Investing If You’re 25 – How Much to Invest, If at All

Oscar R. Mondragon

Posted on 10/20/2020

by Oscar R. Mondragon

Investing If You’re 25 – How Much to Invest, If at All

People often wonder when the best time to invest is; was it in the past? Is it now – in the present? Or is it in the future? However, the fact is that there is no ‘best time’ to invest. From the time you hit 20 all the way up to your retirement, financial security is something that you keep on working for throughout your life.

This may include retirement funds, buying stocks, property or even setting up your business. It is important to remember that investing at any age is more than just possible. Experts suggest that the best time to start investing is ‘as soon as possible’, which often means the time you start earning.

Most people start earning by the age of 24. Some start sooner, some slightly later. But by 25, they’ve had a year-worth of time enjoying their income and now they become a little more responsible with their money. Investing if you’re 25 might not seem possible, but it actually is a great way of reducing how much you invest to reach your goals by the time you retire.

An investment of as little as $15 per month now can save you from having to invest double that if you start investing at the age of 30 – assuming your goal is to reach the $1 million mark. In this article, you will learn how to invest if you’re 25, where, and how much.

401(k) Plans - Sharing the Load Early On

Corporations are now making themselves more attractive to employees by offering retirement plans to employees, effectively helping you save for retirement. This is mostly done via 401(k) plans. These are basically tax-advantaged retirement accounts where you and the employer make regular contributions (a certain percentage of your salary), which can be withdrawn once you retire.

The percentage is usually not that significant if you look at it from a big-picture point of view, so try to contribute as much as possible. These contributions often start from the first job you get and only increase with time as your income increases. Take advantage of these contributions as much as possible.

Let’s say you earn $25,000 a year at age 25, and you contribute 6% toward 401(k). Your employer will match half of what you contribute. Beginning at age 25, you and your employer will be contributing $2,250 in the first year. Not including the growth rate and assuming that your salary remains constant (which is highly unlikely), by the age of 65, your 401(k) account will hold around $90,000.

With an annual salary increase of even just 2.5%, you can expect your savings to go well beyond the $1 million range by 65 easily, if you’re investing at 25!

Pay Off Your Debt

Student loan debt in the US in 2020 amounts to $1.6 trillion, a record high. Debt is one of the biggest holes in any bank account and is an enemy to saving ventures. You might not think that paying off debts is a way of saving, but it is.

By 25, if you don’t have any student loans looming over your head, you’re one of the lucky ones. If you do, however, you will find that a huge chunk of your salary will be transferred regularly as repayment. This portion of your income will be ‘going down the drain’.

The longer you put it off, the more interest will be compounded and the more you’ll have to pay. At the age of 25, you would do well to either pay off debts or work toward decreasing your load at least. By adding as little as $50 to what you pay regularly, you will be saving up on how much interest you’re paying.

Once your debt is gone, you can put the same money into a savings account or long-term investments, preparing yourself for retirement.

Get Help Managing Your Money

Investing your money and keeping track of your investments might seem easy on paper, but there are numerous intricacies involved as well. It pays to have a wealth or investment advisor by your side, helping you make better decisions about your investment and even handling changes on your behalf. Not only do these advisors keep you from making any oversights, but also act as buffers against your own mistakes, helping you stay relaxed.

At the age of 25, you aren’t ready to take on the world of finance unless you’re working in the field. The thing about advisors is that they have spent a lifetime in the field and for a small fee, can help you navigate the tricky marshes of finance. Studies show that those that work with an advisor do better than those that don’t.

Incrementing Savings Is Much Easier

Investing when you’re 25, you can even start with just depositing $25 in your savings account. Starting out is the main hurdle, but once you do, the rest comes easy. A monthly contribution of $25 at the age of 25 means $300 per year. It’s not much, yes, but it’s something. As your income increases, you should also continue saving more. Over time, you should keep on increasing how much you save.

There are several online retirement calculators you can use to give you the right monthly savings goal, but they don’t take the whole picture into account. For that, you should consider asking a professional for advice.

Ask them to give you a savings plan with little, manageable increments. Consider the example of your 401(k) contributions. If you increase your contributions every time you get a raise by half of your raise, you could have a substantial amount by the time you retire!

We recommend you get in touch with our retirement experts to help you create a tailored plan early on. After all, the earlier you start, the easier saving will be for you! Investing if you’re 25 might seem like it’s too early – and some might even tell you so – but at the end of the day, by working toward financial security early on, you’re simply making life easier for your future self!

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