I grew up loving to save money. I mean LOVE! I was addicted to accumulating money and watching it sit in my account. I was even called cheap quite a few times in my life because I was so hesitant to spend any of it. There was some mental block that wouldn’t let me spend any of the money I had saved. Any birthday or holiday I would receive a check would go right into my account. I had no desire to buy the latest video game or new clothes. As I got older and opened a checking account, it became clear, looking back, how I was terrible with my money.
Having that saving mindset is a great thing to have. I hated spending money and only wanted to watch it grow. But that’s all I did. I was a spectator to my own account. It would just sit in my Checking account and do nothing. The Stock Market looked scary and a Savings Account seemed like a nuisance. I would just keep my money in the same place and not touch it.
I was a hard worker growing up. As soon as I was old enough, I got my first job. In fact, I’ve held a lot of jobs. I started as a camp counselor during a summer, Church secretary on weeknights in High School, worked in a pizzeria, Assistant Soccer Coach and then the grocery market for several years. I worked hard to bring in more money and watch it grow in my Checking Account.
Fast forward to graduating college and moving to New York. My girlfriend at the time (now wife) helped me find an apartment with very cheap rent in her Brooklyn neighborhood. It was a miracle to find a place to live in that wasn’t close to $2000! I was an adult now and with that come more responsibilities. Living my NY life along with bills and other adulting expenses quickly started to deplete my account. I began to panic and decided to open up a credit card. Fast forward five years and four credit cards later, I now had nothing in my checking account and twice what I had there was now the balance of my debt. But like I said, I wasn’t smart with my money and had no financial intelligence at all.
Thanks to some strict budgeting and a lot of hard work from my wife and I, debt was no longer a thing in our lives. We are now free to live our lives with a little more maturity. We shared the same desire to begin watching our accounts grow and give us the security we need. Living as freelancers is one of the best jobs, however it is highly unstable and the security of making that same amount of money each week is hard to maintain. So we decided to aim for financial freedom as quickly as possible. That would give us the peace of mind to continue hustling and not worry too much about the instability of our career.
With a few more years to mature and a few more gray hairs, we were looking to invest. But one question kept creeping back to us. Are we too old to start? Can we save enough by the time we want to retire?
The Importance of Saving in Your 20s
Compound interest is likely a term you’ve heard millions of times. It’s an accumulation of interest over time, so the longer your money is accruing interest, the more it grows. Pretty simple, right? I gave a pretty simple explanation, but I’m a simple guy. (My wife agrees.)
So for example, you are able to save $100 every month until the day you retire. That would be about 45 years of investing each month set at an average of a 6% interest rate. By the time you retire, you would have saved $255,292.22. That is a good chunk of change! Imagine if you could save even more each month! In total, you would have invested about $54,000 of your own money. That’s almost $200,000 of pure interest accrued! The power of compound interest is what sets you up for financial freedom.
That’s why recent grads are encouraged to immediately start investing into a 401k at work or an IRA. The sooner you invest, the more money you can accrue in your lifetime. I was unfortunately too interested in keeping my money close in my checking account, like Sméagol and the Ring.
If you are one of the lucky ones that work for a company that provides a 401k match, take it! That is essentially free money. That is a great way to bump up your monthly contributions without hurting the bank too much. I was unfortunately not so lucky and had to dish out as much as I could each month, without any match.
Freelancing is now becoming the new norm in the workplace, so a 401k may not be in your line of sight. Instead look into an IRA or Roth IRA. I’m planning to write a blog post about which one is better, but for now do some research and find one that best fits you. There are many options out there to get started and begin saving.
After a few years I started to wake up. I saw marriage in my near future with my then girlfriend and was starting to think about our future together. I began investing into my 401k through work and let it grow. Looking back, I definitely could have invested more, but the first step is to get started, right? At least that’s what I’m telling myself. Whatever gets me to sleep at night.
When Wedding planning began, we quickly realized how expensive it was. Most of the cost was covered, thanks to my wife’s hustle and our parent’s generosity. But to get us fully paid, I dipped into my retirement savings. A big no-no, but something I didn’t hesitate to do, and never regretted. I was no longer the cheap kid everyone knew me to be. At least when it came to my wife. Wife > Money.
I am now working to budget our life together and save for our future.
Start Saving at 30
Let’s say you had a late start and decided now is the time to start investing. You just turned 30 and realized your 401k or IRA is non-existent. Or drained the whole account for some other expense, like a house or a Wedding. Whatever the case may be, you’re ready to get started (again.)
If you use the example from before, and invest $100 a month until retirement at 6% interest, you would only save for 35 years. The younger guy has a head start against you, but let’s see where we wind up.
At age 65, you would have saved $133,721.74. That’s not too shabby and if you throw more money into that, it can grow quite a bit by the time you retire. It may be over $100,000 less than if you started investing 10 years prior, but you have something. If you pump up at that $100, for example, to $500 a month from age 30 to 65, it would average about $668,608.69. So the amount of money is another factor to consider when investing.
Please keep in mind these numbers are just examples and not real figures. Salary growth and stock market fluctuations are not taken into consideration for this model. What I wanted to get across is that the earlier you start investing, the more money you could grow for retirement.
If you start late and want to catch up to the same amount you would retire with if started at age 20, you would have to significantly increase your monthly contributions. Ultimately-Therefore-In Conclusion, and other words you never use in real life, try to invest as early as you can. If that’s not possible, try to bump up your monthly contributions to catch up. Finally, if that is also not possible, try to push your goal retirement age back a few years or hope your children are rich enough to support you. You have options. The only thing you need to do now is start.
My plan is to max out my Roth IRA and invest heavily to build passive income streams to support me. I’m very late to the game, but if I work hard and contribute aggressively I can do it. It’s definitely a long road ahead, but I’m excited and very passionate about this. For now.
