At any life stage, there are ways to make your money work for you. Here’s what your investing journey might look like when you start at different points.
Things to consider at all ages
- There are items to tick off so you can begin investing. These include having zero or manageable debt and an emergency fund with 3 to 6 months’ worth of basic expenses, or higher depending on your situation.
- To pick suitable investments, you need to understand your risk tolerance and identify your goals and time horizon.
- Your age can influence how much risk you can take. When you’re younger, you can afford to take more risks since you have time to ride out the ups and downs of investing.
- Your money's safety may become more important as you grow older or get closer to your time horizon.
In your 20s: Making time work for you
Your 20s mark your entry into adulthood and independence, and so this is the perfect time to get serious about your future. Give yourself a head start with the right habits and mindset, such as these:
1. Develop good money habits
If you’ve only started earning, you should work on building healthy finances before attempting to invest. Start off strong by getting good money habits like creating a sound budget and sticking to it.
2. Start small and start early
The biggest advantage you have in your 20s is time. You should understand compound interest since it can fast track the growth of your money.
Remember that you don't need a lot to begin investing. Even small amounts can help you reach your goal over time if you’ll follow a sound strategy and make consistent contributions.
3. Think long-term
Making your first investment can be exciting and you may be eager to see results. However, you should try not to rush things and expect to earn money right away.
Though you can invest for short periods, it’s ideal to view investing as a lifelong endeavor. Plan for the big goals you want to achieve decades from now, like a comfortable retirement, while you still have the luxury of time to go slow but steady.
In your 30s: Getting your priorities straight
In your 30s, you may have more financial responsibilities like paying off loans or supporting your family. It can be a challenge to begin investing since you’ll need to fulfill current obligations while preparing for the future.
Here’s how you can strike a balance:
1. Figure out your priorities
Though you didn’t start investing in your 20s, you likely still have decades to go before you retire. There’s still time to benefit significantly from the power of compounding.
However, at this point, you may have more goals and responsibilities competing for your income and attention. It helps to identify which ones should come first and set reasonable timelines.
2. Plan for multiple goals
Besides retirement, there are financial goals that you may want to achieve sooner, such as buying a home or starting a business.
This doesn’t mean you have to put retirement planning on hold so you can focus on things that seem more urgent. You can consider building a dedicated investment portfolio for each goal.
Maintaining multiple portfolios allows you to work on more than one goal at a time. It also lets you group your investments according to the goals that they may be best suited for.
3. Maximize your disposable income
When you have multiple goals, it can take a lot of money to reach the amount you need. Your 30s may be the first time you have enough disposable income, so you should handle it smartly.
You may want to keep lifestyle inflation in check and find ways to boost your salary while you’re still young.
In your 40s and beyond: Catching up
Life happens, and certain circumstances may have kept you from investing as early as possible. The good news is, you’re likely at the peak of your career and earning potential in your 40s or 50s.
Here are some ways you can still reach your money goal:
1. Act with urgency but consider the risks
If you haven't been able to save as much as you'd like for retirement, you may need to make big lifestyle changes to reach your desired amount. However, it’s also important to minimize risks since you’ll be withdrawing from investments relatively sooner.
This means allocating more money to “safer” products with modest potential returns instead of owning a lot of volatile assets (like stocks) whose prices tend to rise and fall quicker.
2. Consider income investing
Having multiple sources of income is ideal at any age, but it gets even more crucial as you approach retirement.
Consider investments that pay out a set amount of money on a pre-determined schedule, like bonds, dividend-paying stocks, and shares of Real Estate Investment Trusts (REITs).
Though you’re relatively a late starter, you can still make up for lost time by taking advantage of opportunities and resources available to you.
