How to Start Investing in Your 20s

Every day you wait to invest and make smarter money decisions is a wasted opportunity. Some of these techniques are simple, fast and effective. Others take some time to understand and apply, but most can become habit in very little time. The key to success when learning how to start investing in your 20s is to favor the long term for the short term. There are even a plethora of reasons why you should invest in the stock market in your 20s.

You're not trying to make a quick buck, you're trying to setup a secure future. Scary to say, the future isn't that far away. So let's start to put your money where you know you can count on it later, like saving for retirement.

Take advantage of 401k and employer match.

Do you know what benefits your employer has? When you take your first real job out of college, the mountain of paperwork and options can be overwhelming.

But a key to investing in your 20s is taking advantage of your 401k. If you're worried it's too late, most companies allow enrollment twice per year. In order to do so, connect with an HR professional to understand your options for enrollment.

Many employers offer a 401k match. This is a huge benefit because it's practically free money. Here's how it works. You contribute a set amount of your paycheck to your 401k (typically between 1-4%). If your employer offers 401k match, they'll add to your contribution by matching a set amount. Rules on matching vary by employers, so make sure you are getting the maximum benefit you can afford with your contribution.

Understand your investment options.

Other than a 401k, you have the ability to invest your money in other fund and accounts. There's plenty of options, so let's look into three of the more popular options.

An investment you might be familiar with is a Roth IRA. This retirement account allows you make annual contributions of up $5,500. So, if your budget can afford $100 a week, you can reach nearly the max amount and start making a serious investment for your future.

Another type of investment is a Target Date Fund. With this option, you invest in fund designed around your expected retirement date. If you're thinking you'll be retired in 2065, you would choose a target date 2065 fund. This fund is made up of a number of different assets and typically adjusts risk based on the fund's maturity.

Yet another option is Exchange Traded Funds (ETFs). What is an ETF, you ask? ETFs are designed to mirror the behavior of indexes, commodities and even countries. ETFs behave similarly to stocks. And like investing in stocks, ETFS experience fluctuations throughout the day, and can be traded on exchanges.

As you can see from these three examples above, there are different options for different types of investors. It's best to talk to a financial advisor to understand your willingness for risk and assess your options.

Get rid of debt.

If you're thinking about putting money into funds for your future, you'll want to begin with getting rid of your debt. You might be wondering, should you invest or pay of debt? The burden of making payments on student loans might prevent you from making investments in your future.

So before you celebrate being debt free, you'll want to consider putting your old monthly student loan payment toward your future. The bad news is that your checking account might not get the boost you're looking for. However, the good news is that you're already used to living without that money. So if you can place it towards an investment in your future (even if that's just a savings), you can realize larger gains in your future by investing in your 20s.

Build good credit.

Credit is a financial catch 22. If you don't have credit, it can seem impossible to build it. This makes it difficult to get credit cards or obtain loans with good rates. The fastest and easiest way to get good credit is by drafting off of someone else with good, established credit. For most people, this could be your parents. Most credit cards would allow you parents to make you an authorized user on their card. This helps you piggy back off their credit rating. Another option is to have your parents cosign when you open a credit card. Finally, if you're paying rent for an apartment, you might have the opportunity to have that payment recorded on your credit report.

Once you do get a credit card, remember to stay within your means. A good way to start using a credit card is to pay for fixed monthly bills or subscription you've already budget for. If you're used to paying for Netflix, Spotify, or another service, move those to your credit card and pay your bill off in full every month.

Develop a savings discipline.

Instead of getting everything you want when you want, you need to start delaying gratification. The cure to buying everything is to start saving. Building a savings is a great way to start investing in your 20s. It's also a great skill to teach you patience and develop better buying habits.

It's easy to feel like you need a new outfit or new pair of shoes. But you should ask yourself, "Can I afford it?" If not, then ask yourself, "How long would it take you to save for it?"

Maybe you can make small modifications to your budget to get that item at a later date. As an added bonus, it will make the item feel even more earned. Sometimes when you exercise patience, you'll realize you didn't need that item in the long-run or you'll find a more affordable alternative. Both of these outcomes also contribute to your savings. Win win.

Make a budget.

If you don't know what you're spending, it's going to be hard to maximize your investing in your 20s. It's pretty common for young people to go paycheck to paycheck. With a budget, you might be able to prevent this feeling of stress and anxiety.

Don't panic about making the budget either. It doesn't have to be a complicated Excel spreadsheet. Your budget should start with identifying your spending habits and your necessities to live. Start with the big items and fill in from there.

First, ask yourself questions like, "What is my monthly post-tax salary?" and "What's my monthly rent?" Those are likely your biggest sources of income and your largest expense. Then, what else do you spend on? Hopefully, you've got food in your budget along with your cell phone and cable bill.

Keep working out the details and start tracking your spending month to month. You'll quickly learn where you're spending your money, and where you might be able to save. Consider using those savings towards your future by investing in your 20s.

Cut the cord.

We're all connected. We're attached to our phones, laptops and TVs, and we lose our minds when we have a slow connection. But there's plenty of ways to live without, and companies are already reacting to people cutting the cord. Because let's be honest, TV, cable and internet are some of our largest expenses.

I'm not suggesting you throw your phone in river and go off grid, but look for opportunities to save. If you live with roommates, could you survive on internet and streaming services? Getting rid of cable might help you all save some money.

Another option is discovering underutilized services. For example, Amazon offers music streaming, audiobooks, and other features with a Prime Account. Maybe there's an opportunity to eliminate a service as a result.

And when in doubt, library it out. Libraries are great because they typically have free everything: Wi-Fi, books, eBooks, movies, and music. If entertainment happens to be some of your biggest expenses, maybe you could get by using the library.

Track your money with software and apps.

Thankfully the geniuses of Silicon Valley and beyond have thought of you and your financial futures. There are dozens, if not hundreds, of apps and software to help you with investing. More than sending money to friends, there are services that offer you the opportunity to purchase cryptocurrency, track expenses and monitor your investments.

Investing in your 20s has never been easier as you can login and quickly assess the state of your finances. Plus, there are typically beautiful charts and graphs to help you understand your numbers visually. Seeing a big slice of your financial plan can be the lightbulb that makes you realize a change in your money habits.

Ditch your desire for new and shiny.

Here's a really simple tip: new stuff is always more expensive. And while there are certainly some things you don't want secondhand, there's plenty you can totally live with.

First of all, your car is definitely something you should consider buying used. Perhaps, you've heard that a car starts depreciating in value the moment you drive it off the lot. It's true, and in fact it doesn't get any better in the coming years.

You can expect your brand new car to lose 60% of its value in the first 5 years! So purchasing a new car is a terrible idea for investing in your 20s.

That beings said, if you're in the market for a car, you should consider a used car with a neutral color, good gas mileage, lots of features, and a strong brand. These should help prevent your losing more value should you need to resell.

Beyond cars, think about buying used furniture, clothing and appliances. All of those can be really expensive new but obtained for a fraction of the cost after someone else tires of them.

Prepare for the absolute worst.

There will come a day where you're going to need money that you likely don't have. An unexpected accident, illness or other tragedy is probably going to happen to even the luckiest of people. Unfortunately, an incident like this can wipe your savings and put you into serious financial trouble. That's why you'll want to plan for it.

This should be a portion of your savings, a true rainy day fund. You'll want access to it, but make sure you don't tap into it for frivolous things. That's why you should avoid a standard savings account. Consider a money market, CD or high-yield savings account.

And as with all decisions about learning how to invest in your 20s, it's best you seek advice from a professional advisor on how best to allocate your money.