This stuff is simple. Your income minus your expenses equals the maximum amount you can save and invest. It’s simple, but not easy. You’ve likely heard about how compounding interest is powerful. You’ve also heard that starting saving for your retirement as early as possible gives you the best opportunity to gain wealth. It’s true. The math doesn’t lie. There are many financial calculators, spreadsheets, etc that can help you meet your financial goals.
With a quick internet search I came up with two that should hit pretty close for several of y’all. Dave Ramsey’s version compares someone who starts investing at 19 to one who starts at 27. Darwin’s Finance Version compares an investor who starts at 25 to someone who starts in 35. The young investor only invests for a short time, then never again. The older investor starts late and invests for much longer. The younger investor wins in both examples. They are typical results. Please take the time to read and understand them.
There are others, but you should get the picture. Saving much early in life can give you the freedom to either not invest at all, slow down, or speed up to save more. The point is that if you start early, you’ll have more options later in life. Having options and freedom allows you more flexibility to achieve what you truly value. Options could be to continue to work in the salt mines, sit on the back porch with children or grandchildren, or doing nothing. But it will be your choice. You won’t be a slave to your job or career if you get this Big Rock right.
We’ve covered assets, liabilities, and net worth in previous posts. This post is to stress the importance of starting early. A seemingly small decision like not funding your IRA, 401k, or any other investment for retirement can have a major impact on your finances. In Dave Ramsey’s version, for less than a typical car payment for a couple of years early in your life can buy you a significant amount of money in your retirement. Don’t brush over this. It’s important.
Don’t be like me when I bought a new car in my 20’s. If I would have kept a cheap paid for car instead of buying that new car, my retirement account could look similar to the one in Dave’s example. But it doesn’t. That one example of a poor decision hurt my finances way more than I fully understood. For just a little bit of delayed gratification, I would be in a much better position today. I’m still playing catchup from the mistakes I made by increasing my expenses instead of investing as I should have. Don’t be Average.
Please don’t think that if you are older than one of these examples that all hope is lost. No matter what your current age you can improve your financial situation. What is true is that the longer you wait to start, the more money you’ll have to invest to catch up in the future. So, be like the my speedy grandson in the picture. It’s possible. But at what expense? You’ll lose flexibility to do other things with your money because you’ll have to put more into your investments. So, it does get harder. You won’t have the power of compounding interest working as hard for you.
Be speedy in starting your investments. Even if you are older, start now. Be strong throughout your years of investing by saving or investing what you need to invest to hit your financial goals. Even if you don’t know exactly what to do. Doing something today to get started is almost never wrong. It may not be perfect, but it won’t be wrong. So, be like Speedy and start today.
PawPaw FI 