Don’t worry, I’ll do it tomorrow.
How many times have we said that? It’s something we all struggle with and when it comes to your finances, it’s just about the worst thing you can do. How can I ever expect to retire if I keep deciding I’ll start saving tomorrow?
There are many benefits to saving and investing early.
A common example in many financial articles is about how one person starts saving a small amount of money when they’re younger, while another person saves more total money than the first person, but does not start saving until they are older. The younger saver invests less money than the person who starts saving later, but ends up with a larger amount of money when they retire. This is all due to the power of compound interest.
Let’s go through an example from Vanguard.
In this example it shows you and your friend both saving for retirement. You start saving $10,000 per year for 15 years starting age 25, while your friend starts saving the same $10,000 per year for 30 years starting 10 years later at age 35. You only invest half the amount as your friend, but when you both retire, you come out almost $200,000 ahead!
This is all based on a conservative investment portfolio with a hypothetical 6% annual return on your investments.
But what if I can’t afford to save $10,000 dollars per year? That’s a lot of money!
That’s ok! Even if you start small, the most important thing is to let time take care of your money and have it continue to increase over the long run. Start saving and investing $1,000 for 15 years at age 25 using this same example will still give you $100,000 even if you do nothing else.
That’s why Albert Einstein said “Compound interest is the most powerful force in the universe.”
Still having doubts about your ability to start saving and investing? Keep reading for answers to liberate you from your fears and excuses.
5 common excuses for not starting to save.
Excuse 1: I don’t have time to learn how to manage my finances.
Answer: Automate your savings! It can take some time to set up, but once you start automating your savings you’ll realize it doesn’t really require any time at all. Pick a savings or investment account that your paycheck will direct deposit into each pay period and don’t worry about trying to do anything fancy. A simple index fund or savings account will do.
Excuse 2: I don’t have enough money to start saving.
Answer: You’d be surprised what unnecessary purchases we spend our money on when you really stop to think about it. Go through your purchases from the last month and you’ll definitely find some expenses that were nonessential living expenses. Pay yourself first and set aside that money to a separate account than your normal checking account so you don’t even see it as an option.
Excuse 3: I’ll start saving more once I get my bonus, tax refund, or other financial windfall.
Answer: The funny thing about waiting until you get a big chunk of money to start saving is once you get that chunk of money, it never seems like it’s enough. After taxes and paying down what you already spent in anticipation of that bonus, it can be surprising that there can be almost nothing leftover for your savings. Instead, a better plan is to consistently save on an ongoing basis. Once that money comes in, you’ll be so used to saving you won’t even need to worry about spending it all in one place.
Excuse 4: Stocks, homes, everything is too expensive right now! I don’t want to buy at the top of the market!
Answer: Over long periods of time, most assets such as stocks and home values will increase in value. That means it doesn’t matter if you start investing at the top of the market or the bottom. Over the long term you will make money! One investment strategy to implement is called dollar cost averaging. Dollar cost averaging means you invest on a regular basis to average out your cost. Sometimes you buy high, other times you buy low. There is no need to worry about stocks being too expensive when you implement this strategy. If prices go down in the short term, you will get the chance to buy more at that lower cost basis.
Excuse 5: It’s too late for me. I’ll just keep working and never retire!
Answer: Sometimes it can feel like you might be too late to saving or not saving enough for the amounts to even matter. But that is never the case! Just the fact that you are starting to research and learn about managing your savings and investments means that you’re already on the right path to getting ahead. It doesn’t matter if you’re 25 or 55. As long as you start saving now, you’ll still be better off than not starting at all.
As a result of telling yourself all these excuses, you may never start! But don’t worry it’s never too late.
Share with me!
What’s one financial item you ended up putting off until tomorrow that you shouldn’t have? Share below in the comments.