For young lawyers with little money and a lot of debt, the idea of starting an investment account may feel way out of reach.
While the conventional wisdom is that you should hold off on investing until after you’ve completely paid off your student loans, there is no reason why you can’t do both at the same time. While paying down student loan debt should still be the priority, investing and paying down your debt don’t have to be mutually exclusive scenarios. Investing from an early age can help improve your spending discipline and help you to focus on long-term savings instead of short-term spending.
No Amount is Too Small
After paying off rent, utilities, car payments, and student loan debt, you may not have a lot of money left to spare in your monthly budget. Nonetheless, no amount is too small when it comes to investing. Don’t put it off because you feel like you need to attain complete financial security before you can afford to do so. You don’t need a few thousand to start a portfolio—or even a few hundred. While you may think that amount isn’t worth it to invest, the reality is that every bit helps and if you start early enough, a small investment can turn into a significant sum of money.
Time is on Your Side (For Now)
One of the main reasons you shouldn’t wait to invest is that time is essential to growing your investments. Due to compounding—the ability to grow an investment by reinvesting the earnings—the earlier you start investing, the more lucrative your investment will become. Understand that time is one of the biggest advantages to accumulating wealth and if you just harness it correctly, you can exponentially increase your savings. Two or three years can possibly make a difference of thousands of dollars (depending on factors such as your initial investment and the rate of return), so don’t delay creating a portfolio unless you really can’t spare the money.
Get in the Habit of Investing
Good money habits are essential to achieving financial independence. Like any other habit, the earlier you start developing it, the more likely you are to stick to it. If your firm offers a 401(k) plan, you should immediately enroll to begin the lifelong endeavor of funding your eventual retirement. Even if you’re on a really tight budget, you should plan to divert at least enough of your salary into the 401(k) to get the company match, if one is available. You will most likely not notice the tiny reduction in your pretax salary that three to six percent represents. With every raise, increase the percentage you contribute by one or two percent. This will help you gradually and painlessly increase the amount you put towards your retirement savings as the years go by.
If your firm doesn’t offer a 401(k) plan, you can invest on your own—mutual funds are easy. Nowadays, more mutual funds will allow you to wave the expensive mandatory initial investment if you agree to automatic monthly payments between $50 and $500 dollars. You can usually have your contributions automatically deducted from your paycheck. Whatever method you’re using to save for your future, automatic deductions are great because you can set it and forget it. You never see the money, so you’re not tempted to spend it and you don’t have to make decisions about every paycheck. Consult a professional to get started.
Make Investing Part of a Larger Plan
Investing is not going to solve all your money problems or seriously help you wipe out your student loan debt right after law school. It’s okay if you don’t have the money to invest right out of law school and have to first focus on paying off your student loans. When you start making a decent salary, however, investing is an important first step to take in order to best prepare for your long-term financial future. Remember, no amount of money is too small and there’s usually no good reason why you can’t invest and eliminate your debt simultaneously. Nonetheless, investing is just one piece of the puzzle along with budgeting, saving, and adopting good spending habits. If you invest early, budget responsibly, and consistently set aside money for the future, you put yourself in the best position to achieve financial security.