A young age is the best time to save and invest money for a variety of reasons. First, by investing at a young age, you develop an emergency cash fund, which you can tap into for the inevitable rainy-day emergency. Second, young investors learn the financial world at an early age and develop sound savings habits. But most of all, if you save and invest at a young age, you enjoy the benefit of what Albert Einstein described as the most powerful force in the universe: compound interest. The earlier you save and invest money, the faster the money will grow into a healthy savings that can be used for the purchase of a home, a child's education, retirement or other major life events.
1. Enroll in whatever retirement plan your employer offers and arrange for automatic pretax contributions from each paycheck. Contribute as high a percentage as the plan allows, or at least up to the maximum percentage level at which the employer matches contributions.
2. Open a savings account with a local bank or, preferably, with a high-interest savings account online. Set up an automatic transfer so that some portion of each paycheck goes directly into the account without you ever seeing the money.
3. Invest in a reputable no-load mutual fund that tracks the performance of the S&P 500, once your total savings grow sufficiently to cover the minimum purchase amount (typically $2,500 to $3,000).
4. Arrange for automatic deposits directly to the mutual fund account on a monthly basis.
5. As total savings grow, consider other mutual funds that track the performance of certain market segments, such as real estate, health care or energy.