Money Management

The sooner you’re able to start, the better. 

Whether you’re investing your money in a brokerage account, an IRA, or both, your goal is no doubt to make as much money as possible given your goals and risk tolerance. And often, that boils down to starting to invest from a young age.

It can be hard to motivate yourself to go that route, though. After all, when you’re in your 20s, the idea of opening and funding an IRA account can seem daunting or just plain undesirable given how far away retirement is.

But actually, the earlier you start to invest your money, the more you stand to benefit. Here are just a few reasons to invest from a young age rather than wait.

1. You can take on more risk in your portfolio

Investing in assets like stocks can be risky. But if you give yourself a long investment window, you should be more comfortable taking on that risk. And to be clear, you need some risk in your portfolio if you want to reap rewards.

Investors who invest too conservatively might limit their risk, but they also commonly limit their returns in the process. And to be clear, that puts them at risk of not having enough income once retirement rolls around.

2. You can enjoy added growth without having to do anything

The longer you put your money to work, the more you can benefit from compounded returns in your brokerage account or IRA. Compounded returns refers to being able to earn a return on your principal contributions as well as the returns they generate.

As an example, let’s say you invest $1,000 at the start of the year and it grows to $1,100 by the end of the year. That second year, you’ll get to invest $1,100, not just your initial $1,000.

To show what an impact investing from a young age might have, let’s say you invest $100 a month over a 40-year period at an average annual 8% return, which is a bit below the stock market’s average, as measured by the S&P 500 index. Though you’ll only be putting in $48,000 in principal contributions, you’ll end up with about $311,000 when you account for compounded returns.

If you’re still not convinced, check out this tweet by financial guru Ramit Sethi, who says “At a certain point, your investments make more than you can spend. Start early.”

3. You can develop good habits that help you for life

It takes a degree of sacrifice to be carving out money for your brokerage account and/or IRA at a young age. But learning to prioritize your savings and investments is a good habit in general — one that might prevent you from overspending and landing in debt.

After all, if you’re steadily funding an investment account, you’re not spending all of your paycheck. And that alone has a lot of value.

Some people wait to invest their money and regret it later on. But there are many good reasons to invest from a young age, so if you manage to get into that habit, it might lead to a world of financial security and success.

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80% of millionaires did this — and so can you. 

It’s no secret that becoming a millionaire requires hard work and dedication. But what’s the key to getting there? Winning the lottery? Is it inheriting money or earning a high salary? Believe it or not, 79% of millionaires in the U.S. did not inherit any money, and 1 out of 3 didn’t even have a six-figure salary. According to a new study, 8 out of 10 millionaires regularly invested in a 401(k) plan, which was the key to their financial success! Here is why focusing on this one aspect of investing is the path to becoming a millionaire.

The power of compound interest

Millionaires understand the power of compound interest. Compound interest is when you earn interest on both the money you’ve invested and the interest you already earned. So each time you earn interest, it compounds — meaning your investments grow exponentially over time. This is why having an early start in investing can make such a big difference. The earlier you start saving, the more time your money has to grow with compound interest working in your favor.

If a 22-year-old invested $5,000 each year and earned an annual return of 8%, by retirement (age 62), he would have $1,452,259.26! In the same example, someone who started 10 years later would have just $619,989.53 by age 62. The 22-year-old would end up with more than twice as much money just by starting at age 22 instead of 32. Even though time is an important factor, don’t let that discourage you. It is never too late to start investing.

And while compound interest can be used with any type of investment vehicle, taking advantage of employer-sponsored retirement plans, like 401(k)s, can help boost your savings even more because contributions are tax-deferred and often come with matching contributions from employers.

Don’t leave free money on the table

If you are already enrolled in an employer-sponsored retirement plan like a 401(k), that’s great! But don’t forget to take advantage of any employer matching contributions as well. Many employers will match up to 3% or 4% of your contribution each month — which means they are essentially giving you free money. That number may not seem like much at first glance, but over time those contributions add up significantly and can really help boost your savings when combined with compound interest.

Invest consistently

Compound interest can substantially grow your savings even if you can only put aside a small amount. The key is to start with something, even if it is $20 per paycheck. Try to save a little more over time. When you get a pay raise, it’s tempting to spend on new things and raise your standard of living. A better bet is to keep your standard of living the same and sock away any pay raise you get.

If you can save $50 per paycheck, assuming you get paid twice a month, that would be $100 a month. If you are 22 and earn 10% in a retirement account like a Roth IRA, by the time you retire at 62, you would have over $630,000. Want to save more? Bumping that amount to $200 a month would result in about $1,265,000 and saving $350 a month would be $2.2 million!

