4 Ways to Start Increasing Your Net Worth in Your 20s
It's not too early to start saving in your 20s. In fact, if you wait until your 30s, you're actually getting a late start, financial experts say. By the time you're 30, you should have saved up the equivalent of half of your annual salary in order to be on track for a comfortable retirement, advises Fidelity Investments. Money Under 30 founding editor David Weliver even suggests saving up a full year's salary as a target goal. Unfortunately, workers in their 20s have only saved up a median of $16,000. Nearly half of American households don't have anything saved up by the time they reach age 55, according to the Government Accountability Office. If you're in your 20s, now is the time to start increasing your net worth to get ready for the future. Here are some strategies to help.
Increase Your Income
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The first strategy you can pursue is increasing your income; there are several ways you can approach this. One is to seek a promotion at your current job. To do this, come to work with a positive attitude, dress for success, demonstrate leadership initiative, build positive relationships at work and, above all, ask for a promotion, advises Business News Daily staff writer Britney Helmrich. The majority of people who ask for a promotion get a positive response, with 42 percent getting the role they requested and 17 percent getting a better position than they were expecting.
Another strategy is to look for a higher-paying job. To position yourself for a better job, you can either look for a job that makes better use of your current skill set or you can continue your education to improve your skill set. Many companies set salary ranges based on market survey data, so you should research what earning potential is possible for someone with your skill set, recommends HR manager Rory Trotter.
You can also take on a second job or start up your own business. A few ways to boost your income this way are starting a consulting business sharing your expertise, driving on weekends for money for Uber or a chauffeur service, renting out property or starting a franchise. For instance, a direct sales distributorship such as Amway can generate extra income from you in your spare time while still leaving you enough time to continue your regular job.
Decrease Your Debt
An indirect but effective way to boost your net worth is decreasing your debt. The less you spend repaying principal and interest each month, the more you have available to devote to savings.
Personal financial advisor Dave Ramsey recommends repaying your debt in stages. First, before paying down debt, make sure you have at least $1,000 saved up for emergencies such as medical bills or car repairs. Then, start paying off your non-mortgage debts, such as student loans and credit card bills. Paying off your lowest-balance debt first will motivate you because you can pay it off faster. Alternately, you can pay off your highest-interest debt first to decrease your monthly obligations.
Increase Your Savings
After repaying your non-mortgage debts, you will be in a position to start building your savings nest egg and eventually paying off your mortgage. You should put at least 20 percent of your monthly income towards savings, advises personal finance journalist Paula Pant. This includes savings to cover emergencies, retirement planning and other expenses such as your children's education, weddings, vacations and home repairs.
Invest Your Savings
You can leverage your savings by how you invest them. Starting investing in your 20s can pay off because it gives you more time to earn compound interest. The first place you should put your savings is in a 401(k) account if your employer offers one. If you don't have a 401(k), you can invest in a traditional or Roth IRA, or a SEP-IRA if you're self-employed. If your 401(k) or alternative plan allows it, Dunleavey recommends investing your savings in an index fund geared to the stock market, such as an S&P 500 index fund, or alternately, into a low-cost target date fund.
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