Many people are having trouble making ends meet – economy, jobs, and debt all have a part in this. Often, they have to decide between buying food, buying medications, and keeping a roof over their heads. Those who had been saving for a while are able to weather the current financial storm a bit easier. This is just one example of why it pays to save as early as possible and as much as possible as you reasonably can. There are many other good reasons why it pays to save as early as possible in your life.
Start Saving Early:
1st Reason to save as early as possible is because it is easier to save small amounts of money each month than it is to save several hundred dollars or a few thousand dollars per month later in life. There are many accounts of people in their 40s and 50s who did not save money for retirement while in their 20s and 30s. Instead, they were too concerned with the aspects of their everyday lives, whether it was paying the rent on their apartments or first mortgages, buying the attire needed for their professional careers, keeping up with their car payments, etc. Additionally, they usually spent money on going out with friends, taking their significant others and other family members on trips and vacations, and buying the latest fashion or electronics.
As a result, they are now in a bind where they have to try to save as much as possible while in their 40s and 50s, all the while trying to make ends meet in a more difficult economic environment. Jobs are not as plentiful as they once were, salaries and/or benefits are not as generous as they were 10-20 years ago, and the US Dollar is not worth as much as it was even just 10-20 years ago (let alone 50+ years ago).
Combine this with the facts that these people are getting older and have to take into greater consideration their own health concerns that become more numerous over time, and it is obvious that they should have done a better job of saving more money while they were younger. The economy was better then (unbeknownst to them at the time) and they were less likely to deal with significant health issues as they are now and will deal with as they continue to get older.
Therefore, saving money today when you’re in your young will make things that much easier on you over the long-term, and especially if the economy continues to maintain its current sluggish pace or even become worse.
2nd reason why you should save early is because you should maximize all of the employer-matching contributions you can get. These contributions involve your employer contributing an amount of money up to a certain percentage towards a retirement program that you can utilize when you retire. The amount of money that is contributed (up to the specific percentage) depends on how much you contribute of your own money towards your retirement fund. For instance, if you contribute $1,000 toward your retirement fund, if the percentage allows for it, your employer will also contribute $1,000 toward your retirement fund. Essentially, you’ve gained $2,000 in your retirement fund, that will gain interest over time, but you only had to contribute half of that out of your annual salary. By not taking advantage of such a program, you are essentially throwing away free money that you are entitled to.
The exact details of your specific retirement program will vary depending upon the company you work for and the program they have signed up for, but oftentimes, the amount of money contributed to your retirement fund can add up to hundreds and even thousands of dollars per year. As you can imagine, this can really add up over the course of a lifetime. Therefore, it really pays for you to begin taking advantage of such a program as early as possible to gain the most benefit from it.
3rd reason you should begin saving early is because of the concept of compound growth. Compound growth occurs on interest and dividend reinvestment programs; this allows money you invest in your 20s and 30s to grow much faster over time than money you will invest in your 40s and 50s. Saving your money in interest-bearing savings accounts, high-yield dividend stocks, and/or mutual funds will enable you to take full advantage of compound growth so that you can grow your money as quickly as possible.
4th reason you should begin saving early is because younger people have fewer financial commitments than when they become older. It’s often true that younger people have loans to pay back from taking them out during their college years to pay for their education. They may also have credit card debt, and of course, the vast majority also have monthly car payments and apartment leases to keep up with.
Checking what these people had to say about Wishing they would have Started Saving Earlier
However, the expenses that are owed as you get older are usually much more. Most adults in their later years will have a mortgage to keep up with, and this is usually considerably more than an apartment lease. Oftentimes, adults will have multiple car payments to keep up with (usually between the two adults of a household). Additionally, many adults have children, and this brings up additional expenses that must be accounted for as you become older.
Therefore, while you may think you have sizable expenses now, you’ll likely have greater expenses later. That is why it is best to start saving as early as possible; not only will it get you into the good habit of saving, it will lead to greater amounts of money due to the compound interest discussed above, plus you’ll have fewer expenses to deal with now as compared to later.
5th reason it pays for you to save early is because it will improve your financial security. This includes having money in savings accounts, retirement accounts, the stock market, and elsewhere. While there can be some penalties levied against you for withdrawing early on some of these accounts (such as your retirement account), it is an option if you do run into a financial crisis down the road, such as losing your job unexpectedly or enduring a type of medical condition or accident.
The earlier discussion on the current economic crisis should further illustrate this point that you can never be too sure about your financial security. Jobs are becoming more scarce due to companies cutting back and technology eliminating the need for more workers to do the same tasks. Additionally, companies are further streamlining by cutting back on salaries and retirement. Plus, the stock market experienced a sharp decline due to the recession in 2008; this event caused many people who were about ready to retire to hold off due to the fact that their portfolios experienced a considerable devaluation.
While no one can really control how the global economy will perform, and how this will affect individual economies such as the United States’, diversifying your savings will help to provide greater protection against such events. By saving more money earlier in life and diversifying it across several financial instruments, you can be better prepared to weather such storms and still retire at or around the time you plan to retire in the future, regardless of how the global economy and individual economies are performing.
As you can see, there are five main reasons why you should start saving as early as possible. It’s easier to save earlier in life due to fewer financial commitments, plus you gain more money from those savings due to greater employer-matching contributions and compound interest. Diversifying your savings over time can also give you greater protection from global economic events that you can’t control, giving you a greater chance of retiring when you expect to retire. By saving early on in life, you can retire and enjoy your “golden years” as you expect and deserve to after putting in a lifetime of hard work and service to your employer(s).
Tags: compound interest, retirement account, savings account, United States