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Investing Earnings in Your 20s and 30s
Why is investing your earnings during your 20s and 30s a good plan? The answer is fairly basic but involves a few parts. The first part of the answer is that you should not be planning to tap into investment income until you are retired, or at least near retirement. The next part of the answer involves growth, and if you allow your earnings to build your investments you will see enhanced and rapid growth. Finally the answer involves time, and if you are only in your 20s and 30s then you have something you will not have farther down the road – loads of time. Most investors don’t begin planning for retirement until nearing forty and if you can give yourself a decade advantage the returns will be magnificent.
How do you invest your earnings? This too is simple, and involves making some choices early in your investment planning. The first thing to do opt for pre-tax dollars to be used for your investment strategy, which also reduces your tax burden during these earlier years. This period in life is also statistically one in which far more aggressive amounts can be dedicated to investment, unless the individual already has a family or owns a home which may limit their total contributions to their retirement funding. Generally, however, a majority of investors in their 20s and 30s will be able to operate at a higher amount of dollar cost averaging for a period of time, which sets them up for some greater long-term opportunities or growth.
Many people will be able to invest their earnings through employer sponsored contribution programs such as IRAs and other approaches as well. It is also a great time to consider a salary reduction plan of some kind or another. These allow someone to deposit a set percentage of their pre-tax salary into a tax-deferred investment account. It means a lesser tax burden of course, but also allows the investor some input into how the money is invested – for example in a equity or money market fund. This is a great way to get into the habit of making retirement plans because the employee never “misses” the money. They are the simplest approach to accumulating retirement income, and many employers match at least a portion of the contributions made by their staff.
All of these approaches to investing earnings in your 20s or 30s will give your future retirement plans a significant boost and may allow you to retire at a measurably earlier age.