The Foundational Investor

Building a Financial Future: Where Do You Start?

If you’re new to investing, it can be challenging to know where and when to get started. There’s so much information and advice out there that it can be hard to know which makes sense for you.

The good news is that getting familiar with a few fundamental principles can help you see past the information overload and set you on the path toward a healthier financial future.

Let’s jump-start your efforts! In my first blog of this two-part series, I’ll tackle three basic and important concepts for beginning investors to know about:

• Getting started on the right foot by avoiding debt
• Embracing the power of long-term investing
• Making the most of tax-advantaged accounts

Avoid the Vicious Cycle of Credit Card Debt 

The debt you carry directly impacts every facet of your financial life. Put plainly, every dollar you put toward paying down a credit card bill or car loan is one less dollar that can grow to benefit your future. That’s why minimizing bad debt is the first step toward building a strong financial future.

Note that I said, “bad debt.” Not all debts are bad. Low-interest student loans, for instance, can help you receive the education you need to follow a rewarding career path and earn income. And reasonable mortgages can help you buy a home and build equity. On the other hand, high-interest credit card debt can quickly become very expensive—and severely hamper your ability to make financial moves such as saving and investing.

Why is credit card debt so bad? Credit cards are a form of revolving credit; they allow you to carry a balance from month to month. If you can pay your balance off every month, you won’t owe interest. But if you carry a balance, you’ll pay interest on that balance—often to the tune of 20% or more. That interest will be tacked on to your total bill, which will then continue to accrue interest.

In addition, credit cards allow you to make minimum payments equal to a percentage of your total balance. If you get in the habit of only paying the minimum every month, your debt load will only grow bigger over time. Using this Bankrate calculator, let’s say you have $1,000 in debt on a credit card with a 20% interest rate. If you only make minimum payments of 2%, or $20, per month, it will take you 195 months—more than 16 years—just to pay off this single debt. And in that time, you will have paid $2,126.15 in interest—more than double the amount of your original debt.

Basic Principle #1:

Use high-interest debt carefully, and if you can, only use your credit card when you know you’ll be able to pay off your balance quickly. That way, you’ll avoid getting trapped in a cycle of debt, and you’ll have more cash available to meet other goals, including investing for your future.

Stay Invested for the Long Haul

As a young investor, you may not have much money to invest. But what you may lack in resources, you help make up for with time. With decades until retirement, your modest investments can grow substantially over time.

This substantial growth is thanks to the incredible power of compounding returns, or the return you earn on your returns. The longer you can keep your money invested, the longer you can take advantage of compound growth to propel exponential growth in your investments. In tax-advantaged retirement accounts, these benefits are magnified as tax-deferred and tax-free growth allows even more money to compound over time.

You may be skeptical about just how important compounding can be. Consider this example: If you start with a humble penny and double its value every day in June, you’ll end up with a cool $5.37 million by the end of the month. If you started this one-month savings journey in July, which has one more day than June, you’d finish with more than $10.7 million. Of course, chances are slim to none that your investments are going to double every day. However, the fact remains that compounding is one of the most powerful financial tools at your disposal.

Basic Principle #2:

The longer you stay invested, the more your investments will have a chance to increase exponentially, thanks to compounding returns.

Make the Most of Tax-Advantaged Retirement Accounts

The government wants you to save for the future. To encourage you to do so, retirement savings plans, such as 401(k)s and individual retirement accounts (IRAs), offer significant tax advantages that can save you money today and compound the growth of your savings for tomorrow.

Employer-sponsored plans such as 401(k)s allow you to contribute pretax income to your account. In 2025, you can contribute up to $23,500. Better still, your employer may offer matching funds. Contribute enough to receive these matches and avoid leaving extra money on the table.

Come tax time, your and your employer’s contributions aren’t reported as taxable income. Investments held inside the account grow tax deferred. You won’t have to pay any taxes until you start taking withdrawals from that account. The result? More money is available to work for you—and to benefit from the powers of compounding. Eventual withdrawals are taxed at ordinary income tax rates. But beware that making withdrawals before age 59½ can saddle you with an additional 10% early withdrawal penalty.

If you want to save even more, check out traditional IRAs. Like 401(k)s, traditional IRAs also allow pretax contributions—you can contribute up to $7,000 in 2025—and those contributions may be deductible on your taxes depending on your circumstances. Investments in the account grow tax-deferred, and withdrawals are taxed as ordinary income. Again, taking your money out early can trigger a penalty on top of your tax bill.

There’s one more account to get to know: Roth IRAs. Unlike traditional IRAs, you make Roth IRA contributions after tax. That means you can’t deduct those contributions on your tax return. But it also means you won’t owe taxes when you start taking withdrawals in retirement. In the meantime, just as with a traditional IRA, your Roth investments grow tax-free along the way. This can be a great trade-off if you’re a younger investor who hasn’t hit your peak earning years and you are still paying a relatively low-income tax rate.

Here’s another benefit of Roth IRAs: After your account has been open for five years, you can access your principal contributions penalty-free, though you will pay a penalty if you tap into your investment gains before age 59½. However, tapping your retirement funds should typically be a choice of last resort. Since the point of any IRA is to save for retirement, you will be glad if you avoid thinking of your Roth as a resource for pocket money along the way.

Basic Principle #3:

If possible, max out your retirement plans to take full advantage of their powerful, tax-sheltered compound growth over time. Also, avoid leaving money on the table if your employer offers to match your 401(k) contributions.

So where do you start? Implementing Basic Principle 1 and then you move on to number 2 and 3. Next question is when do you start? Answer, as soon as possible. Like Basic Principle 2 taught us, the power of compounding makes all the difference in the long term.

Next time, I’ll share the importance of building a diversified investment portfolio, why speculating can harm your long-term prospects, and how to build an investment plan that meets your individual goals.

Let’s get back to basics!

Learn more about Kimberly Hamlin

Hello! I’m Kim, an associate wealth advisor at Allodium Investment Consultants, located in Minneapolis, MN. I strive to provide an amazing experience for clients and help them find financial freedom so they can live their lives to the fullest. My passion is to simplify complicated financial concepts through clarifying the fundamentals. In my free time, you will find me spending time with my husband Tyler, and son Luke. We love underwater scuba diving, watching our son play sports, and tending to our flower garden.

The information provided is for educational purposes only and is not intended to be, and should not be construed as, investment, legal or tax advice. Allodium makes no warranties with regard to the information or results obtained by its use and disclaim any liability arising out of your use of or reliance on the information. It should not be construed as an offer, solicitation or recommendation to make an investment. The information is subject to change and, although based upon information that Allodium considers reliable, is not guaranteed as to accuracy or completeness. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment.