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Financial advice for current 18 year olds. How should we begin to accrue our wealth?
Hello, I am turning 18 this year and I am thinking of ways to be more financially independent. Moreso what steps I should be taking at this age to build and compound my wealth for the future. Let me know! #finance #money
29 answers
Updated
Matthew’s Answer
Build a budget that lists how much money you earn from your work. Create a list of your monthly expenses and at the TOP of the list and the FIRST thing you pay every month is SAVINGS. Try to make this 10% of your earnings. This is very, very hard to do. NEVER use this savings for living expenses. Only use your SAVINGS for investment in other assets that will create value or generate more income for you.
Your biggest asset when you are young is your time and you will trade your time for money when you get a job. The amount you are paid is based on your talent and skills. These can be improved through practice and education. That is why it is so important to continue to to learn and get formal education throughout your life. It is directly connected to how much your time is worth and therefore how much you will be paid when you sell your time to your employer.
Wealth is built through discipline and self-control and most people are not very good at it. But it is a skill to be learned and practiced. It can be mastered if you want it bad enough.
MY BUDGET
Income
Take home pay check $1,000
Expenses
SAVINGS @ 10% ($100)
Budget to live on $900
If you can do this starting at 18 years old, you will be a millionaire by the time that you are 40.
Try it. You have nothing to lose and EVERYTHING to gain.
Create a Budget
Pay yourself first each month in the form of SAVINGS
NEVER spend your savings on livings expenses (like a nicer car or bigger house)
Invest savings only in assets that will create value or income for you
Improve your ability to get paid more through education or building performance skills
Your biggest asset when you are young is your time and you will trade your time for money when you get a job. The amount you are paid is based on your talent and skills. These can be improved through practice and education. That is why it is so important to continue to to learn and get formal education throughout your life. It is directly connected to how much your time is worth and therefore how much you will be paid when you sell your time to your employer.
Wealth is built through discipline and self-control and most people are not very good at it. But it is a skill to be learned and practiced. It can be mastered if you want it bad enough.
MY BUDGET
Income
Take home pay check $1,000
Expenses
SAVINGS @ 10% ($100)
Budget to live on $900
If you can do this starting at 18 years old, you will be a millionaire by the time that you are 40.
Try it. You have nothing to lose and EVERYTHING to gain.
Matthew recommends the following next steps:
Hey Matthew, thanks for the in-depth answer and the awesome checklist!
Somaiya
Updated
Jonathan’s Answer
Somaiya, great question! Easy answer, start investing as soon as you turn 18, the biggest thing on your side is time. Monthly investments do not need to be large, but rather a consistent percentage of your income. I would recommend investing at least 50% of your gross income every month. If by mid-20s you're averaging a $100,000 salary, this will put you in a financially free position in your mid-30s. I'm only 25 and have been investing since I was 18, so providing recommendations from personal experience. When you're 18, open up a roth IRA (start with all tax advantageous accounts first before investing in stocks through a personal trading portfolio). The max contribution is currently $6,000, if you can't contribute $6,000 then contribute as much as you can. And, don't forget to invest the money you contribute, don't just sit it in the cash or money market account. If you're employed, look to invest in your company's 401k program, striving to max that out as well which is $19,500. Even utilizes your employers HSA account as another investing account, with a max contribution of $3,600. Once these are being maxed out and you're still not at your 50% goal, open up your own investment portfolio to bridge the gap. Invest in strong dividend-paying companies, or high return mutual funds, depending on your risk appetite. With all of the above, simply remember that 50% invested should be your target and remember as your income increases, increases your total investments. Don't commit to investing $X amount each year, because as you make more money your % invested will continue to drop. Starting this habit at 18 will also teach you to be disciplined with your money and live off only 50% of your salary. Invest first, spend whatever you want after. You'll be way ahead of all your peers and wealthier than anyone you know not already investing.
Hi Jonathan, thank you for your thoughtful and widely insightful answer. Very helpful!
Somaiya
Updated
Bruce’s Answer
Live below your means.
