We have all seen those articles which illustrate the power of compounding. The famous example used is that for every £ you save in your 20’s, it grows into £7 by the time you hit retirement. The aim is to help set our finances right in the first decade of adulthood so that we can reap the rewards for the rest of our lives. Being financially savvy in your twenties will translate in to a lifetime of wealth.
With that said, it is hard to come by any 20 year old who think about saving or retirement. It all about living for the moment. It is such a shame that we do not all learn about the power of compounding at an early age. The lucky few who chance upon the personal finance blogosphere early in their lives have an unfair advantage.
Most people only start to seriously think about their finances in their 30’s and 40’s. And when they do finally stumble upon saving, investing and compounding, they all have the same regret ‘ I wish I had started sooner.’
But all hope is not lost. If you are in your 30’s, be grateful that you are at least starting to save. There are far too many people who are ill prepared and are sleepwalking into retirement.
Every pound you save in your 30’s is worth £3 to £4 in retirement.
Sure it’s not the £7 that each pound bought you in your 20’s, but it’s still nothing to sneeze at. Starting to save in your 30s is still powerful. Besides, now you have something else working for you: you actually have some serious money to save.
I have seen many bloggers suggest that your twenties might be the most expensive decade of your life, not the least of which is because you probably spend some of the decade in school. Then you start out at the lowest salary you’ll probably earn over the course of your working lifetime.
Even if you’re still lugging around student loan debt in your thirties, chances are you’ve been making the minimum payments for a few years, so the balance has probably decreased somewhat. Maybe you even lucked out and work at a company that offered some kind of employer matching when it came to retirement accounts. This got you, oh reluctant saver, to put away a bit for the future without even noticing.
But there’s something even more important happening. In your thirties, you’re more likely to work for nearly the entirety of the decade without the interruption of school. And you’ll earn an ever-increasing salary that’s already buffered up by the work experience you logged in your twenties.
This means where you may have only had £100 to £200 saved each week or month during your twenties, your higher income in your thirties probably means you can comfortably set aside hundreds, even thousands of pounds towards your financial goals each payday.
So if you missed any savings opportunities in your 20’s, there’s still time to make up for lost ground. With enough discipline, you can even undo all the financial mistakes you made in your 20s. It will be like all those music festival tickets and Friday night beers you charged to your student line of credit never even happened!
The path to getting your financial shit together in your thirties is the same as it was in your twenties
Pay your debts, start saving for retirement, begin investing in the stock market, etc. There are no shortcuts. There are no secrets. It’s going to be hard, but the rewards of wealth and financial independence are worth it.
A quick stat:
Saving £1,000 per month starting at age 30 will grow to over £1,854,016.82 by retirement using the historical stock market return of 7% per annum.
Having close to £2,000,000 in retirement is as good a reason as any to still care about your money in your thirties.
A lot of people like to think “that ship has sailed” because it gives them an excuse to avoid the hard work of organising and bettering their finances. However, not taking control of something as important as your money now, means you’re in for a whack of pain later. It’s far better to trim your spending until you’re just a little bit uncomfortable in your thirties, than it is to struggle on not enough income as a retiree with no other options.
So if you missed the boat in getting your financial life together in your twenties and feeling glum about it, chill. The best is yet to come.