When most young professionals think about investments, their minds generally turn to the financial markets. But as the years go by, life will throw you more than a few curveballs, requiring you to look at the concept of an investment in a whole new light. Here is a list of five investments for beginners you may see popping up on your radar sooner than later.
Love & Marriage
If you’re single, you’re probably thinking, wait a minute; marriage isn’t an investment! Go talk to one of your married friends, and you’ll learn the truth. Love and companionship aside, marriage is an investment from Day One. First, you’re going to be investing time and energy if you want your wedding to succeed; that time and energy will likely come from the time you could be making money.
But there is a considerable financial investment to be considered as well. Think of marriage as a merger between two companies. Your income will likely increase, and there will be some savings by reducing duplication of services. But with the new revenue comes a new business partner, and you’re going to have to adjust to a new way of managing your money.
Financial problems are a leading cause of divorce in America, so make sure you and your spouse have “the talk” about money in advance, no matter how awkward it feels. Are you going to keep separate bank accounts or combine them into one? Who is responsible for paying specific bills? As lame as these questions may be, the number of people who get married without discussing them is staggering. And yes, of one of you feels strongly about a prenuptial agreement, you need to just suck it up and talk about it because the situation will only get tougher if you don’ t.
From a financial perspective, children are gross, sticky, diaper-filled money pit. They’re expensive, they’re too young to get a job, and worst of all, you’re going to want to give them anything and everything they could ever want. Why? Because your kids will melt your heart in a way you never thought possible, and that’s all there is to it. Don’t try to justify or rationalize it because it’s just plain awesome.
Because children are almost guaranteed to be a long-term financial drain, make sure you go into parenthood with a realistic expectation of how much you’re going to need to provide for your family. If having children is part of your long-term plan, you should begin putting money aside accordingly as soon as possible.
Buying a House
Buying a house with a thirty-year mortgage used to be a no-brainer, but for some people, it just doesn’t make much sense. Unless you have equity from the beginning, selling could be very difficult if you decide to move for work or any other reason.
Plus, if you have less than stellar credit, you may be pushed into a mortgage with too high of an interest rate to make sense. It’s true that you don’t earn equity when you rent, but you also avoid entering into a long-term financial commitment at a time in your life when you’re not in the best position to do so.
Investing in Stock
Investing early is a great way to build long-term assets, but be sure your investments make sense in relation to your income and other liabilities. One way to invest in the companies you believe in without breaking the bank is by purchasing fractional shares of stock using Stockpile. You can control your investments from the Stockpile app on your phone, and watch your money work for you. Even if you are a beginner to investments in stocks, it only takes one step to change the rest of your financial life.
Saving for retirement is essential because it is the roadmap to your retirement lifestyle. After working hard your entire life, you shouldn’t have to wonder about how you will make ends meet each month. Luckily, with some basic planning and financial discipline, you can make your money work for you along the way.
Many employers offer a match on contributions to a 401k; this is essentially free money, so be sure to save enough to meet the employer match.
Another benefit of using a 401k is the potential tax savings. The taxes on your 401k contributions are not owed until you withdraw the funds, presumably during retirement. This will lower your income taxes now and may even lower your tax liability by moving you into a different bracket. By the time you withdraw your savings in retirement, you presumably won’t have other significant sources of income, so the tax liability at that point should also be minimized.
These basic investment concepts may seem foreign to you in your twenties, but if you ignore them you will spend your thirties wishing you hadn’t, and you’ll spend your forties laying awake at night worrying about the future. Do the math and you will see the best way to maximize your savings is to give them as much time as possible to earn money for you along the way. Making smart choices now will allow you to live a much better lifestyle later.