I’ve often said that every dollar you save in your 20’s is worth $7 in retirement. Because it is. That’s the magic of compounding. It’s also the magic of not buying dumb shit during the decade when it is most tempting to do so. We all know that if you set your finances up right in your first decade of adulthood, you’ll reap the rewards for your lifetime. Financial savvy in your twenties will translate to a lifetime of wealth. Honestly, you might be burdened by student debt, working part-time for low hourly pay, and haven’t got a dollar saved, but the fact that you’re even reading this post on this website suggests that you will likely NOT be that way for long. (I mean it, if you’re PF-nerding it up, your financial woes will be short-lived)
But what if you miss it and don’t clue in about money management until your 30s? I spend a lot of time advocating for getting your financial shit together by the big 3-0, insisting you pay off all your debt and bank $25,000 for retirement in order to place yourself in the best possible financial circumstances for the rest of your adulthood… but I’ve been keeping a secret from you:
If you spent your twenties racking up student loans, partying like a rockstar, and not saving a dime, all hope is not lost.
…. but that might not even be it either. That narrative is the Parable of the Saver, As The Single Dollar describes it, and I think it’s something we say too often even though it might not be true. She notes in her post:
the version of the parable of the savers that drives me craziest is the one that involves the late starter starting late because he/she blew through everything partying in his/her early years.
I think we all know that this is in fact untrue: some of us are late starters because of heavy student loan debt, others because we have or had low-paying jobs in important, societally necessary fields like education, nursing, food preparation, social work, and so on.
Maybe you didn’t start saving in your twenties because you couldn’t — and that’s ok! Yes, some money is lost. Probably $150,000 to $250,000 in long term wealth is missing from your balance sheet in retirement because you didn’t take care of your finances in your twenties. It’s not a small chunk of change, but remember this: it’s not a major piece of your long term wealth either. We know that every $1 you save in your twenties is worth about $7 in retirement, so if you spent the money instead of saved it, hopefully it was on something worthwhile. Now it’s time to get serious.
Every dollar you save in your 30’s is worth $3 to $4 in retirement.
No, it’s not the $7 that each dollar bought you in your 20’s, but it’s still nothing to sneeze at. Starting to save in your 30s is still worthwhile. Besides, now you have something else working for you: you actually have money to save. I’ve written before that your twenties might be the most expensive decade of your life, not the least of which is because you probably spend some of the decade in school, and then you start out at the lowest salary you’ll probably earn over the course of your working lifetime. Even if you’re still lugging around student loan debt in your thirties, chances are you’ve been making the minimum payments for a few years, so the balance has probably decreased somewhat. Maybe you even lucked out and work at a company that offered some kind of employer matching when it came to retirement accounts, which got you, oh reluctant saver, to put away a bit without even noticing. But there’s something even more important happening. In your thirties, you’re more likely to work for the entirety of the decade without the interruption of school, and you’ll earn an every-increasing salary that’s already buffered up by the work experience you logged in your twenties.
This means where you may have only had $25 or $50 to save each week or month during your twenties, your higher disposable income in your thirties probably means you can comfortably set aside hundreds, even thousands of dollars towards your financial goals each payday.
So if you missed any savings opportunities in your 20’s, there’s still time to make up for lost ground. With enough discipline, you can even undo all the financial mistakes you made in your 20s — it will be like all those music festival tickets and Friday night beers you charged to your student line of credit never even happened!
The path to getting your financial shit together in your thirties is the same as it was in your twenties: pay your debts, start saving for retirement, begin investing in the stock market, etc. There are no shortcuts. There are no secrets. It’s going to be hard, but the rewards of wealth and financial security are worth it.
One of the things you might struggle with most is changing old habits. If you’ve been spending your entire paycheque for the better part of a decade, it will be hard to commit to saving 10%+ and/or allocating even more about debt. Coming to terms with painful realities like you own a car you can’t afford or the rental property you thought would produce income is actually costing you money will be hard lessons to learn. Perhaps you also have the costs of raising a family or taking care of ageing parents. You might even feel discouraged enough to quit. If you’ve already done this much damage and it’s going to take you years and years to fix it, why even bother? Because you’re probably going to live five more decades, ok? That’s why. Stop whining.
Saving $500 per month starting at age 30 will grow to over $500,000 by retirement at an average rate of return of 5%.
Have cash to spare? Double that commitment and save $1,000 per month, and you’ll retire with $1.1 million.
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Having $1.1 million still on the table is about as good reason as you’ll find to care about your money in your thirties. Someone starting in their forties doesn’t have the opportunity for even half that, so don’t tell me everything is over for you. A lot of people like to think “that ship has sailed”, because it gives them an excuse to avoid the hard work of organizing and bettering their finances. However, not taking control of something as important as your money now, means you’re in for a whack of pain later. It’s far better to trim your spending until you’re just a little bit uncomfortable in your thirties, than it is to struggle on not enough income as a retiree with no other options.
So if you missed the boat in getting your financial life together in your twenties and feeling glum about it, chill. The best is yet to come.