How to Start Investing: A Simple Guide to Building Wealth

Investing doesn’t have to be complicated. By following a few straightforward steps, you can begin building your wealth and securing your financial future today. This guide will help you make room in your budget for investing, choose the right accounts, and find professional guidance to ensure you’re on the path to long-term success.

1. Make Room in Your Budget for Investing

To start investing, aim to save and invest 15% of your gross household income for retirement. Investing this percentage consistently will set you on the path to becoming a millionaire, thanks to the power of compound growth over time. This approach also allows room in your budget for other financial goals, such as saving for your children’s college funds and paying off your mortgage early.

Tips to Save Money for Investing:

• Pack your lunch: Instead of eating out, bring your lunch to work.
• Cut cable: Switch to more affordable streaming services.
• Brew coffee at home: Save money by making your coffee.
• Sell an extra car: Eliminate unnecessary car payments.
• Buy generic brands: Opt for store brands instead of name brands.
• Review insurance premiums: Work with an independent agent to lower costs.

For more budgeting tips, check out these Budgeting Tips.

2. Start Investing in a 401(k)

If your employer offers a 401(k) with matching contributions, start there. A 401(k) allows you to contribute a portion of your income into a retirement account with mutual funds and other investments. Maximize your contributions up to the employer’s match to take full advantage of the "free money."

Key Benefits of a 401(k):

• Automatic payroll deductions: Set it and forget it.
• Tax benefits: Traditional 401(k) contributions are made with pre-tax dollars, reducing your taxable income.
• Roth 401(k): Contribute after-tax dollars and enjoy tax-free withdrawals in retirement.

Consistency and time are crucial. Learn more about 401(k) plans from Investopedia’s Guide to 401(k) Plans.

3. Contribute to a Roth IRA

To achieve the full 15% investment goal, consider maxing out a Roth IRA. A Roth IRA allows you to pay taxes upfront, and your investments grow tax-free. The annual contribution limit for 2022 is $6,000 ($7,000 if you’re 50 or older).

Advantages of a Roth IRA:

• Tax-free growth: All earnings are tax-free.
• No taxes on withdrawals: Enjoy your money tax-free in retirement.

For more information on Roth IRAs, visit Fidelity’s Roth IRA Guide.

4. Work With an Investment Professional

Investing can be complex, but an investment professional can help guide you. They can answer your questions, help you choose the best funds, and ensure your investments stay on track.

Benefits of Working with a Pro:

• Expert guidance: Get educated on investment choices.
• Regular check-ins: Keep your investments aligned with your goals.
• Client-first approach: Ensure your needs are prioritized.

Find a trusted investment professional through Certified Financial Planner Board of Standards.

Frequently Asked Questions About Investing

How Can I Start Investing With Little Money?

You don’t need a lot of money to start investing. An initial $50 contribution and automatic contributions can be sufficient to open an account and start investing.

What Is the Best Age to Start Investing?

The earlier you start investing, the more time your money has to grow. For example, if you start investing $500 per month at age 25, you could have between $3.1 million and $5.8 million by age 65, assuming a 10-12% return.

Example:

• Start at age 25: Potential $3.1 million to $5.8 million by age 65.
• Start at age 35: Potential $1.1 million to $1.7 million by age 65.

Time and compound growth are key. Learn more about the benefits of starting early from NerdWallet’s Investing Guide.

Start Investing Today!

Investing requires understanding and active participation. Never invest in anything you don’t fully understand. Ask questions and take charge of your financial future. For more in-depth investing tips and advice, please schedule a complimentary planning call!