Many young investors aren’t sure how to start investing and may be surprised to learn it actually begins by managing expenses and paying off loans. Discover why.
Like many young investors, you're probably focused on meeting your day-to-day expenses and paying off student loans or other debt. And you may feel like there's nothing left in your budget for anything else. However, it is possible to balance your current needs and future dreams. The first step is to create a plan that helps you manage and reduce expenses to free up money for your short- and long-term goals.
Here are some tips to help you get started:
There are numerous apps you can use to help track your spending. And once you know where your money's going, you can figure out how much is left for savings. If it's not as much as you would like, you might consider:
In either case, the money you save could be put towards your goals, perhaps a down payment on a house, a new car. or retirement. Once invested, these seemingly small dollar amounts could quickly add up. You might also consider setting up automatic deposits where the money goes directly to your savings so you won’t be tempted to use it for something else.
On top of your expenses, you may also have student loans, and contrary to what you might think, this might not always be a bad thing. Making timely payments may boost your credit score, which is important when applying for a mortgage or purchasing a car. To help keep your payments on track and possibly free up cash, consider looking for ways to reduce the amount you owe or to make the payments more affordable, such as:
Keep in mind that not all of these options may be available depending on the type of loan (private or federal) and your financial situation. Contact your loan provider for more information.
In addition to student loans, you may also have credit card debt, a car loan, or a mortgage. To help manage these obligations, you may want to create a spreadsheet that lists the outstanding balances, monthly payments, and interest rates. This may help you prioritize your debts and decide the best approach for paying them off. Some ideas to consider include:
Being a mindful spender isn't always fun, but it can be rewarding. The experiences you put off today may allow you to enjoy greater experiences later in life. And the earlier you start investing the cost savings, the more time you'll have for these smaller dollar amounts to potentially grow through compounding. In future “Money Smart" articles, we'll look at different ways you can invest to build a portfolio that aligns with your goals.
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