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The 20s is the season in life to live it up and have fun, enjoying what is arguably the most liberated time of your life. What most people fail to realize is that this time is also the most crucial period to begin thinking about your financial future. Although retirement may seem like a lifetime away, the steps you take in your 20s can ensure long-term financial health:

Start Early

Chances are if you are reading this article, you already know that you need to be starting your savings game sooner rather than later. The single most important advice for any person is to start early. The power of compounding interest cannot be denied. By calculating interest on both the principal amount as well as the interest on previous dollar amounts, your money will grow even faster.

Incrementally Increase the Savings Rate

When you are young and just starting out in life, it can often be difficult to scrape together the extra money each month to invest. However, it does not have to be all or nothing. Start small in your 20s and aim to gradually increase your savings rate each year as you age.

Maximize Employee Matches

One of the most critical rules in saving for retirement is never to leave money on the table. Many employers offer 401K matching incentives. It is well advised always to max out any of these equal opportunities to boost your own retirement contributions to the fullest.

Don’t Shy Away from Risk

Youth is the time to take risks in investment strategies. Although it can be disconcerting to see short-term drops in funds, it is important to remember that you will come out ahead down the road. Playing it safe early in your investment career can hinder the explosive growth that you will want to see in the end.

Make it Automatic

By setting up an automatic saving and investment plan, you will get in the habit of paying yourself first. Don’t put yourself in the position of having to decide between saving and spending money for instant gratification. If the money always goes from your paycheck straight to your investment fund, you won’t be tempted to use the funds on the short-term fun.

 

Be sure to check back soon for another blog on investing tips in your 30s!

 

Robert Desai is an established equities investor located in the Greater Boston Area. Read more of his investment blogs or check out his Twitter!


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