My wife and I rode up to New York State yesterday to visit my parents. She asked me on the way up, “So what are your big plans for this long weekend?” I didn't really know but I knew it would involve (a) seeing my three-week-old niece (who is absolutely adorable by the way); (b) helping my father with some nagging computer issues, and (c) posting a few things for y'all.
This is also a trip back to my home town, and it reminded me of my sophomore year in high school (among other things). I had a paper route through high school, and it brought in (maybe) $50/week at its best. (Christmastime was a bonanza: something like $200 in gifts.)
Well, my sophomore year I got in the habit of stopping at the arcade most days after school, or having pizza, or something like that. Most of the money I brought in went out. At some point my mother asked how my savings account was going. When it wasn't much higher than it was at the beginning of the year, my mom made her point. “Pretty much everything you earned is gone.”
At the time I just thought, “Oh well,” and I suppose in the grander scheme of things it's a fairly cheap lesson to learn how easy it is to spend all the money you have at your disposal when there are no real consequences to other people at the time. (The money was basically spending money; the real needs of my family were easily, and quite nicely, met.)
Fast forward twenty years.
Twenty years. That's a lot of time for compounding. But I wasn't thinking of things in those terms. At best I was thinking about saving up for some big expense I was going to incur, but I didn't really know what that was. Later, when I was in graduate school and draining my savings account because my stipend barely paid for my dorm room, it might have been nice to have a little extra money then.
There is absolutely no time better to save money that when you're young. But this goes counter to what seemed important to me at the time, which was fitting in, hanging out and doing things with friends, buying CDs that I thought would make me cool, blowing off steam playing Gyruss, whatever. I wasn't comprehending that these activities would cost me more of my future earning power than they do now. But time just marches on, and either my money's working for me — and continues to work for me — or it works for the guy who enabled me to rot my brain a little bit more.
It's true that we're only young once, but eventually we'll be too old to work, and it will make more things more comfortable, or at least more tolerable, if the money is already there when it can't be earned anymore.
This lesson is especially true for the compounding of interest. If you have 40 years to compound instead of 30 years the difference is huge. $150 a month can make you a millionaire at 10% interest if you save for 40 years and only $400,000 if you save for 30 years! Start young!
You're absolutely right that the power of compounding interest makes saving money when you're young a great idea — especially given that most young people have very limited financial obligations, and I have struggled with reminding myself this. It is hard to get over the "instant gratification" outlook.
There really is no better time to save than when you are young. Not only do you tap into the power of compounding interest, but you also learn some valuable life lessons for later in life. If you can't start saving when you are young what makes people think that you can start saving magically when you are older?
Thanks for the great tips. I decided to start saving money now, I'm 19. I'll start saving now, probably spend it all on school, and then start saving again right after.
You did the right thing at the time, this is just the old you wishing you could rob from your younger self.
Saving some is good, but you are alive right now, so enjoy it. As you can see from recent events, the powers that be will see your savings and find a way to steal them or devalue them.
I work with immigrants whose parents saved and saved only to see their currencies become worthless. Don't think the same cannot happen here. The best use of your money is to use it now for something real, not the false promise of 10% interest per year by letting the others handle your money.
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Thanks for sharing such great post, i agree that saving money from now is best way to enjoy future greatly.
Good stuff here. Our younger generation could learn a thing or two from this post. It is true that there is no better time to save money than while one is young. Not much expenses yet and what you usually spend on are generally merely “wants” more than “need”.