We've all seen the argument for saving early and letting the magic of compound interest do most of the heavy lifting for us, but saving for retirement as soon as possible has additional benefits few people ever mention. If you're still wondering why you should sacrifice that dollar now for a potentially better tomorrow, consider these five ways an early saver benefits:
Those seemingly high average annual investment returns are much more likely with long horizons. The lost decade for U.S. stocks painfully reminded us that asset performances could deviate from historical averages significantly for a long period of time. But the longer your time horizon, the more likely it will revert back to long-term averages, which will aid your planning efforts.
You simply have more years to learn how to invest optimally. Perhaps the most important benefit of investing early is that you have much more time to learn how to invest prudently. Investing success isn't necessarily difficult, but odds are stacked against the individual investor to achieve long-term success on their own because there are just too many ways an individual investor can do harm to their portfolio.
The earlier you start investing, the more time you have to recover from mistakes. The better news is that if you start early, you will be making mistakes while your portfolio is relatively small, limiting the damage.
You will have a better chance to find a partner who appreciates your frugal nature if you are thrifty early. Many will tell you that finding a life partner who shares the same financial values is the best decision. Don’t try to radically change your financial priorities later because your family might not always be in sync with your views.
You'll have more money and thus feel more secure, which will help in your job, relationships, and health. The modern world is filled with people who worry about money, and the stress can cause tremendous harm in many parts of life.
If you save early, you will have the freedom to pursue potentially lucrative job opportunities that come your way even if there is a temporary financial hit to your income. If you save early, you won't fight with your family about money decisions. And if you save early, you definitely won't be up late at night worrying where the money will come from to pay for all those upcoming bills.
You can choose to improve your lifestyle as you age instead of feeling like you are always making sacrifices by downgrading your lifestyle as your obligations increase. Too many people spend their younger years living large, only to be forced to downgrade as they age and start a family. If you save early, you won’t be used to a larger lifestyle in the first place and due to your outsized savings, you can choose to upgrade your lifestyle as you see fit.
It's unfortunate to have to downgrade your lifestyle because you will get used to luxuries as if they are necessities. But by saving early and managing your lifestyle inflation, you will always be able to upgrade regardless of your salary situation because you'll have a cushy stash of savings.
David Ning runs MoneyNing, a personal finance site that shares money moves you can make to significantly increase your chances of having a comfortable retirement. He likes to share simple changes that anyone can make, such as picking the best online savings account and figuring out whether a 0 percent balance transfer credit card makes sense.