It’s an uncertain world out there right now. The economy has been battered and bruised by the pandemic and the subsequent measures against it. This experience has taught people a lot of things. One of those lessons is how important it is that everyone maintains savings and investment devices.
For the 20-something young adults that have only recently joined the workforce, it may not look it, but you are in the best position to start preparing for your future — because you’ll be making the most of the power of compound interest in savings accounts.
So, if you’re not sure how to begin this financially responsible journey, don’t worry. Here’s a guide for you:
This one is very timely. It’s absolutely critical that you start an emergency fund before you start investing. It gives you a bit of cushion in times of emergency like a natural disaster, a job loss, or even a pandemic.
You should, ideally, set aside three to six months’ worth of wages so you can have peace of mind. Sometimes, people add more to the fund, so they can feel at ease during times of worry. The important thing is you start building that fund and you start now.
Once you’ve completed your emergency fund, you still shouldn’t just jump right into buying shares or signing investment deals. It’s something that you have to do heavy research about. There are a lot of investment devices out there. They have different risk and potential reward schemes. It’s also highly dependent on how involved you want to be and your ultimate goals.
Do you want to retire at 65? Do you want to travel to a different country every year? Do you want to buy a different vehicle every five years? These are questions you should try to answer first.
According to Bank Rate, you need different accounts for different purposes. Your long-term goals need to have a separate account.
In the UK, employees older than 22 are automatically enrolled in their workplace retirement plans. In this plan, at least 5% of your earnings will be contributed to the fund, while 3% is added by your employer. This is a good start since it’s a clear and required path to retirement savings. However, according to Market Watch, the end amount may not be enough if you just continue to contribute the minimum amount.
The best thing to do is to take advantage of this platform and start adding more to your contributions. Market Watch compared it to how people in the U.S. are always being advised by financial experts to add to their 401k funds.
The stock market can be an overwhelming and frightening place for those starting out. But as history has taught the world, stocks usually perform better than any savings account given enough time — and time is the one thing that you have a lot of when you’re young.
Do what you can to better understand the market and start building your portfolio. According to Investopedia, the ideal ratio is investing 70% on stocks and 30% on bonds, which is accompanied by less risk.
You can also seek the help of financial planners when you’re starting out, so you’ll be able to better understand your options.
The single most important thing right now for a young adult is to learn how to save and start now.