Warren Buffett bought his first stock before he was even a teenager. And yet one of his biggest regrets is that he didn't start earlier!
While that may seem ridiculous to most investors – many of whom don't start investing until their 30s or 40s – it becomes clear why Buffett wished he had started earlier when you consider the power of compounding.
Of course, it's never too late to start investing. As the saying goes, the best time to start investing was 20 years ago; but the second best time to invest is today.
Individuals, particularly those in their early 20s who are still living at home (and may not have the burden of paying a mortgage or many other household bills just yet), could benefit from this list of things you can do to boost your wealth for the future.
- Invest early. I said it before: the earlier you start, the longer the compounding machine has to work its magic.
- Invest for dividends. Growth companies have the potential to generate great capital gains, but a large portion of an investors' overall returns will typically come from dividends over the long run. Every six months or so you can watch the funds roll into your brokerage account from quality businesses such as Telstra Corporation Ltd (ASX: TLS) or Retail Food Group Limited (ASX: RFG).
- Reinvest your dividends. Dividends won't do you much good if you spend them all on pizza or beer. Put the proceeds from dividends to work in other great business ideas, enhancing the effect of compounding over time.
- Save regularly. Get in the habit of setting aside a certain amount of coin from each pay check for the purpose of investing. Even a small amount can go a long way when set aside regularly enough.
- Set goals. It can be difficult to stick to that routine if you don't have any goals in place. Commit to reaching a certain savings target at some reasonable time in the future. Don't make this goal so hard that it's unachievable, but don't make it too easy either.
- Work hard. Take advantage of not having as many financial responsibilities as you'll likely have down the track. Save more while you can!
- Rein in your spending. One regret of mine is spending money on so many useless items late in my teens and early 20s. I can think of plenty of better things I could have spent that money on today had I saved it.
- Live within your means. When you do have more cash stashed away, it can be awfully tempting to spend big on cars and other luxury items. Buy what you need, but exercise modesty in your decisions (no need to buy a brand-new Mercedes if that would set your savings account back to zero).
- Don't take on too much debt. Debt can be necessary in certain situations, but the interest repayments can be crippling – particularly when you're on a lower income than many adults who have been in the workforce for longer.
- Invest in yourself. Educating yourself can take time, cost a lot, and take away from time you could be earning money! But educating yourself now can greatly enhance your earnings potential in the future.
As Warren Buffett, a man who is worth US$73.8 billion, once said, "Invest in as much of yourself as you can, you are your own biggest asset by far."
BONUS: One of the greatest ways to build your wealth, over time, is by investing in shares. However, successful share investing is as much about avoiding the losers as it is picking the big winners.
