Introduction:
You’ve probably heard people say they’d like to start saving money later on in life. They usually make excuses about not having enough money saved up or being in a long-term job. In reality, the sooner you start saving, the easier it is for you to achieve financial success.
Time is your most important asset; waiting to save means those who are saving now have a greater advantage than those who haven’t started saving yet.
Saving for retirement is not just about how much you earn, but rather how much you save and how disciplined you are at saving. If you set aside $5 per week from now until retirement (40 years), you will be able to accumulate over $62,000.
The secret to achieving financial security and success lies in understanding compounding and the amount of time you need to allow your investments to compound over time.
Why It’s Important to Save Early on:
Putting money away for a long time allows for more compounding. The more time you have until retirement (or when you wake up), the more money you continue to accumulate.
Reasons to Save Early:
Compounding: The longer you save, the less pressure you’ll feel to save aggressively when you’re older.
After the fact, a little bit of money being saved now can go through a lot of random fluctuation before retirement.
Early savings create an emergency fund and will help you live comfortably at retirement.
Having more money early allows you to have greater flexibility in your life decisions — whether it’s your career path or where you want to go at this point in your life.
People who do not start saving early (or who do not create an emergency fund) need to save a lot more money to reach Financial Independence later on.
The Magic of Compound Growth:
Starting savings early can be a very powerful strategy for accumulating wealth due to the compounding benefits associated with investing your savings. Specifically, your investment will generate additional earnings from both the original amount invested as well as the gains that were created through investing those original investments.
In very simple terms, your investment will create additional investments, creating a chain reaction effect.
For example:
When you start saving small amounts regularly from the age of 20, you will have decades of compounding growth on your savings.
If you wait until age 35 to start saving, you will have lost fifteen years of compounding returns, and it would be very difficult to make this up.
As a result, early savers tend to accumulate greater amounts of wealth than do those who save larger amounts but began saving at a later date.
Small Savings, Big Results:
You don’t need a large sum of money to begin saving – in fact, it is perfectly fine to start small! Here are some reasons why:
– Saving a small amount each month establishes a habit of saving.
– Your savings grow along with your income.
– The regularity of the savings is far more important than the actual dollar amount saved.
Even small amounts of savings can become great wealth if you allow for enough time for the growth to occur. The important aspect of starting to save is not the amount that you start with, but that you start to save.
Creating Strong Financial Discipline:
Saving early establishes good financial habits that will last you throughout your life. The main behaviors of good financial habits are:
– Spending less than you earn
– Avoiding debt whenever possible
– Planning for the future
– Focusing on needs rather than wants
When you begin saving early, these behaviors will soon occur automatically. If you wait to begin saving, you may develop poor financial habits that may be difficult to modify.
The Psychological Benefit:
Saving early has positive effects on your finances as well as on how you feel about your finances.
– You feel secure and confident
– You are less worried about unexpected payments
– You gain a long-term perspective
The peace of mind you have when you save early is often taken for granted; however, it is one of the greatest benefits of saving early.
Preparing for Emergencies:
Things happen in life that are completely unpredictable; for example, emergencies, loss of jobs, medical emergencies, or unforeseen expenses can occur at any time.
Setting aside funds early in order to save money will allow you to create an emergency fund that allows you to:
Avoid having to take on debt through a loan or credit card.
Reduce the amount of financial stress during difficult times.
Keep you on track towards your long-term goals.
In the absence of savings, it won’t take long for even small emergencies to create a serious strain on your finances.
Reaching Your Life’s Goals:
When you save for the future, it will be much easier to work towards your future goals than if you had been saving at a later date.
Major life goals include:
Purchasing a home
Starting a business
Paying for an education
Taking vacations around the world
Retire with comfort
Being financially prepared to achieve your life goals early gives you a greater ability to work with any future obligations to meet your financial obligations without having to deal with any stress.
The Cost of Waiting:
The expense of putting off saving is not just the financial aspect of it – it also comes with the downside of not having the chance to earn interest on (accumulate through) your savings. If you wait to begin your savings, you will need to save an increased amount of money at a later date. Years of compound growth will elapse by the time you begin saving. By the time you reach your goal, you will be required to catch up with your original savings plan. Therefore, individuals who start to save at the age of 20 may end up with much less money than individuals who begin saving at the age of 35.
The fact that you cannot buy back the time you have lost means that starting to save early is very valuable.
Saving vs Spending lifestyle habits:
Spending is very common in today’s society. People spend a lot of money on items such as electronics, clothing, entertainment, and events. While it is important to enjoy yourself now and do things you want to do, having uncontrolled spending will do nothing but reduce your chances of having future financial growth.
When you learn how to save early, you learn how to balance your life between spending and saving.
Make smart purchases – don’t make impulse purchases.
Value long-term purchases over short-term purchases.
Do not evolve your lifestyle to match your increase in income.
Practical Tips to Start Saving Early:
Starting your savings journey can be an overwhelming process, but here are some ideas to help you get started with:
1) Establish a budget
The best place to start is by tracking your income and expenses. Identify where you can cut back and put that money into savings.
2) Pay yourself first
Before you buy anything else, take a percentage of your salary and put it into savings.
3) Automate your savings
Automatic transfers from one account to another (e.g., checking to savings, etc.) help you to keep saving regularly.
4) Set a clear goal
Define the reason for your savings so you can see what’s pushing you towards success.
5) Avoid unnecessary debt
Do use credit unless it’s absolutely necessary (e.g., to build credit history, etc.).
#6 Increase your savings gradually
As your earnings increase, gradually increase the percentage of your savings.
The importance of discipline and patience:
Saving money takes time. Therefore, building a savings plan will require developing:
Discipline – Making sure you stick to your plan.
Patience – Allowing time to build wealth.
Consistency – Saving a little bit on a regular basis.
Even though saving doesn’t have immediate returns, over time, the accumulated value of your savings will be large.
A Real Viewpoint:
An overwhelming majority of successful people attribute their substantial wealth to beginning their savings and investing early in life. They didn’t leave it up to chance; they built their wealth by using time and a consistent, smart approach.
In contrast, those who wait too long or do not save appropriately have to deal with anxiety, debt, and a lack of options as they age.
Freedom From Financial Limits:
The ultimate aim of saving and investing early is to provide people with Real Freedom—the ability to live life on one’s terms.
For example, this may represent:
-Not having to depend upon a day-to-day paycheck
-Being able to make decisions without regard for money
-Being able to live your life without the constant worry of money
The earlier you begin your savings and investing program, the more likely you are to reach this goal.
Conclusion:
The strength of saving and investing in the early years is that it works simply. You don’t have to be a high earner or use complicated strategies to successfully save and invest. You just have to make a commitment to getting started.
Every little thing you do now will lead to greater long-term financial success. Time will help you—if you allow it to.
Regardless of your current income, saving and investing early will help guarantee you a life of freedom, security, and opportunity.
You need to act now—even if it is in small increments—because the sooner you start saving and investing, the greater benefit you will ultimately receive.
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