It may seem counterintuitive, but your 20s are the perfect time to start saving for retirement. When you start saving in your 20s, you give yourself many decades to save. That means that you only have to save a little each month to end up with lots of money in the end! Here are four reasons why starting retirement savings in your 20s is the best way to go.
You Have Time to Map Out a Financial Plan
If you’re just starting out in your career, it may seem like the wrong time to develop a comprehensive retirement plan. You might think that working toward a goal of saving a million dollars by age 65 is too far off in the future and that it makes more sense to start saving later when you start making more money. When you start saving in your 20s, you really have time to think about and plan your investments. This allows you to realistically look at how much money you can put away each month, and you can plan with a cool head. You won’t be making your financial plans under pressure because you have the time to think about your investments.
You Can Try Out Different Investment Models
There are many ways to invest. For example, if you tend to panic and have a low-risk tolerance, index funds may be a better choice than individual stocks or bonds. On the flip side, you may want to own a business or explore crowd-funding opportunities and buying and selling regulation CF shares as a way of investing in your retirement. Your 20s are the best time for you to learn what investment types best suit your personal investing style and to explore a few non-traditional investment opportunities.
Another reliable investment option is real estate. Just buying your own home can be an investment in your financial future, especially in today’s housing market. Your home can passively accrue thousands of dollars in equity as you live your day-to-day life.
You Have More Time to Recover From Financial Mistakes
This point is related to the one in the previous section. When you start saving in your 20s, you have time to make some financial mistakes and more importantly, time enough to recover from them. Sometimes, investments are risky. If you start saving while you’re young, it’s not a big deal if you make a few financial mistakes. You’ll have more time to make up for those losses because you started investing earlier in life.
You Can Take Advantage of Compound Interest
Compound interest is very powerful and can make a big difference over time. When you start investing in your 20s, compound interest allows you to save a lot of money because your money will be working for you, earning money on its own. Basically, each year, the interest your money earns is earning interest of its own. The longer your money earns interest, the more interest it can earn. Starting to save just 10 years earlier can make a huge difference in your eventual retirement fund. If your employer offers 401k contributions, this is another fantastic way to take advantage of compound interest over time.
One of life’s great ironies is that most people start saving too late. The truth is that you really can save enough for retirement fairly easily if you make it a priority in your 20s. The key is to start early and spend less than you earn so that you can set aside 10 percent of your income (or more) every month from day one. You’ll be glad you did it later down the road.