Where should I put my money
No one really knows. It simply isn’t taught in school and financial education isn’t as popular as Biology or Chemistry. Instead, they teach us the various components of the human cell and what the mitochondria does.
People in your 20’s, by now you are starting to make some money and have the ability to save some of it. I get asked very often what to do with the money you have saved. First of all, “save” is the wrong word to use, your income will only keep growing for the next 30 years and “saving” money from today won’t help you get rich in the future. What you need to start doing is investing and generating a return on your money.
Don’t go to a financial advisor at your local brokerage bank. These guys are looking to put some food on their plates as well and will look to suck fees and commissions out of your account and use complicated vocabulary for you to think you actually need them…You DONT! Plus, most of the time they don’t know what the hell is going on, just like the rest of the world.
The following list is actionable stuff you can do today that is much better than keeping it in your bank account because of this thing called inflation where prices increase by about 3% each year (US and Mexico). That means if you will have less “purchasing power”, or in other words, you’ll be able to buy less stuff with the same amount of money.
- Try to get your feet wet with any information and get some financial lingo. Then make it a habit to do some research on Investopedia on whatever terms you don’t understand or come across in everyday life.
- Instead of the financial advisor route, open an account at a brokerage firm (casa de bolsa in Spanish) where you can trade and make investments on your own.
- NEVER EVER invest in something you don’t understand or are afraid to do, even if your cousin Eduardo told you to do it. This is how you lose money and this category includes Real Estate, sports bets, stock market, buying shit from China,etc. Do your own research always.
- Now that you have your account in a brokerage firm, make a contribution from your salary every month and invest in an S&P tracker ETF called SPY. The S&P 500 is basically the most important index (big group) of stocks in the United States and has an average annual return of 9.6% since the 1920s. This is a LONG TERM INVESTMENT you should make and see your money grow throughout the years. By doing this, you will be investing in the US stock market as a whole and don’t have to be worried about reading the news or what Apple did recently and how it might impact your portfolio. It’s the simplest and best investment anyone can make.
- Learn about the power of compounding and how it applies to the previous bullet point. If you make a return of 10% every year that means you will double your money in 7.2 years. How do I know this? The rule of 72 is a shortcut to estimate the number of years required to double your money at a given annual rate of return. The rule states that you divide 72 by the annual interest rate and that equals the number of years it takes to double your investment. 72 / 10%= 7.2 years. If you keep adding money every month or year it has an exponential effect on the amount of wealth you will be creating in the long run.
- Depending on the amount of money you have, you can look for a Real Estate property to invest in. Make mortgage payments (depending on the interest rate) each month so you own an asset that will surely appreciate in the long-term. You can rent the property and make a monthly income and/or sell it at any point in time, depending on market conditions and personal cash requirements. Talk to a family member, they have purchased homes before and can guide you in the process.
- Always keep at least 4 months of your personal and living expenses in cash. You never know when that rainy day will come and you better be holing an umbrella.
I think these are clear and simple steps you can start taking. Always remember to play the LONG GAME. Investments and wealth creation are a long-term play and you should be patient and watch your net-worth rise over the years. Doing nothing or risking money without sufficient knowledge is what sets you back and impedes you from having a successful financial path in life.
Money is definitely not going to buy you happiness, but it helps resolve a lot of problems and can bring us all joy. Please comment if you have any more actionable ideas for us young people in our 20's.