By Adriano Mesina
The best time to start investing is as soon as you begin earning. However, if you feel like you’ve missed the boat due to your age, think again. Whether you’re in your twenties or sixties, it’s never too late to enter the world of investing.
Investing is not a one-time activity to be set and forgotten. It requires consistent attention and effort. Many of the world’s most successful individuals began early, dedicating not only their money but also their time. It’s no coincidence that figures like Jeff Bezos, Bill Gates, and Elon Musk have reached billionaire status—they understood the value of investing early and strategically.
The days of wanton spending are dead. Long live investing!
Save to invest
People often refer to investing and saving interchangeably. While both indeed play a role in your financial freedom for the future, they are not the same. By saving, you set aside money that you can use in the future, especially during an emergency or a future purchase.
By investing, you buy something at the lowest possible price in hopes of earning from it in the future.
The first step then to a successful investment game plan is to save enough money to use for investments. For most of us, developing a good savings habit can be very difficult in and of itself, with so many tempting offers from retailers and dealers bombarding us on all fronts.
Start by contributing regularly to a savings account, as a source to fund your investments.
Factors that influence your investment decisions
As your savings increase, you will want to find something to put them to good use. At this point, you should determine what your needs are and how far you can tolerate risks. Here are a couple of factors you should consider.
- Your current and future needs
Knowing what you need the money for will help you decide what your next investment decisions will be. You may want to invest in products that have the potential to generate income for you, or in products that can grow the value of your investments over time.
- Risk tolerance and time
All investing contains a definite measure of risk. How effectively you accept price variations in your investments will have to be balanced against your expected rate of return in ascertaining the extent of risk your investment should bear. A balancing component to risk is time. If you plan to maintain investment for a longer time, you may be keen to tolerate higher risk because you have the time to make up any losses you may experience early on. For a shorter-term investment, such as saving to purchase a home, you may prefer to take on less risk and have better liquidity in your investments.
Now let’s look at some key life events and how they influence your investment strategies.
Investing through different life stages
- In your 20’s to 30s
Most people start their careers in their early 20s. People in this age bracket tend to not have as many financial obligations yet, so they can set aside money from their earnings if they make it a priority. However, most young people understandably want to experience what life has to offer and often spend their money rather than saving for investments.
A priority for this early life stage is obtaining a complete health insurance plan to provide stability and to take care of your medical bills when needed. Being dependent on your employer’s health insurance may not suffice. Investing in your health and preventative medicine early on can be key to avoiding costly and unwanted health problems later on.
- Getting married and having kids
There may be a time when you need to prepare for married life and having kids. You may have heard the expression “marriage is bliss,” but it will surely come with countless challenges especially when it comes to finances. Both of you will have to work as a team when it comes to money.
Financial woes are one of the biggest stressors in any relationship. People do not talk about it much, but a married couple who do not plan their finances often end up in failure and even divorce.
Here are some steps to take to ensure a healthier, happier married life.
- Communicate – Building trust is the key ingredient to having a good marriage, and trust is built on constant communication. Talk about your financial goals and issues like current and future debts no matter how small. When setting your goals, consider the strengths and weaknesses of each other.
- Set up an emergency fund – An emergency fund should be able to cover basic expenses for 4 to 6 months. Setting up an emergency fund will come in handy when problems arise like health problems, unemployment, home or car repairs, and more.
If children are in your plans, diapers, food, clothes, medicines, child care, and trips to the pediatrician should be part of your budget. But perhaps the best investment you can make for your child is education, so make a plan to save up for that too.
- In your 30s to 40s
You should start thinking about your long-term goals by this time. Your plans may include getting your own house, your child’s education, life insurance policies, and many others. Even though retirement may seem like it is miles away, this is the time to make sure you are investing in your future.
- In your 40s to 50s
By this time, start paying off all your debts and get your finances in order. You should also have a solid start on your retirement savings, even if retirement is still more than a decade away.
- In your 50s and beyond
If you have planned your finances well, then you are probably set by this point. If you want to continue investing, make sure you are investing only your extra money. Do due diligence in each investment you plan to make. By this time, you should avoid taking high risks because, you no longer have the luxury of time to make up for any large losses.
In Conclusion
We all work hard all our lives and hope to live well. This is often a balancing act between living well in the moment and sacrificing for the future.
Conscientiously scrutinize the opportunities you may have for collecting money from your company retirement plan. Consider your options and discuss them with your financial advisor.
Study your combined potential compensation after retirement and shift some of your investments to help maintain the income you require while still preparing for some expansion in capital to protect you from inflation and support your later years.