Dear 20-somethings,
It’s okay to be afraid of the stock market. It’s okay to be wary of where the world is going financially. It’s okay to have no idea what’s going on. It’s okay to see Occupy “Insert Your City Here” protests and half-fast agree with what the protestors are saying because it seems right when you really don’t know what’s going on yourself.
It will get better.
I can see most of you on the edge of your seat. You won’t and shouldn’t have to sit on the edge of your seat about this kind of stuff. You’re young! You’re in your 20s! Yes, a lot of things are going to happen financially during this time. Yes, they will be scary. But it’s nothing to really be afraid of.
Everyone with ears knows that saving for your retirement is extremely important. It’s talked about all the time. Yet, there are so many people out there that still aren’t doing it. Then these people end up having to work well past the age of 65 in order to make ends meet and their bodies cannot take the physical stress of working, yet these people cannot quit their jobs. Do you want to live the end of your life like that?
I’m going to be pretty straight-forward and blunt.
Start saving for retirement now!
Stop rolling your eyeballs at me! Most people think they have all the time in the world to save for retirement, or they want to start saving once they make more money, and therefore don’t start until they hit their 30s or 40s. This is bad.
Us 20-somethings have the biggest advantage in the world compared to everyone else older than us. That, my friends, is time.
- FUN FACT TIME: I was 19 when I started my retirement savings plan, and yes I was a student and only working part-time. So how did I do it?
- Most banks will offer a starting contribution of as little as $25 per month, which is basically like buying your favorite large fancy coffee drink at Starbucks every morning in a given week. (Cheryl, I’m eyeing you down right now.) $25 is affordable.
Back to the whole time conversation, with a fun comparison proving to you that time does matter when it comes to the wonderful thing in the world called compound interest.
- $100 isn’t that much money anymore. But let’s say that I throw a measly $100 to my retirement every month, and do so from the time I’m 19 until I want to retire at 65. Assuming I’m getting an average of 7% interest each year, I will have $410,300.00 at retirement.*
- If someone started saving for retirement much later at 35 years old, and was contributing three times as much as I did, at $300 a month, getting the same interest rate, and wanting to retire at 65 as well, they would only have $368,100.00 at retirement. That’s a pretty significant difference, even though they were saving more money than I was. Because of time on my side, I was able to save over $40,000 more.**
Your retired self will love your younger self if you save lots of money and not count on the government for help as the average payout from them is extremely low. In Canada for example (where I live), Old Age Security pays out an average of $498.22 per month, and that payment will most likely be lower by the time you and I get to leaving the working world for good. I currently make more than twice that in a month and I’m a full-time student working 15 hours a week. Is that enough motivation for you to start saving for your elderly years?
Pay yourself first!
This is the most important thing to remember when you’re a 20-something. Yes, you are going to get into debt. Yes, you are going to buy a house and have a massive mortgage on your shoulders. It may seem like the end of the world. But yourself should always be your first and most important bill to pay. If you aren’t able to enjoy your retirement travelling, golfing, playing shuffleboard, and taking your grandkids places, you will have a conversation with your younger self and feel the worst feeling in the world in my opinion, which is the feeling of regret.
Being as young as we are, we can easily avoid that feeling. If we do things right and start paying ourselves first, and start doing it now when we are young, we will be able to have the freedom to buy whatever we like and go wherever we want when we are older. Who wouldn’t want that?
Save smart,
Kayla
* I know, that’s not that much. This is just an example, you don’t have to hate on me.
** So, please note that this example was only for demonstrative purposes. If you plan on having a retirement like the way you live life right now, I recommend having a retirement goal of waaaaay more than $400,000. Try about four times more than that.
Alright Kayla, you win. I’ll put $100 in my savings account every month and I won’t touch it till I’m retired. Oh the Starbucks… but I need it. No I don’t. Yes I do. No I don’t. YES YOU DO INNER SELF.
Okay, I’m freakin out already.
HAHA, Cheryl. I just put two and two together that you and Jen were talking about pensions because of this post. I’m sure your company offers some kind of auto-withdraw into savings, or maybe even matches it!
Oh Cheryl. I don’t mean give up Starbucks! I was just bugging. =) But definitely start saving. That way you’ll be able to afford ALL THE STARBUCKS IN THE WORLD when you’re retired.
[...] can’t this money just go into my retirement savings? Or just use a credit card for [...]