In your twenties, you are taking your first steps into the real world. You recently earned your degree, landed a full-time job in your field, and are on your way to growing your salary. Now how about building wealth?
The financial habits you create in your twenties will likely follow you for the rest of your life, so it is crucial to develop good habits now!
In this blog, Park City Wealth Advisors will cover navigating your finances in your twenties to set yourself up for building wealth and long-term financial success.
Save Money in a Tax Deferred Investment Account
A Roth IRA is an excellent after tax investment account to open in your twenties. You can fund this retirement account and watch it grow tax-free. The earlier you begin funding a Roth IRA, the better.
Forbes explains this best: “...imagine two college graduates with access to investment accounts earning 8% per year. The first investor saves $250 a month for ten years (for a total of $30,000) and then doesn’t make another investment for the next 30 years. At the end of the 40 years, their portfolio amounts to $509,605.”
“The second investor doesn’t invest for the first ten years of the same 40-year period. Instead, they contribute $250 a month for the next 30 years for a total contribution of $90,000. But despite saving more money over a longer period of time, the second investor ends up with only $375,074.
This goes to show that the most potent combination for wealth creation is time and the power of compounding.”
With this in mind, it is also never too early to start thinking about retirement. And the best part about this account - when you go to withdraw the funds in retirement, it’s all tax free!
Building Wealth Early: Contribute to a 401k
The beginning days of your first full-time job are going over your allotted PTO, benefits, and 401k. In your twenties, it is critical that you set up a 401k as this will set you ahead for retirement.
While retirement may seem lightyears away at this age, many employers will match what you contribute to your 401k, so put away as much as you can now and watch it grow. Participating in an employer match is like getting extra money contributed to your account for free!
Use Aggressive Investment Strategies
As you invest for the future in your twenties, you can be more aggressive with your investment strategy. When investing for the long term, you do not have to worry so much about the market’s volatility, as it has time to fluctuate, recover, & grow before it is time to cash out those investments. Think about a well diversified stock portfolio for this investment strategy. Consider adding Small and Mid Cap companies to your portfolio too - not just large cap companies you hear about in the news. Historically, small and mid cap companies have had significantly more volatility, but over time, their returns have dwarfed large caps!
Build Instant Equity
As you enter your late twenties, you may consider buying a house. A house is a great way to build instant equity. This is also a great time to think about offering the spare rooms in your home to roommates so their rent can cover some or all of your mortgage. Claiming the rental income on your tax return can also increase your future borrowing potential… so work hard to save that second downpayment and start building your real estate empire!
Consult a Financial Advisor
Building wealth at a young age can be done, but often needs solid guidance. Park City Wealth Advisors creates strategic investment portfolios based on your personal needs, goals, and risk tolerance. Our dedicated advisors are ready to help you plan and protect your financial future. We take the image you have of your financial legacy and redefine it. Once you have your first liquidity event, or big cash payout - it’s probably time to consult an expert.