The Retirement Rule Young Adults Should Start Following Now (Even With Small Amounts of Money)
Retiring on your own terms is a lot easier if you invest a little money each month and build up your contributions over time. Almost everyone knows it, but many young adults skip investing and focus on short-term pleasures instead.
“Generally, people try to give things up for a nicer car or a new TV or a vacation, and honestly, this ends up just being people spending money they don't have,” said Christopher Walsh, the regional director at Capital Choice Financial Services.
Learn More: Humphrey Yang: Here Is How Much Money Your 401(k) Should Have
Check Out: 8 Low-Effort Ways to Make Passive Income (You Can Start This Week)
“Most people, especially in their 20s, aren't really focused on what's going on with their investment accounts, so it typically boils down to other priorities getting in the way. I like to say life gets in the way.”
The sooner you start investing, the less you have to put away each month to build a portfolio that can keep up with your living expenses in retirement.
Start Now
If you've not yet opened a brokerage or retirement account, now is your call to action. Walsh encouraged everyone to learn how compound interest works because it can inspire people to invest a lot sooner.
“If you always wait for tomorrow to come, it will never arrive. Compound interest works better with time in the market, not timing the market,” Walsh said. “If I could go back and tell my younger self to just put away $50, $100, $200 a month into investing, I wouldn't be required to save $500, $1,000, or more monthly to catch up starting from the same place to have the same target dream retirement.”
You do not have to invest large sums of money to get started. Putting $5 into an index fund is enough. That low barrier makes it easier to stay consistent and to gradually invest more as your income grows. Set up an automatic transfer from checking to brokerage, and you've turned "remembering to invest" into something you never have to think about again.
Make Short-Term Tradeoffs
Walsh recommended the approach of making some short-term tradeoffs now so you can invest more, faster. This pays off most when you're young, since every dollar you invest early has decades to compound.
“You're giving up something, and that's disposable income for today, but you're gaining a potential retirement future that could get you $1 million to $1.5 million if you're willing to make that small sacrifice," Walsh said. "Usually, people tell me how inspired they are by hearing that, and a lot of them feel way more relieved knowing what they're building towards. Consistent investing over long periods of time gives them a higher probability of reaching their goals.”
The decisions you make now compound in more ways than one. Investing today makes hitting your retirement goals easier down the line, while putting it off can leave you scrambling deep into your career, trying to close a gap that didn't have to exist.
You don't need to swear off spending forever. Skip a new car, cancel a subscription or two, redirect that cash into your portfolio for a while and let compounding do the rest. Small, temporary sacrifices now can turn into a portfolio that's there for you exactly when you need it.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: