Learning Commons Blog: Gen Z Finances: Investing for Beginners

"To get rich, you have to be making money while you're asleep."

~David Bailey

What comes to mind when you hear the word "invest"?

You probably imagine a stuffy man with a suit, smoking a cigar, leaning on a limousine. Basically, some rich guy. As a novice investor, it was nerve racking to try and get started, since this image that you have to already have a lot of money in order to invest clouded my mind. But, I'm determined to get ahead of my student debt, and build financial freedom for myself. Today is a crash course in investing as we learn the amazing opportunities for our money to grow.

What is Investing?

To begin our journey into financial freedom we’ll start with investing, something people do very little of. Investments are seeds that you plant and grow into beautiful flowers. Investing is the act of taking those seeds and planting them. There are so many options when it comes to your money garden. You can start indoors or outdoors, you can use fertilizer or dirt from the park, you can water it every day or every month, and the list goes on. Depending on your goal you may want the flower to grow fast, so you use a “best-seller” fertilizer with the added risk of, possibly, killing your plant. You may decide to play it safe and let it grow at its own pace. Either way, there is a chance your plant will grow.

This gardening metaphor is how I understand investing. You use the money you have now to build wealth for the future. According to the Financial Industry Regulatory Authority (FINRA), you can invest (your money) in stocks, bonds, investment funds, bank products, annuities, and options. They also include retirement savings, college/education savings, cryptocurrencies, commodity futures, security futures, and insurance. Nerdwallet adds exchange-traded funds (ETFs) to this list. You can read about all of these investment opportunities in the links provided, but we're beginners, so we'll be excluding a few of them.

Investing vs Saving

Your savings is the money you put aside to be used another day maybe four months from now or even 30 years from now. Most savings accounts gain interest once a month, and add a few cents to your account. The longer you save and the higher amount of savings you have, the higher the interest you gain. But, these profits are small. There are checking accounts that gain interest depending on how much you keep in your account, but most don't gain interest at all. In fact, some banks charge you a monthly fee for storing your money with them. We'll look at saving in more detail later, but for now you need to know how it differs from investing.

There's a common misconception that investing and saving are the same thing, but that investing is far more risky. This makes saving seem like the "better option" since you're "guaranteed" not to lose money. After all, you can gain interest on both. I believe this misjudgment comes stems from not understanding interest. The banks are investing the money you save, this is why you receive interest. Why not invest your money too? You make more profit since it's not being filtered through your bank. Saving is essential for gaining your financial freedom, but investing can be just as rewarding, and even more so.

Investing in yourself

Trying to find a definition of “investing in yourself” has proved troublesome, but here’s my definition for you: Investing in yourself is taking your time, money, and energy to better yourself in ways that will benefit you in the future. Rather than focusing on making a profit from your wealth, you focus on spending your money more wisely (or not at all). For example, setting aside time to read every weekend, allows you to de-stress and practice critical thinking. Books can cost as little as $0 to Barnes & Nobles prices, and you’ll be better able to handle stressful situations after winding down. Instead of going shopping every weekend, you take up a hobby or craft. There are A LOT of websites/blogs that talk about "investing in yourself", but the biggest takeaway would be to learn how to not spend money to be happy. Do something that makes you feel good for the long-term, rather than the immediate future.

Why You Need to Invest

The concept of spending my money now to make more money has always appealed to me. As you get older, you tend to gain a better grasp on the concept of wealth and you learn your money habits. Whether we like it or not, we've already have financial obligations. Most college students have debt. We owe money to the government, banks, or other lenders who are helping pay for our education. Once we graduate we have six months until we have to start paying of these loans, and most people will be placed on a 10-year plan (by default). Right now, we have time on our side. We don't have to pay these loans back yet. Instead of spending all the money we earn, we can invest portions of it, to have more money in the future. In the future (closer than you think), we'll be heading to careers and/or graduate programs. Now is the time for trial and error, now is the time to learn the language and our investing preferences. We are young money. I know it sounds corny, but we're the target audience when it comes to spending all our cash. If you're willing to spend your money, surely you're willing to make more.

Ways to get started?

Now, how do you get started? We’re broke college kids (young adults). I'm glad to say there are many ways to get started, and depending on your goals certain options are better than others. That long list from FINRA and NerdWallet will come in handy, as we explore the best options for us. A huge part of choosing the best option is research, and, fortunately, I enjoy doing that. Down below are many wonderful links for your to do your own research. Stay tuned for my next post, which will focus on how to start investing and the best options for your needs.