This is part of a series of posts on 10 Important Financial Lessons To Learn While You’re Young. A new lesson will go up every Friday. And if finances bore you, don’t worry…I’ll keep posting non-finance things on Mondays!
I can’t even begin to tell you how important it is to start saving early for retirement! Unless you absolutely love your job, have no plans to retire, and can keep making money at your job until you drop dead (or you’re filthy rich) you’re going to need to save for your retirement. So save now for retirement; the sooner you start the bigger advantage you’ll have.
There are tons of different ways to save money (though I don’t suggest just stuffing cash into your mattress…horrible return on investment there) and lots of tools to help you save specifically for retirement. I don’t want to go into details here though, so Let Me Google That For You.
But how to save for retirement is not really what I want to talk about here. Instead I want to convince you how important it is to start saving as early as possible. Now is the perfect time to start saving for retirement. Even if your budget is already stretched super thin, just like with learning to pay yourself first, you can start slowly and increase later. Start by skipping the coffee once a month and putting $5 towards retirement. $5 is better than $0, and saving $5 now is much better than $5 a year from now!
Take a quick example… Amy and Brian are both 25 and both have just started great jobs. Amy starts putting $100 a month towards her retirement right away. Brian is a little worried that he won’t have enough to live on right now, so he decides he’ll wait five years until he is more established, hopefully after he’s gotten a raise or two, and then he’ll start saving for retirement. When Brian turns 30 he starts putting $100 a month towards retirement as well.
Let’s pretend this is the end of the story and Amy and Brian continued to contribute $100 a month until they were 65 and wanted to retire. With a little math to figure out return on investment etc. here’s how it would end:
- Brian would have $120,843
- Amy would have $209,017 (almost twice as much!)
That’s assuming an average rate of return of 7%, and for simplicity’s sake I didn’t take into account inflation or taxes.
It’s a simplistic example, and $209k probably isn’t enough to retire on anyway, but it shows my point… Starting to save just five years early makes a huge difference. Over 40 years Amy only contributed $6,000 more than Brian ($100 a month x 5 years) but ended up with almost $90,000 more than Brian in the end! Just because she started earlier than he did!
So please, start now! Go do it, and let me know how it goes. 🙂