The goal is to make saving an automatic habit. The study found that in addition to investing in their 401(k) plan, 3 out of 4 millionaires said that they invested a regular and consistent amount of money over a long period of time. They didn’t become millionaires overnight. Only 5% attained that feat in less than 10 years. It took the vast majority 28 years to become a millionaire, and the average age they hit that milestone was 49.

Investing consistently over time helps ensure that your money has enough time to grow with compound interest working for you. While it may be tempting to invest large sums all at once or to skip months where funds are tight, regular investments are key if you want to reach financial independence in the long run.

It takes hard work and dedication to become a millionaire, but understanding how certain aspects of investing work can put you on track towards financial independence. Focus on what you can control, like enrolling in an employer-sponsored retirement plan and taking full advantage of employer matching contributions. This will help you boost your savings so you too can reach millionaire status one day. Investing consistently will give compound interest plenty of time to work its magic!

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Sometimes, it’s the things you don’t do that matter.  

Whether you’re involved in a fender bender or a serious auto accident, it’s crucial to know two things: What you should do and what you absolutely should not do. This list covers seven things you should never do if you’re involved in a motor vehicle accident.

1. Leave the scene

Leaving the scene of an accident is a crime in many states. If you’re not hurt and it feels safe to get out of the car, walk around to assess the situation. If you feel unsafe, call the police and wait in your vehicle until help arrives. Whether you assess the situation or remain in your car, do not drive away until the police have made a report.

2. Lose your cool

Even if the other driver was clearly at fault, do not allow your emotions to spill over into a shouting match or physical altercation. It’s natural to be frustrated, but you don’t want to get arrested for assault.

3. Admit fault

When the police or an insurance adjuster asks about the accident, be honest, but avoid taking the blame. Avoid saying, “It was my fault,” or “It was my fault, too.” You should speak with your insurance company on the day of the accident and will likely hear from the other party’s insurer within a day or two. Those conversations are recorded. Once they have you on record taking the blame (full or partial), the words can be used against you. You may even be sued.

Also, avoid talking to the other driver about who was at fault or how the accident occurred. Lawyers recommend that you don’t even apologize, as an apology can be construed as an admission of guilt.

4. Forget to exchange information with the other driver

Even if the other driver tries to brush you off by saying the damage is too minor to worry about, get their name, the name of their auto insurance company, and their policy number. Ask for their driver’s license number, cell phone number, address, and license plate number.

If there are any witnesses, you may also want to exchange information with them. Not only will your insurer wish to speak with them, but they can back your claim if the other driver is hostile.

The reasons you need to exchange information are simple: To file an insurance claim and to seek compensation if the other driver is at fault.

5. Agree not to call 911

If the other driver is uninsured or driving on an expired license, they may try to talk you into “leaving the police out of it.” Never agree to this. If there’s any chance you’re going to file an auto insurance claim, you’re going to need the police report number. Plus, if the other driver is at fault and later refuses to admit it, you’ll have the report to back up your story.

If you or someone else is injured in the accident, call 911 immediately.

6. Fail to document the accident

Once you’ve ensured everyone in the car is all right, pull out your phone and take pictures. Get plenty of shots of vehicle damage and any injuries. The more photos you take, the better. Here are a few more images that could come in handy later:

The scene of the accidentThe other driver’s vehicleRoad conditionsPosition of both vehiclesSkid marksIf your hazard lights were on at the time of the accident

Also, note the date, time of day, and where the accident occurred.

7. Underestimate how badly you’re hurt

The adrenaline that rushes through your body when you’re involved in an auto accident does not take pain away, but distracts you from painful sensations. You may think you’re perfectly fine but have a serious injury. Get checked out by a doctor as soon as possible. If it’s apparent that you or a passenger in your car have been injured, go to an urgent care center or hospital to be treated.

In the days following the accident, you will be asked to speak with insurance adjusters and deal with any damage done to your vehicle. If you’re frustrated or not sure what to do next, contact your insurance agent. No one enjoys paying for auto insurance, but it’s good to know you have it when the need arises.

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Saving up for a vacation well before you leave can help ease your stress. 

While traveling can be an exciting adventure, it comes at a cost. As you plan your next vacation, don’t let the high price tag keep you from booking. One strategy that can make the cost less frightening is to save up for your vacation before you firm up your plans. There are many ways to save up for your next trip, and reaching your savings goal could be easier than you realize.

