Why is investing important & why should you start young
To generate an income In today’s world you can either 1) make an income working for yourself or someone else, or 2) invest so your assets will increase in value over time, or 3) find a balance with both those options.
- Make a financial plan such that you not only generate income but also complement it by growing your assets through investing.
- Investment options include a range of options, such as stocks, crypto, mutual funds, real estate, etc.
- You do not need a lot of money to start investing. Small amounts of money can help you build wealth in the long term.
- Your investment goals depend on your age, level of risk, and earnings. Always align your investment choices with your goals.
Why is investing important?
If you’re reading this, you’re curious about investing. Maybe you have someone in your family who became wealthy from investing, or you’ve seen a movie about the stock market that sparked your interest. Either way, you’re here. So why should you invest? Well, here are the 3 main reasons why:
Make your money work for you
You work hard for your money, so why not let it work for you? Investing is an effective way to make your money work while you rest, and potentially have it build wealth for yourself. Creating wealth means different things for different people. For example, it could mean paying off debt, buying a home, or saving for retirement. Investing smartly and carefully can help you reach those goals faster.
Inflation is the overall increase in the price of goods and services over time. For example, if prices increase, it means your money buys less today than it did yesterday. While the cost of living increases, your money loses value. One of the ways you could beat inflation is by investing your money. If you figure out a way for generating more money by beating the inflation rate, your money will be worth more than yesterday.
Recommended: What causes inflation
The magic of Compounding
Compound interest is the interest you earn on your investment, including the money earned each period. And who doesn’t want to earn interest on their investment in the long term?! By investing, you can enjoy the advantages of compound interest.
Recommended: What is compound interest and how does it work?
When should you start investing?
The earlier, the better. But why should you start investing young? When you first start investing, you’re going to make mistakes. Even the most well-known investors today made a few bad deals before they got to where they are now. And that’s the point. Learning how to start investing in your 20s is a lower risk than learning to invest in your 50s.
Young people have lesser financial responsibilities, and thereby generally have a higher risk appetite. For example, in your 20s, you may be making money but still living at home with your parents. So, if you make a bad deal — you will most likely financially recover; you have the time. Whereas learning to invest in your 50s is a higher risk— you may have a home, a retirement plan, or a family—making a mistake may hit harder.
How much of your income should you invest?
Good question! Naturally, you can’t put 100% of your income into an investment— you still need to pay bills, eat, and live your life. So, how much of your income should you invest?
To make the most out of your earnings while still having a safety net, experts recommend the 50/30/20 rule. This rule suggests dividing your after-tax income like this: 50% for needs, 30% for wants, and 20% for savings/investments (stocks, cryptocurrency, bonds, etc.).
For times of inflation, you’ll want to shuffle things around to put more of your income into saving/investing. Reducing your wants can help you put more money into savings/investing. So, during inflation, you could use the 50/25/25 rule instead.
Why invest in cryptocurrency?
The real question is: Why not? While the cryptocurrency market fluctuates, it’s like any other speculative investment. For example, the stock market, gold, and oil are also speculative investments. These markets are what some may call high risk where the buyer focuses on price fluctuations.
Just like any other market, it’s important to do your research on the cryptocurrencies out there and see which ones you feel are worth investing in. For example, Bitcoin and Ethereum are popular amongst many investors.
Some tips to help you get started with investing
The most important thing about starting to invest is aligning it with your investment goals. Decide how much money you want to invest. Do lots of research on the market and learn about your investment options— do you want to invest in bonds? Stocks? Crypto? Mutual funds?
Once you have the basics figured out, you could eventually also look for projects that match your values. What does this mean? Being interested in a project and sharing similar values will help keep you motivated as you learn more about investing. For example, if you’re really interested in a particular sector like cryptocurrency, you can invest in particular currencies and see how it goes from there.
Spend some time deciding on an investment strategy—there’s no one-size-fits-all strategy when it comes to investing. What does this mean? You want to have a goal for how much money you want to make in a specific period. You may invest in a retirement fund with a long-term goal of 20 years, whereas you may want to invest in stocks with a return in 5 years.
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Investing could be scary for some people because this isn’t something we’re taught in school. But don’t let this stop you from learning about things that enable you to start earning a steady passive income. Instead, it’s something we need to learn on our own. However, if you start young, you can quickly recover from your mistakes and learn how to invest. By learning how to invest, you can generate wealth for yourself and have your money work for you.
This blog is for educational purposes only. The information we offer does not constitute investment advice. Please always do your own research before investing.
Any views expressed in this blog and by BOTS do not constitute a recommendation that any particular cryptocurrency (or cryptocurrency token/asset/index), portfolio of cryptocurrencies, transaction, or investment strategy is suitable for any specific person.