Finance

Why Saving for Retirement in Your 20s Makes So Much Sense

When you’re in your early 20s, it’s typical to enjoy every paycheck by shopping and traveling. But if there’s one thing most people learned from the current economic crisis brought about by the COVID-19 pandemic, it’s the value of saving up. Those who had enough savings didn’t struggle much when they lost their jobs due to lockdown and companies’ cost-cutting measures. Some laid-off employees even found opportunities to start their businesses. But not all had the same story. Thousands of people had to rely on stimulus checks, credit cards, and other financial support programs to put food on the table.

Saving

As the economy recovers, many people who struggled at the height of the pandemic now have the chance to bounce back financially. If you’re one of them, and you’re still in your early 20s, there’s another reason you should save up. It’s to have a long, happy, and prosperous retirement in the future.

Sure, retirement may seem so far off that you don’t see it as an important matter right now. After all, you want to get your personal finance back on track first. But anyone nearing their retirement age will tell you otherwise. They will tell you those years slip by, so you should start saving as early as possible.

Fewer Responsibilities, More Opportunities to Save

You’re probably still settling your student loans, and you’re not earning much as you start your career. Plus, again, you’re probably focused on regaining control over your personal finance after what happened last year. But you have fewer responsibilities than older adults. Paying off home loans and children’s school fees isn’t on the list of your responsibilities yet.

Your early 20s are the perfect time to save. Even a few bucks saved today can make a huge difference in the future. Developing the habit of saving early is beneficial, too. If you don’t begin today, when will you? A year or a few decades from now seems a reasonable plan. You don’t know, however, when will life surprise you with unemployment while paying off a mortgage and sending five children to school—like what happened to many middle-aged adults in the US in 2020.

Compound Interest Can Work in Your Favor

If there’s one thing you have that those older and wealthier adults don’t, it’s more time. With several decades ahead of you, compound interest can work in your favor. Compound interest can make your money grow exponentially as the interest builds upon itself over time.

Say you’re a 23-year-old business owner running a growing tech startup. You invest $7000 in a bond with seven percent interest per year. The following year, your investment will become $7490. That will earn another seven percent in the succeeding year ($8014.30). Imagine how much that will be by the time you turn 65. Compare that amount if you only decide to start saving and investing in a bond when you’re 35.

Of course, investing your savings come with risks. Then again, you still have years or decades ahead of you. If you fail at your first try on investment, you still have time to recoup your financial losses. Compare that to investing when you’re 70. By that time, it will be harder to recover if an investment failed since you probably no longer work and rely solely on your retirement fund, which isn’t much in the first place.

Financial Freedom at a Younger Age

Saving and investing as soon as you can is the cornerstone for building prosperous retirement funds. If you can achieve this, you can increase the odds of reaching financial freedom at a younger age. You can then spend your 50s or 60s enjoying more of life—traveling around the world or taking on passion projects without worrying whether you’ll suddenly run out of money for your current and future needs.

Early retirement will also benefit your loved ones. You won’t be pressured to work overtime just to support the needs of your family. Spending more time with your growing children will then be easy and convenient. And since you don’t need to burden your children financially in the future, they are likely to reach their life goals, too. That simple decision to save and invest early can help the third, fourth, or fifth generation of your family live comfortably.

When you learn the habit of saving and investing as soon as you start earning, you’ll be better off in the future. Remember that there’s no better person to care for you when you’re old than your younger self. So, make sure to save some money while you’re still in your 20s—even just a few bucks every week.

Jeremy D. Mena
Alcohol geek. Future teen idol. Web practitioner. Problem solver. Certified bacon guru. Spent 2002-2009 researching plush toys in Miami, FL. Won several awards for exporting tar in Libya. Uniquely-equipped for managing human growth hormone in Libya. Spent a weekend implementing fried chicken on the black market. Spoke at an international conference about working on carnival rides in Miami, FL. Developed several new methods for donating jack-in-the-boxes in Edison, NJ.