When to Start Investing

Q: Is there a rule of thumb for when to start investing money? Does it depend on age or how much my salary is?

Shirley M. Mueller, MD, MyMoneyMD, LLC:Congratulations on thinking ahead. That is the first step in preparing a successful investment plan that is crucial for your future. There is a rule of thumb: Invest young, invest often and invest as much as you can. Then, you can make money while you sleep. This is why: If you put away $100,000 when you are 30 years of age at 7% return, you’ll have $761,256 at age 60. Do the same (7% return) when you’re 40 and in 20 years you’ll glean $386,968. Delay until you are 50 (7% return), and you can expect $196,715 a decade later. Compound the dollars invested or increase the return and you’ll have an even better result.

If debt is an issue, how to pay it off while saving at the same time is covered in more detail in “Young Doctors and Debt: A Script for Success,” I wrote for the Physician Money Digest Oncology Fellows magazine in 2008. The same general rules apply today. Pay off high interest non-deductible loans first and low-interest deductible loans second. If your employer has a retirement program that provides matching dollars, prioritize investing in it up to the limit of the matching dollars before paying back the low-interest deductible loan. An emergency fund (for three to six months) and disability insurance should be in place before investing or paying down low-interest, tax-deductible student loans.

Even though what to do is clear from the example above, it is rarely as simple as it sounds for most young people. This is because they often need to pay off debt and support families. This means that how much is available to invest requires serious thought including a spending plan.

I know this is a lot to absorb, but paying attention to your money is the only way to make money while you sleep and supplement your daytime income. It is a positive for you that you are thinking about it early.