Welcome to The Money Coach, a Times of Malta column where readers can ask questions about life's money issues. Send your questions about personal finances, inheritance, gifting or other personal finance topics to moneycoach@timesofmalta.com.
Dear Luca,
I am a 21-year-old undergraduate student who also works a part-time job for around 15 hours a week, making €10 an hour. I have established an emergency fund of about €2,000.
I am mainly interested in ways in which I can optimise my money, and I am sending this message to ask about some of the best strategies to do this.
I had already purchased a couple of ETFs about three years ago, namely €1,500 in each of QQQ and VOO.
I am currently turning a bit of a profit, but I can understand that my current strategy isn't sustainable.
What is the best way to invest my current savings, and income, such that I can grow my money rather than just saving it?
I had read that it would be a good idea to invest portions of my monthly income, even small amounts like €100 or €200 EUR. Could you guide me on this?
Sincerely,
A young guy
Luca responds:
First of all, allow me to congratulate you on your achievements so far – not every 21-year-old can boast an emergency fund of €2,000 and €3,000 in investments, while also studying.
Before continuing my response, allow me to make it clear that I am not licenced to offer investment advice – for that it is best to seek the services of a professional investment advisor.
That being said, I can provide guidance on optimising your savings to not only ensure growth in the future but also maintain long-term sustainability. This is in fact a concern shared by many of my clients, and it normally becomes an urge when people are in their late 30s or early 40s and realise that they barely have any savings, let alone investments.
In your case, you are in the best possible position if you can make that small monetary contribution consistently per month and allow it to grow exponentially through the power of compound interest.
You might think that your current strategy is not sustainable... and I am curious to understand the reasons for this.
From the choices you have made it tells me that you are well-versed in the world of investing. If one considers the S&P 500 for example, over the past 90 years it gave a return of 8-10% on average per year. Does this mean that it should be a no brainer choice? Not at all. After all it depends on a person’s risk appetite, financial goals and other aspects which an investment advisor can lead you better in. Always consider all angles when making any investment choice.
I find that the best way to keep disciplined in your savings and investing is by being consistent, which means doing it monthly. This not only leads you to the benefits of dollar-cost-averaging, where you buy into the market at different price levels, ensuring a smoother ride long-term; but it also ingrains a discipline in you that can be quite beneficial long-term. Remember, it is not about the amount you save and invest per month, but about consistency. Start small, even €50 on a consistent basis can do the trick, and then gradually increase the amount as you see fit.
Don’t pressure yourself: it is better to start small and keep to it, rather than start big, and then start stressing if you don’t save that amount. Remember things happen in life, and at times it is normal to take a pause. I passed through such a period myself when my daughter had sensory issues, and my wife had to stay with her for a whole year. We had to get used to one income rather than two, and that meant that I had to give my saving and investing a pause, and I don’t mind revealing that... this is all normal. The important thing is to restart once you get back on your feet.
Make a plan, see how much you can consistently save and invest per month, and keep to that amount for a few months and gradually increase it. Furthermore, ask yourself:
- What do I want to get out of my investing? What is the WHY behind your efforts?
- Will I be using the money in the coming 10, 20 or 30 years?
The above should help you think, initiate a plan, and start executing it at your own pace. At 21 years, the sky is literally the limit.
Warm regards,
Luca
P.S. How would you approach investing as a student with limited funds? Would you focus on building up your savings first, or start investing small amounts despite the financial constraints?
Share your strategies or any questions you might have by emailing me at moneycoach@timesofmalta.com. Your insights can help guide fellow young investors
Luca is the founder of the Money Coaching Hub. Email him your financial questions or your response to today's question for a chance to be featured in a future column.