Do not spend all or overspend your paycheck.
Biggest wealth killers are: more car than you need, more apartment/house than you need.
Having a roommate is a great way to save early.
NEVER carry credit card or other consumer debt.
Keep track of your spending.
Save up for big purchases so you can pay cash.
As others have said, pay your savings first and consistently.
Do not spend all or overspend your paycheck.
Biggest wealth killers are: more car than you need, more apartment/house than you need.
Having a roommate is a great way to save early.
NEVER carry credit card or other consumer debt.
Keep track of your spending.
Save up for big purchases so you can pay cash.
As others have said, pay your savings first and consistently.
Hi Bruce, thanks for the direct and concise advice. Appreciate it!
Somaiya
Updated
Nick’s Answer
Albert Einstein is reputed to have said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.”
While it is heavily debated if Einstein actually said that, the lesson here is a very true one. When you have the ability to invest early in life, you have the flexibility to take larger risks relative to those starting later.
A great low cost option would be a passive index fund that diversifies your risk across a broader index of stocks and keeps long term compounding fees low.
While it is heavily debated if Einstein actually said that, the lesson here is a very true one. When you have the ability to invest early in life, you have the flexibility to take larger risks relative to those starting later.
A great low cost option would be a passive index fund that diversifies your risk across a broader index of stocks and keeps long term compounding fees low.
Hi Nick, thanks for the advice. Great quote!
Somaiya
Updated
Eugene’s Answer
You can use time to your advantage, by utilizing "Compounding Interest". General Idea is the earlier the start, the sooner your savings can start making money for you.
Setting up a recurring deposit into a saving account, is a simple and painless way to start. This way everything is automatic and you will be pleasantly surprised whenever you periodically check the balance :)
Setting up a recurring deposit into a saving account, is a simple and painless way to start. This way everything is automatic and you will be pleasantly surprised whenever you periodically check the balance :)
Hi Eugene, thanks for the advice. Will definitely look into the concept of compounding interest.
Somaiya
Updated
Mohamed’s Answer
I like how you asked about accruing wealth. In my view there are prior levels to accruing wealth, first be financially independent, second secure your retirement and future needs (kids college), then if possible start accumulating wealth for other purposes, charity, better life... If your objective is to accumulate as much wealth as possible, you need to work hard and take some risk early in your life. At each point in your life you have to assess what your objective is and how badly you want to achieve it and that dictates how much effort your put in it. Financial independence and securing your retirement may require you to probably just work harder than the average person, but achieving exceptional results require more work, more risk (and luck).
Good habits and access to help will let you go farther so work on those along the way as well.
Decide what you ultimately want in your life
Assess what it would take to achieve it (study successes and failures)
Determine if it is worth it for you
Good habits and access to help will let you go farther so work on those along the way as well.
Mohamed recommends the following next steps:
Updated
Sam’s Answer
Open up a brokerage account! Stash your money in there and invest for the long term. It is really that simple. People try to over complicate things when in fact all you need are the first two sentences.
Updated
Becky’s Answer
Starting a Roth IRA is a great way to start saving and is free on many platforms (ex. Fidelity). You can contribute up to $6K a year, pick a few ETFs/index funds to invest your contributions in and the money will grow tax free!
Updated
Elizabeth’s Answer
Biggest thing to help build wealth is savings, especially by contributing to a 401K or similar retirement type account. The earlier you start saving, the more time that money can earn money for you.
When I first started working, I began contributing a very small amount to my 401K. Over time, as I received salary increases, I also increased my 401k contributions.
Live within your means, limit credit card debt, and save what you can.
When I first started working, I began contributing a very small amount to my 401K. Over time, as I received salary increases, I also increased my 401k contributions.
Live within your means, limit credit card debt, and save what you can.
Updated
Mohd’s Answer
Start investing from a young age even its it is a small amount and you will be thankful you did in retirement. Make sure to diversity your investments in different asset classes to lower risks. Learn to read company financial reports and utilize earnings releases to invest in up and coming firms.
