Chill out 20-somethings, your major wealth gains won’t come until your 50’s


I’ve felt an almost crippling sense of urgency to meet major financial milestones in my twenties.

Whether I’m buying in to the “adulthood begins at 30” idea or just simply under stand that now is better than later, I set very high expectations for where my finances should be in my 20’s. And it’s only recently occurred to me how ridiculous that is.

Even though I’ve been saving for tomorrow what I earn today, I never actually thought about tomorrow will look like. 

I’ve blogged before about how you face some of your biggest expenses in your 20’s, and you have to pay for them with what are likely the lowest wages of your lifetime. It seems backwards that the time we need money the most, we have the least of it, but that’s really how it goes.

I’ve been saving for retirement for nearly 4 years, but I have less than $40,000 saved in my RRSPs. I almost maxed my TFSA out once, and then most of it quickly got liquidated to pay for my MBA. I don’t own a house or a car, which means aside from my computer, the most expensive items I own are purses.

How’s that for assets?

I’m almost 30 and my net worth is still only a few ten thousand dollars.

It’s a little bit frustrating, to see the least. After years of hard work getting rid of my student loan debt and saving & investing, shouldn’t I have more to show for it?

Actually, no.

Even if I had opted not to go back to school for my MBA, I’d only just be scratching the other side of six-figures by 30. I wouldn’t even be near $250K, let alone approaching millionaire status.

So if years of hard work ultimately only make the difference of a few thousand dollars, what’s the point?

Time. The 40-ish working years ahead of you are your biggest asset in your 20s, not your paycheque. The first reason is the obvious one: the “magic” of compounding. I’ve pointed out in previous posts that $1 saved in your 20s is worth about $7 in your golden years. What that post leaves out is most of the gains actually happen in the last 15 years of your 40 year investment.

Screen Shot 2014-10-28 at 10.27.54 AM
Return on a $1 investment made in your 20’s assuming an average 5% annual return

Crazy right? Your $1 only earns $0.28 in five years of your twenties, but $1.52 in five years of your 60’s (assuming your reinvesting the interest earned in the decades between to maximize the benefit of compounding interest). That means each $1 will grow by 239% in the first 25 years… and 365% in 15 years thereafter! The end result:

Most of your major wealth gains will happen at the end of your working lifetime.

Not only will your initial investments reap the largest interest gains in later decades, more likely than not your 30+ years of work experience is commanding the highest salary you’ve ever earned, giving you more money to save.

I’ve you’re like me, you may have mistakenly imagined your financial progress as linear, with your net worth gains relatively equal across the years and decades of your life, when in fact you’ll likely see dramatic exponential growth in your savings and investments in the last decade before you retire — and depending on how much you withdraw, maybe even after.

So next time you get discouraged about the small pile (or lack thereof) of cash sitting in your bank account, remember, the rest is yet to come. 

We’ll be rich yet… once we get outgrow our twenties 😉

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19 Comments. Leave new

  • I’ve set some pretty lofty goals for myself too, I just turned 30 this year. I think your 20’s set the tone for the next couple of decades, so I think it’s ok to be a little strict with yourself, haha.

    • That’s a good point! I think I set some really good habits and routines with my money in my 20’s that will definitely be beneficial to carry forward.

    • It’s so true that wealth comes faster the older you get (typically). Whenever I try to save $10, I can’t help but think that when I’m in my 50’s it’ll probably take me like >5 minutes to make that much. But I agree with Emily in saying the 20’s set a tone for the rest of your life. My 5 reasons for creating wealth ASAP:

      1) We have either free or extremely lost cost of living
      2) Compound interest (Lord, hallelujah!)
      3) Best health of our lives
      4) We’re quick learners
      5) Creating these habits early means most likely never having to worry about money

  • “I don’t own a house or a car, which means aside from my computer, the most expensive items I own are purses. How’s that for assets?”
    ^ made me laugh out loud! I’d say I’m doing well financially – in some ways, I’m definitely ahead of the pack but at the same time, I can always compare myself to people who have more/are doing better. It’s a tough line between enjoying your money and not being a scrooge vs. setting yourself up nicely financially during your 20s so that the payoff is better in the long run. Great post, Bridget!

  • I’m guilty of this A LOT. I feel like I need to be done saving for retirement by the time I’m 30. But why? Why do I need to be done when most other people have so little saved for retirement at age 30? No matter how much money I save, I feel like I haven’t saved enough or I don’t have enough. All I feel like I can really do is reduce how much time I spend thinking about money since things are really pretty good.

  • Definitely can relate to feeling that way in my early 20s. I think the time before 30 should be used to put yourself in a position to make bank in your 30s. 20s are a time for rapid employment changes, long hours, and hopefully promotions and raises.

    Now that I’m in my 30s, I’m locked in my career and industry and have great professional contacts. My salary this year compared to even what it was at 28 is amazing.

    20s are for piloting your personal finance car through the city streets towards the freeway, and the 30s are for pushing the accelerator down on the onramp. 🙂

  • This makes complete sense to me I just need to start investing so I can get in on this compound interest! I have RRSPs but at the moment there isn’t much risk and to be honest I don’t understand how it all works. I turn 30 in Feb so my goal before then will be to figure this out so I can start properly saving and making my money work for me! Great post as always 🙂

  • I understand this! I definitely feel like I should be a financial powerhouse by the time I’m thirty, but in reality I’ll probably have around $55,000 in retirement savings and JUST be putting down money on a house. That doesn’t sound like getting very far, especially when I think of how much work I’ll have done to get to that point.

  • Never thought of this and am happy you brought it up! it may seem like a waste of time saving all this money, but in reality, it’s the best thing to be doing. I’ll be working on my frugality muscle even more!!!

  • This post makes me feel good about where I am in life now. Thanks for that! A nice morning read 🙂

  • Definitely. I see a lot of people who have retired, or close to doing so, but their situation is much different. The reality is I’ll have only been out of school for 2.5 years by the time I hit 30… and that doesn’t leave a lot of time to accumulate wealth after digging out of debt.

  • This is it exactly! While I feel like I’ve made great progress financially, I always do the long-term forecast of “what if I never add another penny…” to my retirement account to get a better idea of where I really am, or else it feels so hopelessly far!

    Also, don’t forget that by educating yourself you are investing in your future earning power AND future job security!

  • Sean Cooper, Personal Finance Expert and Financial Journalist
    October 31, 2014 8:52 pm

    Great post, Bridget! Albert Einstein once called compound interest the most powerful force on earth – boy, was he right!

  • I can vouch for compounding interest and just having a lot of capital in general.

    Once I managed to save about $100K, it was much easier to earn / save money because your money grows without you doing much (read: not working and lazing around).

    Once it hit $200K it was a lot easier for me to sit back and watch my investments grow by dollars not by pennies.

  • Good Post!
    One part I find funny though, is where you say “only just scratching the other side of six figures”. As if this is some easy and realistic goal for the average person. The average person will likely never hit that wage throughout their career, let alone by 30. Th only people I know making close to that money at that age are software engineers, successful business owners or people who have an MBA with 3-5 years of experience. I do know that wages are higher in Alberta, so I’m sure that has something to do with it? Other than that, a great write up on compound interest.

  • Your article, brings up some good points. I am a PF blogger in my 20’s but I think starting a portfolio in your 20’s is crucial. The habits, experience and compound interest you will miss out on is irreplaceable and a great time to start out investing. You may look at a few ten thousand and think its nothing but the opportunity cost you miss out on by not investing is not worth the gamble. My whole goal now is to build a good passive income stream. Even good dividends at 4% on 55k is still 2200 a year which is excellent.


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