5 things to do in your 20s to be rich by your 50s
In your 20s you have one major financial advantage: time. Here's how to use it to grow your wealth.
If you're in your 20s or 30s I've got some great news for you.
You have the opportunity to retire much richer if you start making some simple changes to your finances now.
New data from Finder's Wealth Building Report found investors who started investing in their 20s have 67% more wealth than those who started in their 40s.
The average net wealth of a mature investor (over 40) who started investing aged 20 is $1.74 million. For those who began in their 30s, the figure is $1.52 million, while those who started in their 40s have an average net wealth of $1 million.
So while you've still got the gift of time on your side, here are 5 things you can do to make the most of it.
1. Focus on paying down debt
The less debt you have to repay, the more money you'll have available to put to work.
Focus on paying down any high-interest debt as your first priority. This includes credit card debt and personal loans, while other debts like HECS or a home loan aren't considered to be 'high-interest'.
If you need help with this, here are 6 ways to pay off your debt faster.
2. Sort out your super
Your superannuation is likely going to be your biggest asset when you retire - yet many of us completely ignore it in our 20s.
Finder's report found 57% of Aussies are in a default fund (rather than one they've actively chosen themself), and 21% have multiple funds.
First up, check if you've got more than one super account in your name and if you do consolidate them right away to save on fees.
Compare your super fund to others in the market and switch to one with lower fees and higher, long-term returns.
Choosing a growth or high growth investment option will also help your balance grow more over the long term.
3. Add extra to your super
There are 2 major benefits of adding a little bit extra into your super, especially while you're still young.
First, the more money you add the bigger your balance will grow (and when you're in your 20s it has a lot of time to benefit from compounding).
Next, making personal super contributions lowers your taxable income so you save on tax (the best way to do this is via salary sacrifice).
4. Invest outside of property
The majority of Australian household wealth is tied up in just 2 products: property and superannuation. But there are many other ways to grow your wealth.
The sharemarket may seem scary and complex, but you really don't need a lot of money (or even much investment expertise) to get started.
Investing in an exchange traded fund (ETF) lets you invest in hundreds of top companies with just one transaction. And you can get started with just a few hundred dollars.
Here's how to invest in an ETF in 5 easy steps.
5. Set up regular investments
Making a lump sum investment in your 20s is a great place to start, but the key to significantly growing your wealth is to add to it regularly.
Finder's report shows a $10,000 investment will grow into $54,274 after 25 years (based on a 7% p.a. return). But if you also added $100 a month, the final amount almost triples to $133,021.
Again, it doesn't need to be much. Because you've got so much time on your hands, even $10, $20 or $30 a month will greatly increase your wealth long term.
You can start small and increase your contributions when your budget allows for it.
Download the full Finder Wealth Building Report to see how investors manage their money and grow their wealth.
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