The problem with financial literacy is that it has nothing to do with a college degree or finding a job. I started watching what my friends and acquaintances were doing with their money. I talked to friends who were making less than I was but were able to put away more, and I talked to friends who made much more than I did but still seemed to have nothing at the end of the day. I didn't want to work the next five, 10, or 30 years of my life and have nothing to show for it. That meant that I decided to work from home, selling my own product! I started to venture outside my comfort zone and aggressively learn and invest moderately. There are some things I've learned about investing in my 20s that I think any 20-something should know.
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1. You need to invest. There are many reasons to invest, but there is one clear and obvious reason: You want your future to be in your hands. In our parents' and grandparents' generation, a person may have had one or two jobs in their lifetime and hopefully retired and lived off their pension (if all went according to plan). Times have changed. Simply saving money will not be enough. In our generation we'll likely hop around jobs at least a half dozen times in our lifetime, meaning our retirement is in our own hands.
2. Investing comes in different forms. I'm not talking about the difference between stocks, currencies, real estate, and commodities. Paying down debt, saving money in your account, and reducing your spending are all actions that will lead to a better life. Plan well and you'll put yourself in the best position when the right investment comes along. In any form, the groundwork needs to be laid before making an investment in your future.
3. Prioritize your actions. Truly learning to save money, curb spending habits, manage your income and debt, or even increase your income are all skills that are necessary before putting money into an investment vehicle like stocks or real estate. Make sure you're concentrating your efforts in the right places. Making 10 percent a year on a stock means nothing if you're paying a 23-percent interest rate on your credit card.
4. Have a plan before putting any money in. Planning is the most important part of investing. Making one good investment is easy. Trying to turn that good investment into another, and another, and another takes planning. I, like most 20-somethings, went brain-dead the moment anyone mentioned the word "retirement." If retirement isn't something in your scope of vision, start with baby steps, like having $10,000 in your savings account or buying an affordable home. Then move on to bigger goals.
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5. Keep investing simple. Cut the fat and see where it leads you. All these complicated terms and numbers can really be boiled down to daily behaviors. The age-old adage "Don't buy coffee in the morning, and that $5 a day will add up" is true. Try it for a month and you'll have $100 more in your pocket. There are lots of things you can do with $100.
6. One size does not fit all. A smart investor talks to and learns from other people's experiences -- your own experiences included. You need to pick and choose experiences from different people and see how they work for you. That being said, be open to trying different things, then tailor them to you and your situation.
7. Invest moderately, and learn aggressively. Most people in their 20s start off with very few assets, but learning about your options and the details will help you when you're ready to put your dollar in. Regardless of what you decide to invest in, one key area that affects every investment is taxes. Don't shy away; embrace it and learn, because it can be the difference between reaping the rewards of your investments and watching your hard work wash away.
8. Don't risk it all! A smart friend of mine once equated investing with baseball: You don't need to hit home runs to win. Some people will sit there and swing for the fences every time they're at bat. Perhaps they'll get lucky and hit a homer, but they'll also strike out a lot. When it comes to investing, all you need are a few solid plays -- a few singles, a few doubles -- and before you know it, you've scored a couple of runs and won the game. The ones waiting for home runs waste a lot of time and opportunity.
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9. Timing trumps location every time. The old adage in real estate is that location is everything. That's partially true, but timing is often more important than anything. This applies across all forms of investing. Putting money in an average property or stock at the right time trumps putting money in an amazing property or stock at the wrong time in the market.
10. Investing requires putting ego aside. Nicholas Lang once said, "Ignorance is voluntary misfortune." For me, one of the hardest things when I first started investing was putting aside my ego and saying those three dreaded words: "I don't know." Learning requires removing ego, and even more so when learning about money (because -- let's face it -- everyone wants to feel capable of handling their own finances). There's no such thing as faking it till you make it in investing.
Start today. It doesn't matter if you start at 21, 31, or 65. Start! Hopefully, you will end up like me - giving your money without any string attached. Definitely, that was my goal. I just wanted to help those less fortunate. But, we need more millionaires willing to give money away.
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