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Starting to build wealth in your 20s is easier than you might think. With the right plan, you can begin investing and building long-term financial stability throughout your life. To help you understand how to get started, let’s look at some of the key steps for building wealth in the 20s.
Begin
The first step is simply to begin. While a simple step, this is often the most difficult step. The beginning investment doesn’t need to be a massive investment, it just needs to be something, $50 or $1,000, that you are comfortable investing.
Establish an Emergency Fund
The first step towards building wealth is to establish an emergency fund. This is money that should be set aside for any unexpected costs or emergencies that come up. It’s important to have a cushion so that you’re not scrambling to find funds when something unexpected happens. The amount of money you should keep in your emergency fund will depend on your individual circumstances, but it’s generally recommended that it should be at least three months of living expenses.
Invest Regularly
Once you’ve established your emergency fund, the next step is to start investing regularly. Investing can seem intimidating if you’re new to it, but there are many simple and easy ways to get started. You can open a brokerage account and start buying stocks or mutual funds with as little as $50 a month – no need for large sums of money upfront! Automating your investments can also make it easier because it takes away the temptation of spending that money elsewhere.
Understand Your Risk Tolerance
Before investing, it’s important to understand what kind of investments are best suited for your risk tolerance and financial goals. Some investments may generate higher returns over time but come with more risk than others, so it’s important to find the balance between short-term gains and long-term security. If you’re unsure about where to invest or how much risk is appropriate for you, consider working with a financial advisor who can provide personalized advice tailored specifically for your needs.
Don’t cash out of your investments
While it can be tempting to cash out and use your investment funds for a fabulous vacation or for a significant purchase, it is critical to maintain your investments for the long term. ‘Stick to the plan’ is the operative saying here. Once you pull monies out, you set yourself in time. Hard earned investment growth will be lost. If you took your funds out of a qualified plan such as an IRA or 401k you may be able to return the funds within a period of time without penalty. Check with your financial advisor.
