If that last one sounds jarring, read on. For starters, a brokerage account is simply a portal for buying stocks, bonds, mutual funds, and other investments. But with interest rates near all-time lows and stocks near all-time highs, there has never been a better time to get your own slice of the capitalist pie. (And let’s face it: Your new interface with Wall Street will boost your wealth and make far better use of your screen time than Call of Duty ever will.) But there is one caveat: A brokerage account is of little use if you’re broke. So I’m hoping that when you subtract your annual expenses from your income, you get at least a four-digit number. If nothing else, maybe the occasional bonus or extra commission rolls in? A check from your great aunt? Before it gets sucked into the how-much-did-I-spend-last-night? slush fund, divert that extra cash into your new account. By making sensible investments in stocks, bonds, and other assets, you can build your savings over time in a way that’s not possible at a traditional bank.
Let’s say you park your cash in a bank savings account. You will literally lose money over time, thanks to inflation. Savings accounts are paying the lowest levels of interest in our lifetime: The national average is 0.09%, which is the mathematical equivalent of “nothing.” Put $1,000 in the bank at that rate, wait 20 years, and you’ll earn $18—which by then won’t even be enough to buy a Big Mac and fries.
A brokerage account, meanwhile, is like a 401(k) but better: You can invest the money however you want and take it out whenever you want, and you’ll pay taxes when you sell for a gain (and take a deduction when you sell for a loss). But there’s no company matching, so make sure you fund your work account first to get that free money.
And the mere act of opening a brokerage account will likely make you richer. The reason why is simple: If you have the account, you’ll fund it. And once you’ve attached the mental label of “investment” to that cash, you’ll be less likely to spend it. In a world with endless tricks for separating you from your Benjamins, this is a great way to pay yourself first. After all, we’re accustomed to funding our daily lives with our bank account, but dipping into investments requires extra steps, and that’s a good thing. After all, how many times have you regretted not making a purchase?
With that in mind, here’s your step-by-step guide to becoming the next Warren Buffett.