When you’re in your early twenties, retirement seems so far off that it doesn’t seem an important matter. That’s one of the most common excuses young people make about their zero retirement fund. But anyone nearing their sixties will tell you otherwise—that years slip by, so you should start saving early.
It’s easier to save when you have fewer responsibilities
You’re probably still paying off student loans, and you’re not earning much as you begin your career. But you have fewer responsibilities than older adults. You don’t pay for mortgage and school fees for kids yet.
Your early twenties are the perfect time to save—even a small amount saved today can make a huge difference in the future. It also pays to develop the habit of saving early. If you don’t start doing it today, when will you? Tomorrow or a decade from now sounds like a reasonable plan. But you don’t know when will life surprise you with unemployment while paying a mortgage and sending four children to school.
When you’re young, compound interest is your friend
There’s one thing you have more of than wealthier, older adults: time. Since you have more time, compound interest becomes your friend. Compound interest causes money to grow exponentially due to interest building upon itself over time. The effects of compound interest over several decades are astonishing.
Say, you’re a 25-year-old entrepreneur with a growing startup selling Speedglas 9100 welding helmets. You invest $5000 in a bond with seven percent interest per year. The following year, your investment will become $5350. That will earn seven percent again on the succeeding year ($5724.50). By the time you’re 65, your investment will be over $600,000. In comparison, a person who starts investing $5000 at the age of 35 will only have about $540,000 by the time they reach 65. That’s the power of compound interest.
Retiring early is a possibility
Saving and investing as soon as you can is the cornerstone for building retirement funds. If you can achieve this, you can increase the odds of reaching financial freedom at a younger age. You can then spend your fifties or sixties enjoying more of life—traveling around the world or taking on passion projects without worrying whether you will run out of money to protect your current and future needs.
Early retirement will also benefit your family. You can spend more time with your growing children. Since you don’t need to burden them financially in the future, they are likely to reach their life goals easily. Your simple decision to save early can help the third, fourth, or fifth generation of your family live comfortably.
If you’re asking yourself if it’s too soon to start saving for retirement, the answer is always a big no. Start learning the habit of saving and investing as soon as you start earning, and you’ll be better off in the future. Keep in mind that there’s no better person to care for you when you’re old than your younger self.