Finance Globe

U.S. financial and economic topics from several finance writers.
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Why it is So Important to Start Saving for Retirement Before you Turn Thirty

30-year-birthday

Many people, like myself, did not think saving early in my life was important. I figured I would be able to save later in life when my salary increased and would not worry about it. I never realized how wrong I was, and I quickly realized it is critical to start savings as early on as you can. While everyone may not be able to save in your early twenties, I would highly recommend to try and at least start saving before you turn 30. Below is why it is so important to start saving as early as you can.

Compound interest is your best friend when it comes to saving early. Compound interest is the number one reason why you should start saving early. Simply put, compound interest is the math behind which a sum of money grows exponentially due to interest more or less building upon itself over a long period of time.  To explain, lets take a very simple example. Say you start investing $1,000 per year at age 20. If you earn 5% interest per year, by the end of age 40, you will have $33,066, of which $20,000 was from your savings and $13,066 was from interest. Now lets say you wait to start saving at age 30. Then you will now only have $12,578, of which $10,000 was from your savings and $2,578 from interest. This is because you did not earn interest on your interest from age 20 to 30.

You can start saving with small amounts early on. If you start early, you don’t need to save a huge percentage of your paycheck each month because of the benefit of compound interest. However if you do start late, you will need to catch up and start saving a lot of your paycheck. 

While you think it may be easier to save after you turn 30, your expenses also increase as you age and it may not be as easy as you think. Many people buy homes, start families, and these fixed expenses can add up over time. Usually people in their 20s don’t have many expenses and therefore can save easier for retirement.

Long story short, the earlier you start saving, the better off and easier it is going to be. When you start early, you will benefit more from compound interest and the easier it will be to save for retirement. Even if you start with $100, you will be amazed how much they will grow over 10, 20, 30, and 40 years.

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Comments 1

Frank on Wednesday, 29 August 2018 17:20

Anyone around 30 (or slightly older) who started investing because of this article????

Anyone around 30 (or slightly older) who started investing because of this article????
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Sunday, 18 August 2019

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