In the world of investing, many people tend to delay their saving strategies until they are in their mid 40’s. Statistically, the average American’s financial situation becomes more stable around this time. For this reason, people tend to invest only when they have extra money. Truthfully, investing at a younger age is more beneficial. Between low salaries and college debts, people tend to think their younger years are years meant for getting by. However, younger adults have a time advantage, allowing for more risk tolerance. This is partly because time is your friend when it comes to investing early, especially compounding interest. Additionally, the younger an investor is, the longer they have to recover from investing mistakes or mishaps. Having room for miscue is an excellent sign of a sound investing plan. On the other hand, a mistake at a later age can greatly jeopardize your entire financial situation, which you may never recover from.
One of the most popular long-term investment strategies is investing in real estate. When investing in real estate, make sure to familiarize yourself with terms like “mortgage” and “what is a land trust.” Owning a property and renting it out to tenants is a sure way of earning a passive income for as long as the property is occupied. Renting out a property allows the monthly payments to contribute towards the total mortgage of the house, evidently paying off the home. After that, you are left with a property you own, and a steady stream of profit. This is by far the most overlooked yet most powerful way of planning for the future.
Examining the investment process, we know that it is a lifelong process. Starting to invest at a younger age allows for much faster goal achievement, whether that may be college funds, a home, vacation or retirement. Beginning to invest and plan your finances strategically at a younger age teaches the individual lifelong disciplinary skills. Learning to automate the saving process by systematically contributing money to a savings account is one of the most constructive strategies you can take. Once saving money becomes a regular habit, you will then have to assess how you want to invest your savings and your risk tolerance level. However, this is often the hard part as many younger individuals are not too absorbent with the proposal of investing. Learning self-discipline by saving a portion of your income is one of the best ways to rapidly achieve investment goals.
The sooner an individual plans for their future, the easier it will be to comfortably achieve their future goals. While many younger people may think of retirement as a distant conviction, implementing an early retirement plan presents greater opportunities for living the lifestyle of your choice at a later age. Early investing will indoctrinate patience and discipline from experiencing highs and lows in the world of investing. The earlier you start to invest, the quicker you will figure out the strategies for success.
Compounding interest also plays a huge role when deciding to invest early, especially for retirement planning. Each year, individuals earning an income must pay an income tax, which is deducted from their paychecks. Investing as much as you comfortably can allows for retirement account growth potential, since you are investing capital that would be paid in taxes regardless. Most retirement accounts, such as 401k’s and IRA’s, are not taxed. This leaves the clever investor with the option to put aside as much money as possible in these accounts to avoid taxing, and evidently earning an interest rate on that sum of money. Another reason to invest and save as much as you comfortably can is compounding interest. This is basically added interest on the sum of your deposited funds in a particular account. The earlier you can start this process, the longer your capital has the chance to compound or grow. Waiting to invest for retirement at a later age may cost you thousands of dollars, especially waiting until your mid 30’s and 40’s like the typical American. Although many people have the desire to invest the maximum amount permitted by their plans, many find that it cuts into a huge portion of their paychecks. Below are two solutions to this issue:
Give your retirement plan a raise whenever you get a raise at work. Adding a higher percentage of your salary to a retirement plan can benefit you and your compounding interest plan.
Gradually increasing your payroll deduction contribution, 1% or so each quarter or two quarters, until ultimately reaching the maximum allowed deduction amount. That little-contributed percentage can be worth much more in the future.