Why consider investing?
If you're going to get married and have a family, you'll need money, and lots of it! To send those kids off to a good quality college, you'll need money. Everyone gets older as time passes, and it's never too early to start socking money away for your retirement. Perhaps you crave regular vacation cruises? Those are expensive. Life tends to throw everyone curves, there are many bumps in the road along the journey known as Life. You'll need extra cash for those unexpected expenses.
There are many things in life that can be overdone, but proper attention to finances is not one of them. Many people don't even consider saving for their retirement until their 50s, and then they wonder why they're in a bind! Do yourself a big favor: Start thinking about it now, and then do something about it!!! Don't wait around for your ship to come in. It never will. You have to go out and swim out to it!!
First off, you need to realize you have a need for retirement funds. As you get older, the years pass by faster and faster and before you know it, you're 55 or older and retirement is staring you right in the face and you realize you don't have enough money to retire. You end up working your tail off right up until the day you pass away. Your retirement years are your 'golden years', meant to be enjoyed, not worked. So, educate yourself. That's a good start.
The first thing you need to assess are your current finances. Do you live beyond your means? In my humble opinion, you need only two credit cards. If you really need to spend money, live BELOW your means. YES, this means going without things. DO NOT become overextended on your plastic by buying expensive stereos or other unneeded junk on credit. Everyone needs a car these days, but buy a sensible car that works and that will get you from point A to point B, not an expensive model that will cost you an arm and a leg in senselessly high payments, not to mention those high credit card interest rates. For example, if you buy a $2,000 stereo on credit, with an 18% interest rate, and you make the minimum payment, do you realize it'll take you 20 YEARS to pay it back? That's how the credit card companies make their money, by charging exorbitant rates and taking advantage of the fact that many cash-strapped people will make the minimum payments and thus will end up paying MUCH MORE money than they borrowed in the first place? Many folks, in the excitement of the moment, will charge new, expensive purchases to their plastic, not considering the financial consequences and run up for themselves very high overhead bills that on top of the principal amounts, will pile up high interest rate-derived charges!!
Live BELOW your means. Do an HONEST assessment of your income. Assess your bills, then assess your discretionary income (money left over after bills that you can go out and spend) and strive to sock away some of that discretionary left-over money. You will need to seriously consider socking away at least 5% of your income from each pay day. This is known as 'paying yourself'. What is recommended is to put away 15% of each paycheck.
I can't stress this enough!!!! Pay down all your credit-card debt!!! Do whatever it takes to get rid of your credit card debts. When you use a credit card, you are in effect borrowing money. This borrowed money has obligations. These obligations include paying off high credit card interest rates. When you don't make credit card payments on time, there are penalties. As a general rule, live below your means, especially with credit cards. Pay off the credit cards earlier than agreed. Sock away as much money as you can.
We will examine the Cash Cushion next.