For those of you who are in your 20s, you may be still in school or just starting out in the business world. Your salary may not be where you would like it to be in the future. You may be newly married and are contemplating starting a family.
Valerie RumboughThese things alone can make managing your money challenging and discourage you from investing for the future. Actually, now is the perfect time to begin to invest. As you begin that new job, also begin working on your new budget. Be sure to include something in the way of savings, both for short-term needs and for retirement. Keep in mind a few things as you do.
First of all, you have a wonderful advantage over the rest of us – time. The time value of money is the most significant reason to begin saving early. Someone age 20 who saves $200 per month and earns an 8 percent annual return will see $1 million in their account at age 65. Someone age 30 will have to save $450 per month to have the same amount at age 65. That’s a big difference.
Time is also on your side with regard to risk taking. You have several decades to watch the market rise and fall, allowing you to be able to take more risk in your investment choices, and hopefully, see a greater return. Diversification is very important to overall investment success, so as you begin your investment journey, consider mutual funds. This gives you the advantage of investing in several different companies for not a lot of money.
Check with your employer and see what retirement options are offered to you there. This type of saving is tax deferred, allowing you to reduce your taxable income by the amount you set aside in this manner. Also consider opening a Roth IRA. When your income is low, and you have many years until retirement, a Roth IRA is a smart way to go. You cannot deduct your contributions from your taxable income, however, when you retire, all of your contributions, plus all the earnings, can be withdrawn tax free. This is a great deal for those who qualify.
If you are contemplating any of these things, consult a financial professional. They can work with you to help you come up with the best way to save.
Finally, remember what the Bible says about investing: “Cast your bread on the surface of the waters, for you will find it after many days. Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth” (Ecclesiastes 11:1-2).
Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at (800) 723-7242. In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purposes. Please consult your own tax advisor.