Updated: Mar 11
Now, Baby Boomers face a serious problem—many of them do not have enough money to make it through retirement and are forced to work past the retirement age of 66. Young adults who begin saving now can avoid this problem by growing their money over time.
Photo: Unsplash | Source: BZ
The Importance of Investing Early
Nearly every financial expert will tell you that one of the most important steps that we can make is to begin investing and saving money early.
1. Debt elimination
If you’re a Millennial or a member of Generation X, chances are that you’ve got some kind of debt. According to a survey from Young Adult Money, 43% of young adults have some form of student loan debt, and 83% of those with student loan debt say that paying back their debts is seriously affecting their ability to meet their other financial goals.
Debt does nothing to help your financial situation—and if left unchecked, accumulating interest can cause those in debt to pay sometimes twice their principal balance by the time the debt is repaid. If you have a student loan, an outstanding auto loan, or an unpaid credit card balance, paying it off can set you up to more effectively meet your investing goals.
2. Money market funds
Money market accounts are like an online savings account with one important caveat—some are not FDIC-insured. While this is great for interest rates (you can earn more than the typical amount for a standard savings account) it can also put your investment at a higher level of risk.
Working only with reputable money market fund providers can help you secure your investment.
3. Short term CDs
Short term certificates of deposit (CDs) are bank products that hold a predetermined amount of money and allow it to accrue interest over the course of 90 days to five years.
CDs are FDIC-insured up to the limit of $250,000 and provide you with a risk-free way to earn a bit of interest. However, once you deposit money into a CD, you must allow it to mature—or you’ll be met with a high penalty. If you’re the type of person who frequently dips into your savings accounts to cover bills, a CD may not be the best choice for you.
Many young adults who rent believe that they should buy a home as soon as possible. After all, if the price of rent and a monthly mortgage are comparable, why not own the property? Unfortunately, the rent vs. buy debate is about more than just the monthly mortgage price—owning a home is a significant investment and one that should not be taken lightly.
For example, when you live in an apartment, you can call the landlord up to handle expensive home issues.
A $4,000 furnace that dies in the middle of the winter is the landlord’s problem when you live in an apartment. When you own the home, there’s no one to call except the local heating repair company. Learning more about the true costs of homeownership can help you understand if you’re really ready to buy.
The best investing decision that you can make as a young adult is to save often and early and to learn to live within your means. Putting away more money now and learning about your investment options will poise you for financial success in the future.