Investing : Four saving and investing tips every 20-something should know

4 saving, investing tips for 20-somethings
Entry-level jobs and mountains of student loan debt can make saving and investing a hassle for many young adults. But it’s still smart to start early in life — even in a small way — to foster the habits of saving and investing wisely.
Saving is simple, says Kent Grealish, an hourly rate investment planner with Grealish Investment Counseling in San Bruno, California.

Of course, simple doesn’t mean easy.

“It’s not rocket science, but it is really difficult — once you’re working and have been spending your paycheck — to save, because you spend whatever comes in,” Grealish says.
Save a little at a time
One way to master that difficulty is to concentrate on achievable goals, says PJ Wallin, founder of Atlas Financial, a financial planning firm in Richmond, Virginia.

Begin with a goal to save $25 per month to build up $1,000 of emergency savings in case you break your arm, your vehicle needs repairs, you lose your job or some other unavoidable expense comes up.

“If you told people that their emergency fund had to be $30,000, they would never save it. But if (their goal) is $1,000 right now, maybe we’ll talk again in 3 or 4 months and it will be $2,000,” Wallin says. “Bite off only what you can chew.”

Grealish says another sound strategy is to set up automatic transfers from your paycheck or checking account to a savings, investment or retirement account, so that you have to make that decision to save only once.

“Get that money out of your hands before it slips through your fingers,” he says. “Have it automatically deducted if you can. Don’t put yourself in that decision-making position because the odds are, you will come up with a better use of the money at that moment.”
Earn more to save more
If saving now seems too tough, make a commitment to yourself that you’ll allocate a portion, perhaps half, of any raise you get in the future to saving. That way, you’re primed to save more as soon as your income increases.

“You’re going to be making more money, so you’ll get something in your pocket, but you won’t miss that 50% that you’ve diverted,” Grealish says.

You might be able to get that raise sooner than you think, says Alan Moore, CFP professional at Serenity Financial Consulting in Milwaukee.

“The 1st step — and this is something that nobody ever does — is to just ask your boss and see if there is room. Sometimes, it is that easy,” he says.

Exploring other ways to increase your income also can start you along the road to saving more.
When you’re in your 20s, you should “obsess over” your ability to earn money, because income ultimately is what makes you financially secure, Moore says.

“Step 2 is to earn a little money on the side,” he says. “Can you blog? Design websites? Design logos? Walk dogs? It’s amazing the number of ways that people can come up with to earn an extra $500. That really makes a difference in the long run.”
Be an aggressive investor
The obvious 1st option for young adults who are ready to invest is an employer’s 401(k) retirement plan, especially if the employer matches a percentage of the employee’s contributions. That match is essentially free money.

A Roth individual retirement account, or IRA, is also an appropriate investment option for young adults, in part because this type of account can substitute as an emergency fund.

“It should be ‘don’t touch’ money,” Grealish says. “But, if you need the money, it’s better to take it out of the Roth than the 401(k), where you’ll pay an extra 10% penalty.”

Investments should be moderately aggressive and well-diversified, 2 goals that should be relatively easy to achieve with target-maturity mutual funds or a total stock fund, total international fund and total bond fund, Grealish says.

“Pick whatever asset allocation plan has something in the neighborhood of 70% stocks to 30% bonds. That’s about as aggressive as you want to get,” he says.

Some financial experts prescribe a higher allocation of stocks for young people, but Grealish warns that a stock-heavy portfolio can be more volatile than a less aggressive approach.

“You make a ton of money when the market is going up, but you lose a ton of money when the market is going down. Over time, you end up with more money with a less volatile portfolio,” he says.
When opportunity knocks, take it
Retirement is such a long time away for a 20-something that saving for it might not be an immediate priority, apart from securing an employer’s 401(k) match, Serenity Financial’s Moore says.

What could be more important is to pay off debt, especially at high interest rates, and have plenty of cash on hand to invest in opportunities and education that will help you earn more.

“If you need money to start a business, change jobs or move for a new job, and you can’t do it because all your money is locked up in accounts you can’t access, you’re in a bad spot. A 401(k) is not a savings vehicle,” Moore says.

Whatever you do, don’t become so overwhelmed by your options that you don’t act at all.
“There are so many buckets,” Wallin says, referring to saving, investing, paying off debt and other financial priorities. “The paradox of choice shouldn’t equate to no action. Pick 1 each year, automate it and you’ll be in a better spot than most of your peers.”
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