Why You Should Start Saving NOW

March 20, 2023

Pretty much every personal finance resource will tell you that the earlier you start saving, the better off you’ll be. It’s a bit of a “well, duh,” thing, but there’s more to it than just the fact that you’ll have longer to save if you start early. The thing is, the earlier you start, the earlier you can stop saving if you want to.

That’s right. People who save aggressively in their 20s and 30s and then stop while they deal with other financial priorities like buying homes, educating kids, traveling the world, etc., may be better off than people who wait to start saving until 45 and plow money away until they’re 65. This concept seems a little crazy, so let’s do the math.

Compound interest effect

Let’s say you start saving at the age of 25, putting away $6,000 per year (that’s $500 per month or just $250 per paycheck if on a biweekly earning schedule), and then stop at the age of 45. At that point, assuming a 6% moderate rate of return (meaning you invest the money in, for example, a target-date fund aligning with your 65th birthday), you’d have $231,020 saved. If you stop saving at that point and just “let it ride” until you’re 65, that amount could grow to $764,723, assuming that same 6% average performance over the years.

(You know that saying, “You gotta have money to make money?” That’s evidenced here. Your money makes money for you.)

Now let’s reverse that. Say you wait until you’re 45 to start and then decide you’re going to buckle down and save aggressively for the next twenty years. Then, to amass the same amount of $765,000 by 65, you’d have to save almost $20,000 per year (or $1,656 per month/$828 per paycheck).

In both scenarios, you’d be saving for 20 years. However, by waiting to get started, you’d have to save more than three times as much each month to get the same result. That is crazy! But the math doesn’t lie.

Tips to start saving

The challenge is finding the cash to get an early start, especially if you’re trying to pay off debt. However, the lesson here is that even a tiny amount of money saved early can significantly impact your future savings. So here are a few tips:

1. Always get the match in your 401(k)

That’s a 100% guaranteed immediate return on your money, and we’ve yet to find another legal way to achieve this.

2. Live within today’s earnings (aka don’t borrow against the future)

Our instant gratification society has us thinking that we need a posh lifestyle straight out of school. But that’s just a recipe for postponing financial independence. To stick to your savings priorities, you might have to live a bit minimalistic until you can afford more. It’s better to live frugally than to elevate a lifestyle to what it would be at a higher income.

3. Sometimes, it’s all in your head

Don’t rely just on willpower to save more money. Instead, try using money mind tricks to help you stick to your intentions.

4. Start small

Even if it’s just $25 per paycheck, it’s better than nothing. So that’s where I started. I then just raised the amount over time as my income increased and my debts decreased.

5. Use the auto-escalator tool

Check to see if your 401(k) plan has an auto-escalator. It’s a tool that lets you set up your contributions for automatic increases at set intervals. Try setting up a 1% increase each year to coincide with your annual raise so you’ll never feel a reduction in your take-home pay. A 35-year-old earning $50,000 who uses the auto-escalator to go from 5% to 15% over 10 years will have more than $250,000 extra saved at age 65.

The numbers don’t lie. If you’ve been thinking that you’ll wait until you feel more like you can afford to save, it’s time to shift away from that mentality. Starting early, often, and setting your savings on automatic is a way for you to make yourself afford it now.