The Power of Starting Young: How to Build Wealth in Your 20s and 30s by Ryan Bennett, CFP^® RJFS Financial Advisor

Building wealth isn’t about luck. It’s about time, strategy, and discipline. The earlier you start, the more you can take advantage of compound growth, smart investing, and financial habits that set you up for long-term success.

Leverage the Power of Compound Interest

One of the biggest advantages of starting young is compound interest, which is when your money makes money. The longer your money stays invested, the more it grows exponentially. For example, investing $500 a month starting at age 25 can grow to over $1 million by retirement, assuming a 7% average return. Waiting until 35 to start could cut that amount in half.

Staying the Course

The stock market can be inconsistent in the short term. While it can greatly fluctuate from day to day, history has shown that it is one of the most consistent ways to build wealth over the long term. The key to successful investing is staying the course, even through market downturns.

Take Advantage of Employer-Sponsored Accounts

Start contributing to your employer-sponsored retirement account, especially if your employer offers a match. This is essentially free money and a simple way to get started with investing. The match boosts your savings, helping you build wealth faster. Over time, these contributions can compound significantly, especially when you start early.

Consider Tax-Advantaged Accounts and After-Tax Brokerage Accounts

In addition to employer-sponsored accounts, consider contributing to a Roth IRA or Traditional IRA. These accounts offer tax advantages, allowing your investments to grow either tax-deferred, in the case of a Traditional IRA, or tax-free with a Roth IRA.

If you’ve already maximized your contributions to retirement accounts and want to continue building wealth, consider using an after-tax brokerage account. While these accounts don’t offer the same tax advantages as IRAs or 401(k)s, they provide flexibility and allow you to invest beyond the contribution limits of tax-advantaged accounts. You can buy and sell investments without penalty and access the funds anytime, which can be helpful for shorter-term goals like buying a home.

Live Below Your Means and Avoid Lifestyle Inflation

Earning more does not automatically make you wealthy. Keeping more of what you earn does. As your income grows, it is natural to want to improve your standard of living, and it is okay to enjoy the rewards of your hard work. The key is to balance lifestyle upgrades with increasing your savings and investments. By making sure you are not just spending more but also saving more, you can enjoy a higher quality of life now while securing your future. Small, smart financial decisions today can pay off significantly in the future.

Eliminate High-Interest Debt

Debt can be a major obstacle to building wealth. Focus on paying off high-interest debt, such as credit cards, while managing low-interest debt, like student loans or a mortgage. Consider using the debt snowball method to pay off smaller debts first for motivation, or the debt avalanche method, which prioritizes the highest-interest debts to save money in the long run.

Automate Savings and Investing

Set up automatic contributions to your savings and investment accounts. A pay-yourself-first mindset ensures you prioritize financial growth before spending. A good rule of thumb is to save at least 20 percent of your income for investing and long-term goals. However, as with all rules of thumb, take this with a grain of salt—your savings rate may need to be adjusted based on your unique goals and financial situation. Automating this process helps you stay consistent and avoid the temptation to spend your savings.

Final Thoughts

The best time to start building wealth was yesterday. The second-best time is today. By investing early, managing your money wisely, and staying disciplined, you can set yourself up for a secure future. Small, consistent actions now can lead to financial independence later. Your future self will thank you. If you want to make sure your habits are aligned with your goals, don’t hesitate to reach out to an advisor at Carver Financial. We’re here to help you navigate your journey to financial security and retirement.

---

Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Roth 401(k) plans are long-term retirement savings vehicles.

Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Unlike Roth IRAs, Roth 401(k) participants are subject to required minimum distributions at age 72 (70½ if you reach 70 ½ before January 1, 2020).

Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Ryan Bennett, CFP^® RJFS Financial Advisor and not necessarily those of Raymond James.