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The Importance of Saving Early and Consistently

When you are in your 20s, retirement can seem like a lifetime away. And in some ways, it is. There are many milestone events like marriage, career, and children before you reach those sunset years.


But life passes by quicker than we realize and, suddenly, we’re facing retirement. If you have planned well financially, there is nothing to fear. However, if you haven’t put thought into how you will afford living expenses once you stop working and as you approach your 60s, 70s, and 80s, you may be in for an uncomfortable surprise.


We look at how saving early and saving 15% consistently will set you up for an easier transition into your later years.


The earlier the better when it comes to putting away savings for retirement. We take a look at the importance of starting early and being consistent.

Start Saving Early

The excitement of landing your first job and making real money can be heady. So many options are now available to you such as a nicer car, a bigger apartment, and traveling with friends. Saving for retirement can seem low on your list of priorities.

Many financial planners and experts, however, encourage people to start saving early. What do they know? Plenty.

They have seen the advantages of saving early on in life. Some of these advantages include:

Compound interest: It’s not just for high school math classes. Compound interest is a real thing. The rate at which interest compounds, or builds upon itself, over time is a powerful financial tool. The longer your money is allowed to work, the bigger your return over the next few decades. For example, if you saved $700 per month at 4% interest compounded monthly, after 45 years you will have saved $1,056,629. Using a savings calculator helps see this clearly.

Flexibility: By starting earlier, you will have greater financial flexibility in your budget. Building on our earlier example, if you wanted to save over $1 million but wound up starting later in life, you would need to save $2,050 monthly for 25 years at 4% to reach $1,053,966. Think about how contributing $700 per month to your savings differs from trying to allocate $2,050 per month. Your monthly and yearly budgets would look very different. When you start saving early in life, you gain more flexibility during your lifetime by needing to contribute less while saving more in the long run.

Free money: Not too many things in life are free. But if you have an employer who will match your contribution to your retirement account, such as a 401(k), that’s free money! By adding to your 401(k), not only are you saving for your retirement, but you are also benefiting from your employer giving you extra money for no extra work on your part. The more years you can take advantage of this the better.

Playing the long game: Like Warren Buffet, the sage financial guru, we need to look at staying the course when it comes to finances. Savings and investments don’t always yield the best returns in quick turnarounds, but are the most beneficial in the long term. By playing the long game, we can weather any downturns in the economy and turbulence in the stock market because there is time to recoup and recover from any fluctuations.


Now that you know some of the benefits of starting to save early, let’s talk about how much and how often.


Saving 15% Consistently

We have all heard the story of the tortoise and the hare. The two set out on a race and conventional logic would assume that the hare would easily win. However, the hare was quick and careless, while the tortoise was slow and steady. Because the tortoise was consistent and unceasing, it won the race.


Saving is a lot like the tortoise in this fable. Consistently contributing to your savings monthly will help you to slowly build your nest egg. Staying focused on the long haul is what will help you win the race.


While the goal of saving 10% has been touted by financial advisors and experts for a long time, the benchmark has moved. It’s better to save 15% over your lifetime for the best outcome. Why 15%?

Some reasons include:

Healthcare costs: It has been argued that we need less to live on as we get older. There is some truth to that as there are no children to raise plus food and other expenses decrease. However, healthcare costs have skyrocketed. As we get older, we have increased medical and health issues that need to be addressed. Even if you are relatively healthy, the chances are the longer you live, the more likely you will need some kind of long-term care.

Social Security instability: Many people think that they can live out their retirement on the money that will be provided by Social Security. In reality, this monthly government stipend provides less than half of what your monthly income was prior to retirement. That figure can change from year to year, depending on what the national budget looks like and whether or not Social Security experiences cutbacks. The instability of Social Security is not something to bank on for your living expenses in your later years.

Wiggle room: By saving 15%, you allow yourself some room to pay for the outgo that you have now with child rearing, mortgage, and living expenses, while also saving for retirement. This also gives you some wiggle room once you reach retirement by having built a larger nest egg.

In Summary

By starting to save early and consistently saving 15% over your lifetime, you will ensure that you take advantage of compound interest and employer matches. Consistency is key because slow and steady wins the race.


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