How to start saving & investing as a teenager (even with ZERO experience)

Let’s face it. Getting started with something new is always daunting, and with the overload of information online nowadays, it’s easy to overthink the process and not get started.

But nowadays, getting started saving and investing is quite a breeze. It doesn’t matter the age or experience; getting started with saving and investing is so easy nowadays that a 5-year-old can understand it.

With that being said, let’s dive straight into the step-by-step process for getting your finances in order, and automating it so you never have to think about it again.

In this article specifically, I will dive into how to set up your finances for teenagers as a parent or if you’re a teenager wanting to get started.

Part 1: Saving

Before you start investing, saving is the MOST important aspect when it comes to building wealth. You need money to funnel into your investments, and that’s where savings come in. Although most people would recommend budgeting, I don’t think that’s a bad idea. But I believe the easiest way to get started is to pay yourself first.

Pay Yourself First

Paying yourself first in its simplest form is allocating a percentage of your income towards saving that will go towards your investments as soon as your paycheck comes in.

Let’s say you currently hold a part-time job and you get paid $400/week fortnightly. When you receive that $400 paycheck, you’ll immediately allocate $100/week to investing and spend the rest.

This is a much simpler approach than budgeting as it requires much less effort, is easier to get started and is a simple set-and-forget approach.

I truly stand by this principle as it’s a simple, yet powerful financial tool for building wealth long-term. I learnt this principle from a book called “The Richest Man in Babylon” by George S Clason.

And the best part about this is that it’s completely automated, as I’ll soon go into how to open a brokerage account and completely automate this process. As a teenager, you’d need your parents’ guidance to open a brokerage account, as it’s by law that you can’t open a brokerage account in your own name until you turn 18.

Set up a Pearler brokerage account to automatically deposit a set amount. You can select the frequency and which day of the week you want to deposit. Because it’ll happen automatically in the background, it really is a set-and-forget process as you don’t ever have to lift a finger.

Ok, now you got the savings part set up. Let’s go into part 2, which is the investing part.

Save For An Emergency Fund FIRST

When you first start putting away a part of your money into savings, I highly recommend putting that savings to good use by building up an emergency fund.

To boil it down, an emergency fund is a pool of money that’s just sitting in your savings account that you can access whenever an unexpected emergency comes up. Think of paying for car repair, a medical bill or losing your job, potentially.

You might think emergency funds don’t matter even as a teenager, and you’re kinda right. As most of you, I’m assuming, are currently living at home, there won’t be as many expenses to deal with.

But I still highly recommend putting aside an emergency fund as it’ll be useful when you grow into an adult, and even teenagers can have unexpected expenses.

Typically, it’s recommended to save up 3 months of your living expenses as your emergency fund. I will say personally, as a young teenager, $5k should be a good starting point.

If your parents, for example, needed some money to cover emergency medical expenses, then you could be a bit generous and give them the money they need. Parents truly provide so much for us when we’re young, so helping them in times of need is always a really generous act.

Part 2: Investing

Now onto the fun part, which is investing. I look at investments as the oil that fuels the engine. It’s the investments that boost our returns and provide steady streams of dividend income and business growth that contribute to the growth of your wealth.

Investing isn’t actually as complicated as it’s set out to be, and getting started is easier than ever.

We want to put our money into diversified, low-cost index ETFs.

What are ETFs?

To put it simply, an exchange-traded fund (ETF) is an investment fund that holds multiple underlying assets and can be bought and sold on an exchange, according to Investopedia.

More specifically, the ETFs we’re looking to buy are low-cost, diversified funds that invest in the biggest companies.

Investing in ETFs is a low-cost, safe way to diversify across 100s, if not 1000s, of companies in a certain country or across the globe.

My recommendations for a balanced portfolio

To start off with, I would highly recommend investing 50/50 in VGS and VAS for both Australia and international share exposure.

Over the last 10 years, especially, Aussie shares have yielded less growth but higher dividend income, whilst international shares (more particularly the US shares) have barely paid any dividends but yielded insane amounts of growth due to the massive growth in the tech sector.

Let’s look into each fund…

VGS

VGS (which stands for “Vanguard MSCI Index International Shares ETF”) is an ETF listed on the ASX that invests in around 1,500 companies in developed countries, excluding Australia.

It has a 0.18% management fee, which is considerably low. The fees are automatically deducted from your portfolio by the ETF company.

This article explains in simple terms how ETF management fees work –> https://www.betashares.com.au/education/how-do-etf-fees-work/

The Vanguard website clearly breaks down the top holdings, regions, and sector allocation.

Unsurprisingly, the United States alone accounts for 74.9% of the total fund allocation, which shouldn’t be a massive surprise as the US is home to major corporations such as Apple, Google, Meta, Nvidia and Microsoft. And can’t forget Amazon as well.

