Most people know that investing is important, but achieving it is not easy.
There are so many options it’s overwhelming.
It’s hard to strike the right balance between getting ahead and living a good lifestyle.
And then there is the fear of making a mistake that will cost you a lot of money.
The end result is inaction.
When you get caught in the inaction trap, what it really means is that you are missing out on an opportunity to make more money than you have today.
You don’t need a lot of money to start investing. But you need to start.
Let me illustrate with an example.
If you leave your 20s with $5,000 in investments, this wealth could become worth $75,753 by the time you’re 60.
Or, if you manage to leave your 20s with $50,000 in investments, this could be worth $757,530 at age 60.
But it can be even better: if you could scrape together $100,000 in your twenties, you could keep this money as it grows to a whopping $1,515,069 by the time you’re 60.
All of these figures are based on the long-term Australian stock market return of 8.8 percent, assuming you reinvest any investment income (dividends) as your money grows.
Raising $100,000 may seem like an almost impossible task for someone entering their 20s, but when you break it down, it becomes much more doable. Working backwards from the $100,000 goal, you need to save and invest $18 a day to reach this number.
For less than the cost of a meal out (or half a lettuce at current prices) you can earn $1.5 million. Not bad, right?
This shows the power of time, but also the power of starting. It is more common for potential investors to procrastinate, putting off investing for some magical, mythical moment in the future where the stars perfectly align.
Kind of like starting a new diet or a new health kick: next week, next month, after your next pay raise, or after your next vacation all seem like good times to start.
But as you can see from the figures above, if you fall into the trap of inaction (or procrastination), the cost is enormous.
There are three things you need to do right for this to happen.
There are many different ways to invest, but I am a big fan of investing in passive index funds. It’s a bit ‘boring’, but statistics show that index funds perform better 95 percent of the time.
Boring is profitable.
Index funds are also easy to understand, because you are not choosing a specific company, but rather investing in the general average of the stock market. It takes a bit of time to develop your understanding here, but once you do, you should be able to trade with complete confidence.
Have a savings system (or not)
I’m a big believer in the power of having a solid budget or savings plan, where you know how much money is coming in and what is going out, and you have your bank accounts structured in a way that makes your day-to-day easier. .
I think this is really helpful for anyone and helps you build good spending habits and more importantly drives mindful spending behavior.
That said, when you’re really early in your money journey, if you really don’t want to budget, it’s probably not crucial, as long as you have a couple of important bases covered.
The most critical elements of a good savings system if you are looking to invest are; set things up so you can invest steadily and have emergency funds to fall back on.
Consistency in your investment is critical if you really want to achieve the results you want. To get here, you need to be clear about the income you receive and make sure that you will be able to make your regular daily or weekly investment a reality.
Having some money to fall back on when the unexpected happens will mean you won’t be forced to sell your investments. This is particularly important because the stock market goes up and down over time, and if you are forced to sell when the market is ‘down’, you will lock yourself into a loss.
This is the last crucial step, and it is the most common point in the investment journey where people get stuck.
The first step is always the hardest, but once you take it, you immediately start building momentum and motivation.
Take the time to lay out your plan of attack the right way. Once this is done, you have to take action and start. It’s easier to course correct once you’re moving forward.
You don’t need a lot of money to start investing, starting small and being consistent will lead to great things. But it won’t just happen…
Start small, be consistent, and celebrate your gains as you go; this will make it easier to stay on track as you reach your financial milestones and shape your financial future.
Ben Nash is an expert finance commentator, podcaster, financial advisor and founder of Pivot Wealth, and the author of the Amazon bestselling book ‘Get Unstuck.’
Ben just launched a series of free online financial education events to help you take financial initiative. You can check all the details and reserve your place here.
Disclaimer: The information in this article is general in nature and does not take into account your personal goals, financial situation, or needs. Therefore, you should consider whether the information is appropriate for your circumstances before acting on it and, where appropriate, seek professional advice from a financial professional.