1. Collect your extra change and put it in the bank

If you frequently pay with cash, this could be a great money move for you. Every time you use cash and receive change, stash your spare change in a jar. Let your spare change collect for a few months and when you’re ready, tally up your savings and deposit it into your bank account. You may be surprised at how much extra money you can save this way.

Need help cashing in your change? One option is to cash in your change using a service like Coinstar and then deposit the cash into your savings account. But these services charge fees, so you won’t get to keep all of your money. To save on fees, it’s a good idea to take your change directly to your bank. Check to see how your bank handles change before you go. You might be required to roll your coins before depositing your money — but some banks have counting machines.

2. Cut out one expense and save what you’d spend

Are you paying for expenses that you’re not using? Many people are. For example, you may be paying a monthly subscription fee for a streaming service you forget to use. You could free up some money for travel by cutting out one expense like this. Get rid of the expense and then put the money you would have spent into your savings account. If you continue to save what you would have paid, you may be able to reach your savings goals sooner.

3. Automate your savings to make regular savings a breeze

Another way to save up for your next vacation faster is by automating your savings. Many people hope to save more money, but they get forgetful and fall behind. By setting up automatic transfers from your checking account to your savings account, you can ensure you’re setting aside money regularly. Doing this will save you time and keep you on track to achieve your goals.

4. Redeem credit card rewards for travel

Paying for everyday purchases with rewards credit cards is an excellent way to earn rewards. You can earn cash back, points, or miles, and redeem them for travel. Many of the best travel rewards credit cards allow users to redeem their rewards for nearly-free flights and hotel stays. This strategy could make your next vacation much more affordable.

5. Get a side hustle to boost your income

It can be difficult to save when your income is limited. If you want to save more money, you may want to consider getting a side hustle. Working a gig a few hours a week could help you boost your income, so you have more money to contribute toward your vacation fund.

Don’t give up on your travel goals

Yes, travel can be expensive. But that doesn’t mean you can’t make travel a priority. If the cost is a big concern, starting with a more manageable trip, like a weekend getaway, could be a good idea. Figure out where you want to explore, outline a vacation budget, and start saving. You can prioritize your personal finance goals while making your travel goals a reality.

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Whether you’re buying or selling, these are good things to know. 

Many people have been struggling to buy a home, and for good reason. Last year, mortgage rates began rising sharply. That alone is tough enough. But home prices have also been elevated. So all told, buyers have faced affordability issues galore.

Housing market conditions can shift from one month to the next. And April could be an interesting month in the context of real estate, since spring is when property listings tend to pick up.

But we can’t necessarily expect a huge jump in inventory in April. Here’s what the housing market is likely to look like.

1. Mortgage rates will likely remain high

At the start of 2023, mortgage rates started to drop, which led to an uptick in home sales. Case in point: Existing home sales rose 14.5% in February compared to January, according to the National Association of Realtors (NAR).

But mortgage rates are likely to remain elevated in April. They might dip slightly, but it’s fair to assume that they’re not about to fall below 6% anytime soon. And they might creep up toward the 7% mark.

2. Housing inventory might increase modestly

Spring is the time for homes to hit the market — in a normal market. In the past few years, we’ve had anything but.

Even if real estate inventory picks up a bit in April, buyers won’t have all that many choices. As of the end of February, there were only 980,000 unsold existing homes, according to the NAR. That’s a mere 2.6-month supply. And for context, it typically takes a minimum 4-month supply to balance the housing market.

Of course, limited housing inventory is a great thing for sellers. The less competition there is, the easiest it becomes to command higher prices.

But home sellers should be aware that because mortgage rates are higher these days, buyer demand isn’t what it was a year ago, or back in 2021. So sellers should be prepared to make some concessions, even with inventory being pretty low.

3. Home prices will remain high

In February, the median existing home sale price dropped to $363,000, per the NAR. That’s a dip of 0.2% from one year prior. But it’s also not a very notable decrease.

If housing inventory picks up more than expected in April, home prices could start to drop at a more moderate pace. But buyers should not expect, say, a 5% drop in home prices. A 1% drop would, at this point, be significant given the way home prices have trended over the past year.

Should you buy or sell a home in April?

Unfortunately, April is shaping up to be a pretty difficult month for home buyers. Those looking to sell a home may have more success, especially if they list early, before the competition increases.

That said, buyers should take comfort in the fact that home prices are starting to drop. If inventory jumps in April, it could set the stage for more affordable prices in May. And if mortgage rates happen to dip at that point, it could help address the affordability crunch that’s been plaguing buyers for months on end.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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