These top powerhouse tech companies account for over 20% of the fund holdings, which is absolutely insane.

The great thing about investing internationally is that it gives you full diversification across other countries in the world, reducing the risk of investing all your money into a single country that might fail economically in the long term (although I doubt that would happen).

For example, if we let’s say Japan rises into massive prominence 20 years down the line and overtakes the US, then you’ll be able to reap the returns of the rising Japanese companies and Japan’s economy as a whole

VAS

VAS (Vanguard Australian Shares Index ETF) invests in the top 300 companies in Australia by market cap.

With VAS, you’ll mostly be invested in banking and mining companies, as those are the biggest sectors in Australia. The top 5 companies you’ll be invested in are Commonwealth Bank, BHP, ANZ, Westpac and NAB.

Here are some details about this fund:

• 0.07% management fee (annual)
• Dividends are paid every quarter
• Around a 4-5% dividend yield on average

If you buy a single share of VAS, you’ll be invested in the top Aussie companies that you buy from daily, such as Bunnings, Woolworths, Commonwealth and NAB.

All with a single transaction.

If Bunnings goes bankrupt and a new competitor emerges out of the shadows, the fund allocation with automatically reflect its allocation by investing more into that new competitor and less into Bunnings as it’s market-cap weighted after all.

Or if Woolworths were to go bankrupt, that wouldn’t hurt your portfolio performance one bit, as it makes up less than 1% of the total fund allocation.

That’s the immense benefit of investing in index funds, as you get access to immediate diversification without having to individually invest in 300 or even 1500 companies.

But let’s play a different scenario here. If you believed 20 years ago that Yahoo was going to be the future of Search Engines, and you decided to not only invest your whole savings, but dollar cost average into the company since going public on the stock exchange.

You’ll be left with nothing but dirt.

Now that you have the saving and investing part all sorted, you can sit back and see your investment portfolio grow.

It’s literally that simple. I know you’re probably thinking there’s a lot more to it and you need to invest in more funds or set up some kind of complicated system.

But the answer is no. This is the easiest and simplest way to get started in your investing journey.

Part 3: Set up a Brokerage Account

To piece this altogether, you’ll need to set up a brokerage account. I highly recommend using Pearler to get started.

Pearler Headstart is the perfect option for your teenage kids to get started investing.

If you’re a teenager who wants to get started, you’ll need to bring your parents on board. Or if you’re a parent who wants to invest for their kids, you can set up automated deposits and an investing plan to invest increments of their wage, or even invest on their behalf!

Or if you’re a young adult that’s 18+ years old and want to get started investing, then just open a brokerage account under Pearler’s normal brokerage platform.

Pearler makes it super simple to set up and automate your finances.

The Power of Automation

Automation is a powerful way to not only set up your personal finances, but also to develop good habits that stick forever.

In the Atomic Habits book (which I highly recommend reading), James Clear talks about how automation can make your good habits inevitable and bad habits impossible.

When working in your favor, automation can make your good habits inevitable and your bad habits impossible. It is the ultimate way to lock in future behavior rather than relying on willpower in the moment.

Automating your finances is a complete set-and-forget setup so that you never have to think about it, which makes it more likely that you’ll consistently save and invest.

Summary

To put things into summary, here is a step-by-step plan to setup and automate your finances as a teenager:

1. Open a savings account in your bank app called “Emergency Funds” – Remember that the goal is to save up your first $5k into an emergency fund account to deal with unexpected expenses down the line. I always recommend opening an emergency fund account first, as it gives you a bit of cash as a cushion to prepare for anything that comes up.
2. Pay yourself first – Whenever you receive your paycheck, always allocate at least 30% of that into a savings account. Put that into your “Emergency Fund” savings account.
   • Don’t take the money out to buy clothes or a car. This money is solely designed to be used for emergencies only.
3. Open a brokerage account through Pearler – Once you’ve saved up $5k in emergency funds, then open a Pearler brokerage account under your parents’ or a guardian in your household over 18. If you’re 18+ years old, then proceed to open it under your own name
   • Inside Pearler, set up an automated investing plan. Don’t worry, it’s a lot easier than it sounds, as Pearler does an amazing job of making it super easy and guiding you through the process to set up your automated investing plan.
   • If you get stuck, you can always call or contact support to help you set it up. Pearler has an amazing Australian support team that’s super responsive and is super helpful in terms of answering any questions you may have.

Once that’s all set up, you just sit back and watch in awe of how your wealth grows over time.

Now, keep in mind that this won’t make you a millionaire overnight or even in 5 years. But you will set up the foundation to build long-term wealth in 10, 15 and 20 years.

And the more you invest, the faster you’ll build wealth.