Jane Barratt gives financial tips for the young workforce. She talks about growing the money you have by prioritizing investing over spending. Learn to build a base of savings that you can utilize for contingencies.
- The world has changed a lot recently but the financial advice most people get while they're growing up really hasn't. Work hard, don't live above your means and save your money. Now, this is solid advice but it's missing one big piece. Grow the money you have. As a society, we're told that investing is something that older, rich people do and it is. That's often how they got richer but for a person just starting out, the number one thing that you can do for long-term financial success is to prioritize investing over spending.
I'm not saying this is easy but let's say you do save some money and you wanna get started investing. You're going to find a litany of advice, some of it contradictory and the vast majority of it isn't meant for you. It's given by advisors who have spent their lives servicing richer, older people. They'll probably push mutual funds or a couple of lower cost ETFs. They'll also shy away from stocks. They may say they're too risky and if you were to follow their advice, you'll probably buy a few funds and maybe forget about them but here's the thing.
When you're young, you have one thing that their rich, older clients don't have. You have time and with time comes the ability to take risks and make up for mistakes. Older people will wring their hands with despair if their portfolio loses value. They were counting on that money to fund their retirement now. For younger investors, you'll have decades of time ahead of you to bump up the value of your portfolio. Developing the practice of putting money away each month into a portfolio that's aligned to your risk profile is a great way to get started.
We at GoldBean tell our clients to build virtual portfolios of low cost ETFs and well rated stocks and experience the weekly ups and downs of investing without risk. When you're ready to jump in, start small and build over time. Dollar cost averaging is your friend. This means you buy the same investments at regular intervals, say monthly, so over time, you get the average price. In other words, don't try and time the market. Just buy in and keep buying. Now, some specifics especially for when you start working full-time.
Build a base of savings that you can access for contingencies, at least three months of living expenses. Take advantage of employer-sponsored tax-advantaged retirement programs like 401ks and IRAs and contribute as much as you can so that you can max out any match you get from your employer. Continue to invest on your own and keep adding to your investment account. Even adding $100 a month at your age can have a massive impact on the future value of your savings. Life is full of risks and learning how to take calculated risks while you're younger can pay off over your lifetime.
The biggest risk of all when you're young is programming yourself with a consumption only mindset. Think about the very word spend. When you refer to your time, your energy and your money, you say you spent it. Instead, you use the word invest. The change is subtle but important. When you invest in something, you imply that it has future value. So you buy a bag that you love and will last instead of one that you buy spur of the moment. You invest time in getting fit so you live a long and healthy life and you invest in your friendships because good friends will be there for you in hard times.
So learn to take risks, adopt a growth mindset and be mindful of your spending. It's great advice to people just starting out or looking to get better with their money at any age.