By beginning to save and invest money as a teen, you will be ready for big life changes. When you are ready to buy a house, start a family, or retire, you will have a safety net of investments to help you. Also, learning responsible financial planning at a young age may help you avoid the pitfalls of overspending and debt that face many Americans.
Track Your Spending
Before you can begin investing your money, you have to have some that you can save. Most people are unaware of the costs of the little extras that they purchase on a regular basis. For two weeks, write down everything that you spend your money on (yes, even that dollar you put in the vending machine). Once you have a picture of where your money goes, you can figure out how to save a few dollars each week. Do you regularly buy coffee or junk food? Try cutting it out (or cutting down to a smaller size), just once or twice a week. Then you will have that money available to invest.
Make a List of Financial Goals
Why are you saving your money? Are you trying to buy a car or save for college? Knowing what you are saving for will help you determine how much money you need to save each week or month. If you want to buy a car in a year, for example, you can figure out how much you want to spend and put aside a small percentage of it each week. Knowing what your goals are makes saving more fun, since you can see how close you are to getting what you want.
Talk to Your Parents or Other Trusted Adults
While there are many great online resources for investment advice, it may be better to start by discussing your plans with real people, who can advise you based on your situation. They can help you choose and open investment accounts and decide on a strategy that fits your goals.
Look at Mutual Funds
Investing in individual stocks comes with a great risk, particularly in times of economic turmoil. A well-managed mutual fund is a collection of stocks and bonds that many people jointly invest in. Think of it as a quick way to diversify your investments. This can help protect you from major losses if one company or segment of the economy does poorly.
Think About Retirement
Most teens don’t think about retirement. After all, it is 40 or 50 years away. However, if you have a job you can open a retirement account. You will have a ten, or even twenty, year head start on many of your peers. This means that you will have to set aside less money each year to have a comfortable retirement. Even starting with just a small amount of money each month will ultimately lead to a large return, thanks to compound interest. Normally, IRAs have a minimum initial deposit; however, that amount may be much smaller for account opened for a minor.
While you may have heard “Get Rich Quick” stories about different investments or stocks, the most reliable way to earn is through patient and steady investment. Focus on the long term. While it may seem like your investments are not growing quickly now, in the future you might be surprised at how much money you have accumulated. Also, a patient approach can help minimize risky investments that may result in big losses.
By starting to save and invest as a teen, you will have a huge advantage over your peers. You may have a down payment ready for a house sooner than they do and you will have less stress during your retirement years if you plan ahead.