Updated
Michael’s Answer
I love seeing questions like this, young folks that are thinking about their inner FIRE (financially independent, retire early!).
There have already been so many wonderful answers so I'll just try to echo the ones I feel the most strongly about:
* pay yourself first! Savings needs to go in every paycheck no matter what
* try to leverage an IRA and/or 401k as much as possible. Ensure you're getting the maximum match from your employer if offered!
* try to keep some liquid cash in a default savings for impromptu expenses like needing a new car, moving to a new city etc. Seeing this "secondary" savings get depleted for emergency uses won't be as unnerving since your primary vehicles will continue to grow!
There have already been so many wonderful answers so I'll just try to echo the ones I feel the most strongly about:
* pay yourself first! Savings needs to go in every paycheck no matter what
* try to leverage an IRA and/or 401k as much as possible. Ensure you're getting the maximum match from your employer if offered!
* try to keep some liquid cash in a default savings for impromptu expenses like needing a new car, moving to a new city etc. Seeing this "secondary" savings get depleted for emergency uses won't be as unnerving since your primary vehicles will continue to grow!
Updated
Hilda’s Answer
I would recommend you save some of your income and begin to invest in low-cost index funds to begin.
Hi Hilda, thanks for the straightforward and direct advice. Helpful indeed!
Somaiya
Updated
Anthony’s Answer
Creating a monthly/weekly budget. Taking some excess cash and putting into the market in an index fund and not taking out w/d. Let the account keep growing.
Updated
Nicole’s Answer
Hi Somaiya,
It is great that you are thinking about saving money at such a young age. There is a reason we say "the time value of money."
I am on the younger side myself, but I honestly did not know anything about Roth IRA accounts or 401ks until I started working. Four years is not a lot of time, but for those retirement accounts, it is. Get yourself a plan for retirement so that can count toward your savings.
Also do a periodic payment into a brokerage account, and then invest it in a passive investment like the S&P 500 or a sector ETF. Once again, you have so much time that the money will grow tremendously, even in five years.
Outside of that, do not live outside of your means and save wherever you can. Then you will be golden.
Best of luck!
It is great that you are thinking about saving money at such a young age. There is a reason we say "the time value of money."
I am on the younger side myself, but I honestly did not know anything about Roth IRA accounts or 401ks until I started working. Four years is not a lot of time, but for those retirement accounts, it is. Get yourself a plan for retirement so that can count toward your savings.
Also do a periodic payment into a brokerage account, and then invest it in a passive investment like the S&P 500 or a sector ETF. Once again, you have so much time that the money will grow tremendously, even in five years.
Outside of that, do not live outside of your means and save wherever you can. Then you will be golden.
Best of luck!
Updated
Guadalupe’s Answer
Hi Somaiya,
I am glad to hear that people at your age are thinking about this question, because it is better to plan early.
1. You should live below your means.
2. Do not spend all the money you can make
3. Share costs as much as you can i.e. roomie, etc.
4. You must not consider credit card as an extension of your paycheck
5. When you have debts you must pay the most expensive in terms of interest rate
6. Be strucured in you income vs your expenses
Hope this helps and Gook luck.
Best,
I am glad to hear that people at your age are thinking about this question, because it is better to plan early.
1. You should live below your means.
2. Do not spend all the money you can make
3. Share costs as much as you can i.e. roomie, etc.
4. You must not consider credit card as an extension of your paycheck
5. When you have debts you must pay the most expensive in terms of interest rate
6. Be strucured in you income vs your expenses
Hope this helps and Gook luck.
Best,
Hey Guadalupe, thanks for the advice! The listed points are specifically helpful/
Somaiya
Updated
Harrison’s Answer
I think starting off by creating your own budget is the best place to start so you're aware of your spending habits. In terms of building wealth, you'll want to invest the money set aside for savings in your budget. 15% of your income is a good place to start, but you may need to live below your means in order to do this while your young. Time in the market is important so it's crucial to start early.
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