit from a higher interest rate than most savings accounts. Most retail financial institutions offer CDs. Even if you're a young adult, you can find a CD with an attractive rate that will make your money grow faster than your current savings account. A CD can also be used as a ladder, where you invest in several different CDs with varying terms to gain better interest rates.
In addition to Taylor Studniski, although CDs don't produce high returns like stocks, you'll earn interest regardless of the economy. In addition, the money you put into a CD is secure, and your money is insured up to $250,000 by the FDIC. CDs are a safe investment for young adults, especially since they're more secure than savings accounts. However, they're only worth investing in if you need the money within six months.
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