Saving in Your Early 20s – What You Need to Know

Saving in Your Early 20s - What You Need to KnowIt’s not easy to understand the importance of savings for the future when you’re in your early 20s. When you’re in your 20s, you tend to be focused on the present instead of the future. But saving in your 20s is actually very important. Starting early gives you a big edge, and makes it much more likely that you’ll reach your savings goals when you retire. Let’s take a look at everything you need to know about savings in your early 20s.

Start Saving Immediately

There are many reasons why younger workers don’t save as much as they should, and lack of cash flow tends to be the most common reason. When you’re struggling to pay off student loans, trying to fund a 401(k) is the last thing on your mind. It might be difficult, but it’s not impossible. Even if you’re only able to save up a small amount of money each week, even $25, it will still add up over the course of 20 years, when you factor in compound interest.

Sign Up For Your 401(k)

The simple act of signing up for your employer’s 401(k) will encourage you to begin investing your money. Once you’ve got it up and running, you’ll be more motivated to invest money into it. In many plans, the employer will match up to 3% of your salary, which is free money that you should take advantage of.

Once you sign up, the money that you save will automatically be taken out of your check before it’s taxed. This means that a smaller amount of your income will be taxed now, and only when you withdraw it in retirement will you be taxed. Aim to contribute a few percent of your income at first, and if you can increase that to 10% or more, you’ll put yourself in good position later. Your future self will thank you.

Be Aggressive With Your Investments

People in their 20s can be much more aggressive with their investments compared to people who are older. For example, instead of placing 50% of your money in bonds, and 50% of your money in stocks, consider placing up to 90% of your investments in stocks. Why? Because someone in their 20s has a very long life ahead of them, so they can handle the ups and downs of the market better than someone in their 50s. Just make sure to hedge your bets by investing in as many different stocks as you can, such an index funds which tracks a large collection of different stocks.

Make Logical Decisions Regarding Money (Not Emotional Ones)

If you’re going to take these money-saving principles seriously, you need to consciously make logical decisions regarding your money. Younger people often choose to spend now and worry about saving later, but delaying gratification is one of the best things you can do for your future. Learn how to make logical decisions with your money that will help your future self rather than emotional ones which feel good now but will hurt down the road.

What is the Future for the Short Term Lending Sector?

What is the Future for the Short Term Lending Sector?Could the short-term lending sector finally be on the up? After years of negative press coverage, there are signs the payday lenders have finally cleaned up their act.

Recent reports of a 45 percent reduction in the number of complaints received by the Citizens Advice Bureau when compared to the same time last year is a sure sign that sweeping regulatory reform is starting to take affect.

In January to March 2014, Citizens Advice received 10,155 complaints about payday lenders. The number fell to 5,554 for the same period this year.

What changes has the FCA made?

The Financial Conduct Authority (FCA) introduced tough new rules to regulate the industry. The first of these changes was introduced in April 2014, followed by a price cap limiting the total cost of a loan in January 2015. While many commentators would argue these reforms were long over due, they do now seem to be having the desired effect and are forcing short term lenders to clean up their act.

The FCA’s rule changes were designed to regulate the way lenders operate on three fronts. Default fees have been capped at £15 to protect those who are struggling to repay their debts; the total cost of a loan has been limited to 100 percent of the original amount; and the total interest and fees have been capped at 0.8 percent per day.  The result of the changes is that someone borrowing £100 for 30 days cannot pay more than £24 in fees and charges if they repay the loan on time.

A fall in the total number of lenders

The attentions of the FCA have caused some of the industry’s biggest names to slash their workforce or leave the industry entirely, while a new breed of more responsible short term loans provider such as wizzcash.com, have filled the space they’ve left.

Some commentators anticipated that regulatory reform on this scale would result in the number of lenders in operation falling from up to 400 before the new rules came into force, to just three or four. However, this hasn’t been the case, with some 247 lenders applying to the FCA in February for authorisation to trade.

There is also no shortage of demand for short term loans, with a recent report by a leading payday lender identifying close to 13 million people across the UK that are both ‘cash and credit constrained’, and under-served by mainstream financial services.

The worry is that if payday loan providers disappear from the market entirely, there would be nowhere for these borrowers to go. Their only option might be to turn to illegal loan sharks for help.

With that in mind, the news that the payday lenders are cleaning up their act should be well received by consumers and commentators alike. While some charities might argue that payday loans are the cause, not the cure of financial stress, until the banks start to lend to those they are currently turning away, short term loans present the only real option for those in need of emergency cash.

How to Invest With No Experience

Maybe you’re fresh out of college in your first job, or maybe you’re getting a late start on your financial health. Either way, you’ve decided that you want to start investing. You’ve got some money saved up from your Bar Mitzvah, or maybe you’re keeping to your budget and throwing $500 a month into your savings account. And now you want to start investing but don’t know where to start. You’re in the right place, we’ll guide you through your best options.

Are You Investing For Retirement?

First, you have to decide what you’re investing for. If it’s for retirement, consider your 401(k) and IRA options. If you’re young and are in a low tax bracket, the Roth IRA is a great option. Whether you’re looking for a retirement account, or a taxable investing account for the short-term or medium-term, consider a low-cost company like Vanguard or Fidelity. Getting set up with them is very easy. Simply create an account on their website, and they’ll guide you through the process to get you set up. If you’re not sure which kind of account you need, there’s a clear hierarchy of investment accounts that you should follow.

It may feel overwhelming at the beginning. You have so many investing options and may not know where to start. You can invest in stocks, bonds, ETFs, and the list goes on. Thankfully, we’re here to help. If you’re young, you likely want to invest heavily in stocks, which tend to perform best over long period of time. If you’re in your 20s and 30s and you are going to have this money for 40+ years, stocks make a lot of sense.

Don’t Invest It All In One Stock!

Now that we know to invest in stocks, that still leaves almost an unlimited number of options. Should you put all your money into one stock? Apple has performed well, right? So should we just buy that and let it ride? Absolutely not! Diversification is really important. One stock might be volatile, but if you own bits of a lot of stocks across industries, you’ll be better protected from large swings.

Let Mutual Funds Do The Work For You

To diversify properly, we want to buy different stocks that cover different industries. And the best way to do that is to invest in a mutual fund. A mutual fund is a collection of stocks, so instead of you buying a little bit of each stock (which can add fees for each trade), you can effectively own parts of many stocks, without having to pay a $5-$10 fee for each trade.

You don’t need to be an expert to begin investing. Unless you want to do a lot of research, why not let someone else do the work for you? This is what makes mutual funds so attractive. Mutual funds are often run by groups of experts, so they do all the work, and you get to take advantage for a relatively low rate of 0.5%-1.5% of fees, or $5-$15 of each $1,000 invested.

Index Funds Are Incredibly Cheap

To take it a step further, an index funds are a type of mutual fund that tracks a specific index, like the S&P 500, for example. The reason I am such a fan of index funds is that since nobody is doing any manual stock picking (the stocks in an index are fixed, so a computer can do the work for us), the fees can be really low. For example, Vanguard has an S&P 500 index fund with fees of just 0.05% of your investment. Practically, this means that for every $1,000 you have invested, you pay just 50 cents!

The thought of starting to invest can be daunting, but getting started doesn’t have to be hard!

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