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
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.
Take home pay check $1,000
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:
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.
The first question is more difficult. I would start with a conservative budgeting exercise to figure out how much you can afford to "spend" each month. Stay away from credit card debt. Borrowing money for college (ie student loan) is obviously totally fine, most of us have had to- That should be considered as an investment. Start thinking about how much it would cost to live on your own if you aren't already and include that in your budget. A car is OK as long as you can comfortably pay the monthly installments and insurance after including a reasonable monthly living expense and a "cushion" for the unexpected.
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!
If I am 18 again, this is what I will do differently:
1. travel cheap but make it to as many destination as possible. you will find it harder and harder to travel with a low budget when you get older or after you have a family. Try to travel as many places as possible when you are young which can potentially save you more money.
2. Don't rush to pay off your student loan. Instead, start an investment account and invest half of the payment.
3. Never carry credit card debit. Credit card interest is the highest you will get in the market.
4. Build emergency cash in your bank account. At the minimum of 3 months of your living cost.
5. Stay away from smoking/drinking habits.
6. Don't buy about luxury clothes, shoes and bags yet, your future occupation will tell you if you need them.
Hope it helps!
On investing: you can save yourself a TON of money over your life by spending even a small amount of time understanding how to invest in the stock market. There really is no reason to pay a financial advisor 1% a year to do something you can do yourself.
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 :)
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.
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!
Firstly, you need to think about how much you need to spend each month. You will know how much remains you will have. Then, you can consider to divide this into a few portions:
1. Keep some monies for contingency purpose or leisure
1. Saving deposit - This part you can consider to setup time deposit in the bank
2. Investment - You think about the risk level you can accept. Also, you may need to study different investment on the risk and potential return. I would not recommend you invest in high risk products.
Hope this helps! Good Luck!
Unfortunately most of us do not learn basic financial management skills in school, and many people have to learn to manage their finances the hard way - usually by doing things like overspending and getting into a lot of credit card debt. The fact that you are asking this question at your age tells me that you are already starting off on the right foot because you are thinking about these issues. As others have already said, it is very important that you save as much money as you can. This does not mean that you should not enjoy your life it just means that you should do so responsibly. Also, avoid taking out/using credit cards as much as you can, and if you must use a credit card make every effort to pay it off as quickly as you can. In fact, you should aspire to pay off any credit card debt in full every month.
As you save money you should start to invest that money as early as you can. You can invest in stocks and other securities or in real estate or other tangible assets.
Create a budget and stick to it! Always save your bonus!
I wish you all the best!
You have gotten some great advice here. The number regret that I have is that I did not engage in the 401k offerings of my employers when I was in my 20's. Even if it is a small amount, start to take advantage of many companies who offer matching of your contributions. Some 401k plans can also be borrowed against at a future date. Why is that important? You can borrow from yourself and pay yourself back with interest. It is a way to maximize your own money.
In addition, make sure that you consider what an employer can offer you outside of your salary. Take a look at the total offerings from the cost of medical insurance to the other benefits that may be available to you. I work for a vary large company that sells products. I get a great discount on these products. In addition, I get a lot of discounts on everything from car loans to vacation options (hotels, etc). Those discounts can really offset expenses in your life.
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:
Elizabeth Gravina Wetherall
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.
It's also important to build your credit so that by the time you look to buy a car or a house, that you have many years of credit history to help boost your credit score. Do this by opening a credit card, but remember the responsibility this holds ie need to pay it off each month so only spend as much as you planned in your pre-defined budget.
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.
I have a 19 year old daughter & we recently started a small savings plan ( a Large Cap growth Mutual Fund). I encouraged her to periodically add a portion of her earnings and/or savings to the fund. I stressed that she should look at this as a long term savings plan - and unless she encounters an absolute emergency - so a 5-10 year time horizon is something we talk about. And I always think its good to have an idea of what you're saving/investing for - house down payment, new car, travel etc, i find it adds a level of encouragement/motivation. I also encouraged my daughter to treat herself with her hard earned monies...its a balance versus savings.
Everyones needs & abilities will be different and savings/investing will be very personal....but broadly ive encouraged my daughter to explore, research & understand the following
1. History of markets over time
2. Discipline of dollar-cost-averaging
3. Basics of investment vehicles - mutual funds versus individual stocks versus ETFs etc etc
4. Monitor your account periodically - but no need to do it daily..!!!
5. Ask questions
I hope this helps...and good Luck