In today’s economy, it is not uncommon for young people to live paycheck-to-paycheck.Scrambling every month to make rent and car payments, many find it hard to think forward 40 years about retiring, much less saving for retirement.
There is never an “easy” time to start saving, but it gets easier on you if you start early. Although understandable, putting off saving for retirement is one of the costliest money mistakes. Putting things in perspective, an average worker generally has 40 years to work and save to afford 20-30 years in retirement. So the longer you wait, the less time – and more pressure – you will have to accumulate what you will need to afford retirement when you finally do start saving. As you tell yourself “I’ll save later,” you are also missing out on the extra amount earnings from compound interest over the years (which can make a great difference, shown in the example from our last post).
Many understand the importance of saving early for retirement, but the big question still remains: How to find the money to put into savings?
The answer lies in your personal spending habits. Aside from the necessary bills and expenses to pay, most people still have a little extra remaining. This extra amount usually goes to occasional dinners out, a daily coffee or soft drink, or new purchases that are not “must haves” (a new pair of shoes or another new gadget, for example). If you invest that money – say $100 per month – for 40 years, how much do you think you would have saved at the end of 40 years? Most would say $48,000. That would be true if you did not invest the money and interest. Not too shabby! But how much you would have if you did invest the money every month? Assuming an 8% rate of return, your monthly $100 deposits would grow to over $300,000!
Starting to save early can give you a terrific advantage when saving for retirement. Don’t wait – start now! (Hint: You can find useful tips to help you start from our saving and retirement planning posts!)