Why You Should Start Saving Early

We’ve all heard the saying “Time is Money.” When it comes to your personal finances, no statement is more true. The sooner you begin saving for the future, and for retirement, the more your money will be able to grow. If you put away $1,000 today and add $100 a month in a low-risk portfolio seeing 5% annual growth, your money will be worth $42,332.44 in 20 years. In 40 years, your money will be worth $151,999.72. If you plan to retire at 65, you’ll have over three times the money if you start saving at age 25 as opposed to if you waited until 45. Check out this Compound Interest Calculator from the U.S. Securities and Exchange Commission to see how your money could grow.
Here are some tips on how to get started:
  1. Create a savings account The simple step of creating a savings account with your bank, if you don’t have one already, is an easy way to start thinking about where you are putting your money. You can start saving money every paycheck and thinking about moving that money into an investment account where it can grow.
  2. Enroll in your employers 401(k) plan
    Many employers offer a 401(k) plan, an employer-sponsored, tax-deferred retirement plan. If your employer offers this, and offers contribution matching, enroll. Contribution matching means that your employer is putting money into your account, generally with a cap at a certain dollar amount or percentage of your total income. This is essentially free money from your employer that is added to your retirement plan.
  3. Create an IRA or Roth IRA
    If your employer does not offer any 401(k), or if you are a student or self-employed, consider an IRA or Roth IRA. IRAs and Roth IRAs are both types of individual retirement accounts that allow you to make contributions with either pre- or post-tax income, respectively. The benefit of IRAs is that your money is invested and can grow without the temptation of you spending the money early. However, remember that with IRAs (and 401(k) plans as well), your money is not liquid. That’s why it’s important to have an emergency fund that you can access if needed.
Even though saving for retirement may seem like a far-off task, starting early can make all the difference.

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