Waiting Until You Make More To Start Investing? Consider the Cost
For young adults whose paychecks aren’t robust yet, it can be hard to imagine setting aside money for saving and investing. But that delay can cost far more than most people realize in long-term growth.
Financial experts explain why waiting until you make more money is a costly mistake and how to correct it early, even on limited income.
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Why Young Adults Wait To Invest
For many young adults, delaying investing isn’t a sign of laziness, according to Chris Walsh, senior advisor and regional director of Capital Choice Arizona. “Most young adults delay investing because they don't believe small amounts of money can actually do anything meaningful." Living in a society that prizes instant gratification means slow growth “isn’t as sexy,” he said.
However, according to AJ Schneider, financial expert and founder of Beyond The Green Coaching, it’s a mistake to think that a higher income will spur different financial choices. “They think that if they make more, their habits will change,” she said.
The truth is that earning more without an investing strategy often just leads to lifestyle creep. According to Walsh, “If you don't have a plan to invest the difference before you get the raise, you probably won't invest it after."
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The Real Cost of Waiting: Lost Compounding Time
The biggest financial consequence of waiting is the lost time for compounding to work. To illuminate this, Walsh laid out the first thing he teaches every new client regardless of age: the rule of 72.
“Divide 72 by your rate of return and that tells you how many years it takes to double your money,” he said.
So, at 9% your money doubles every eight years. Therefore, waiting 10 years to start doesn't just cost you 10 years of growth – “it potentially costs you an entire doubling of everything you would have accumulated," Walsh explained.
Long term, for someone in their 20s versus their 30s, that difference can be 100% to 200% of their total retirement savings. “Same contributions, same rate of return, just 10 years earlier," he said. "The math is brutal."
Why Income Isn’t the Real Barrier
The biggest barriers to getting started may be mental, according to E.J. Simonsen, finance advisor and founder at EIDLexit. “Psychologically, inertia and fear of making mistakes are bigger obstacles to overcome than income," he said.
It’s also hard for young adults to make sacrifices, but living on less than you earn is the key to growing wealth. “Your income is your best wealth-building tool, and if you don't have a plan for it, someone else will," Walsh said.
Greater financial literacy can change bad habits.
How To Start Investing With Small Amounts Today
Fortunately, there’s no real minimum to begin investing. Building the habit is the most important part.
Schneider recommended to “start investing with $20. And then turn it into $30, $40, etc. The thrill of seeing your accounts go up, the habit of putting money toward future you, will become a part of your lifestyle.”
Always automate savings and investing, too, Simonsen said. Whether that’s $20 into an exchange-traded fund (ETF) or a tax-advantaged retirement account, you can’t go wrong.
Redirect Money
The best way to get started is to redirect money that you’re already spending, Walsh advised. He recommended printing out last month's bank statements and highlighting two or three recurring expenditures you wouldn't miss if they were gone next month. Then redirect that money. “Try it for a few months. Rinse and repeat.”
More useful may be to “get a budget in place,” Schneider said. “Know how much you can afford to invest before you start investing.”
Starting small, early and consistently is what actually builds wealth.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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