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Five Ways To Start The Wealth Building Process In Your 20s

25 August 2008 3 Comments

The focus of this blog is to help 20-somethings start the wealth building process in their 20s. This process should start now, not down the road when your plan to make more money. It is imperative to start as soon as possible if you want to hit your financial goals. Let’s look at five ways you can start the wealth building process immediately.

#1- Start Early

The numbers don’t lie. Those who start putting away money early on have an absolutely HUGE advantage compared to those who wait. Unfortunately, your 20s are also the toughest time to put away large chunks of money because of lower incomes. To help overcome this, find a few areas that you may be overspending in your life and slash those amounts significantly. Then, setup a few automatic draft options either an automatic 401(k) deduction from your employer or an automatic transfer each month into your high interest savings account. This decrease in your paycheck will sting at first, but you will get used to it sooner than you think and you will be fine. Your life will go on. Send me an email in 10 years thanking me for making you save in your 20s.

#2 – Learn How To Invest In Companies That You Like Whether The Stock Is Up Or Down

This is a skill that if you can learn early in your investing career, you can begin building some strong positions in great companies that can become pillars of your wealth down the road. In order to accomplish this, you must learn to remove emotion from your investing. The worst thing you can do is invest in a great company and sell the stock when the stock price drops a few points. Unfortunately, the majority of the investing public does just that.

Assuming you have done enough research and due diligence to justify your initial purchase, the stock should be more attractive at lower price levels. So, there are two things you need to master to build a few strong positions over time: 1) Find companies that have such a compelling long term story that you will want to continue to buy shares over time at different price points and 2) Learn how to remove your emotions from your investing decision so that even if your fuming over being down 10% on this position, you are calm enough to buy more.

If you chose the right companies, the result will be a portfolio of large positions and high returns.

#3 – Balance Your Income & Expenses Responsibly

It’s amazing how many do not know how to manage their money satisfactorily. Nobody is saying you need to become a Nazi Saver. Keep it simple, determine what percentage of your income you want to live on and then do it. For example, I try to live on 80% of my income. Make the necessary small sacrifices needed to accomplish this. By doing this, you will be able to accomplish #1 above – Starting Early.

#4 – Get Your Degree

The studies don’t lie. People with college degrees simply earn more than those who don’t have them. Your major doesn’t matter. Most employers including my company don’t look at individuals unless they have a college degree. It is the first elimination criteria. Finish your degree and watch how many more doors will open for you. I promise if you don’t, you will regret it later in your life. Degree-less, you will hit a ceiling in potential income much faster than your college graduate counterpart.

#5 – Get The Upper Hand When It Comes To Credit Cards

When you talk about credit cards, most view them as bad things that get people into financial holes that are impossible to get out of. Sure, that is one way to look at them, but I look at them another way. I look at them as ways to earn rewards for my spending. I stick with my American Express cards to build fantastic rewards such as free airfare and free nights at incredible resorts. I put every dollar possible on these cards and I pay it off each month, absolutely never carrying a balance.

Furthermore, I am able to put fairly large business expenses on my credit cards that significantly boost my potential rewards (I won’t pay for personal airfare for years to come). Are there potential business expenses that you can pay for yourself and then get reimbursed? Sure it takes more effort to track and manage business expenses but the rewards are worth it. The money you save on your future vacations can go towards your investments!


  • Matt @ Steadfast Finances said:

    Nice article and I’m proof this advice works. I started investing at 22, and now at 32 I’m an independent trader managing my own cash. Nice to see someone else caught the investing bug at a young age.

    We should exchange trading ideas sometime!

  • Alfred Castillo said:

    I remember when I first bought my first stock when I was 22, and now I am hook on this stuff. I decided to change my major to finance and in the near future become a hedge manager.

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