I’m a big fan of starting to save early in life. It’s something I’m trying to pass along to my own children since now that I’m older I can better understand how the effects of getting a jump on stashing some cash early on could have a substantial impact upon one’s overall financial picture down the road.
According to an article on the subject on MarketWatch.com, “The CLSA researchers compared outcomes for two savers-one who started saving at 21 and stopped at 30, and one who started at 31 and stopped at 70. They assumed that each would put away exactly £2,500 (about $4,185) every year, that the accounts would earn 7% a year, and that each saver would reinvest all gains in the retirement savings. The result: By age 70, the one who saved only in her 20s had £553,000, compared with £534,000 for the 40-year saver.”
Not only can starting to save early help better prepare for retirement though, there are other aspects in which early saving can really pay off.
Having a sizeable downpayment saved for buying a home can put a huge dent in the overall costs of homeownership. Not only may starting to save early allow you more options in size and location when it eventually comes to buying a home, but it could open up the option of choosing a shorter-term mortgage with a lower associated interest rate. Over the course of the loan, this decreased payment timeframe and interest rate could equate to tens or even hundreds of thousands less in overall interest payments to a lender.
Not everyone is cut out for the regular employer-based work role. While it might be a way to start your career and build savings in the process, these savings could eventually allow for the option of trying something new and venturing out to work on your own terms.
While starting a small business or other entrepreneurial endeavor can be risky, having savings in place upon which to rely not only for startup costs, but as a reserve fund should things not proceed as expected can help you avoid having to pack things up and call it quits too soon or go into debt to explore your dreams. Had I – as a self-employed person – not had the savings from my early work years to rely upon, I might have had to give up on my entrepreneurial career before I was actually able to make it profitable, which took longer than I expected.
And yes, retirement
One downside of being self-employed though is that I no longer have that employer-sponsored retirement plan that came with my previous work. And with margins tight, it’s difficult to squeeze out enough regular profits to contribute to a self-funded plan.
However, one plus of saving early means that I have a retirement account that remains from my previous employer. I rolled this account over into a dividend reinvestment plan. This means that each month, dividends are paid and automatically reinvested into the plan, growing share total without my having to reinvest any additional funds of my own. While it’s not a huge amount, it’s better than the alternative…nothing contributed at all.
More From This Contributor:
Building a Revenue Producing Blog
I Won’t Be Waiting to Take Social Security
Preparing to Publish My First E-book
The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.