Retirement shouldn’t mean that you stop enjoying life or make changes in you current lifestyle. But if you want to make sure that doesn’t happen with you, you need to start investing starting from your first paycheck. A good start is half job done, but how does one decide what is best when it comes to investing. There are so many options available today to choose from. You need to know which option is safest and would give returns on long term basis. So let’s start the calculation. If you are 25, and start saving today you will have approximately 40 years to invest before you retire. You might want to go for higher education, buy that dream outfit for your wedding day etc. Keep your short and long term goals in mind while charting out an investment plan. We all as youngsters want to live in the moment, be spontaneous and have it all. But remember that it wouldn’t be like that always. Some key points to remember before you take the leap:
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Divide your salary: The best way to start saving is by dividing your salary based on your expenses and investments. Calculate you expenses for each month, it will give you an idea the percentage of your salary that you spent on your needs. If you think that you spent a phenomenal amount of money, try and cut down on your expenses.
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Invest for growth: As a young professional, your advantage is that you have time by your side. You should invest in funds which would span and grow over a period of time. Buying a home is a good option for long term investment. It’s one of the few investments which grow substantially more than inflation. But keep some points in mind; it takes around more than 5 years to justify its purchase. In the initial stages you are investing without any value increase. So if you move around frequently, it might not be good option for you.
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Short-term investment: Recession was a reality, which can happen more than once. Keep an expenses fund for at least six months which can help you if you find yourself in a difficult situation. Keep a part of your saving in short-tem CDs and savings account for ready cash.
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Employer-sponsored retirement plans: If you have the option, go for it. In these plans one has employer’s contribution apart from your savings, boosting your retirement savings.
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College-fund: If you are planning to study further, you need to look for good investments options for that. Every college has saving plan scheme known as 529 Plans. You can allocate and put money into it for your higher education.
As a young investor, even if you start by small amounts like $100/ month, it can amount to huge savings when you retire. Keep your expenses in check, don’t try and have a lifestyle like you have been earning for 20 years. If you get your basics right from the first day onwards, you are bound to yield its benefits in the long run.
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