When you’re in your 20s, it’s easy to be carefree and not too concerned about the future. But financially, this might be a mistake. Getting into good financial shape when you’re younger is worth the effort and long-term planning required.
Why not just live for the present? You can, but by improving your financial situation today you can build a better foundation for an amazing future. Let’s take a look at the numerous benefits of getting in good financial shape while you’re young.
You Benefit From Compound Interest
We mention the power of compound interest quite often, and that’s because it’s one of the biggest keys to building your wealth and saving for retirement. In simple terms, compound interest means the interest you earn on your money also earns interest. There’s potential for exponential growth.
Here’s an example: say you make an initial investment of $5,000. It earns a conservative annual return of 5%. After it has been invested for a year, you’ll have earned $250 (5% of $5,000), for a total of $5,250. After the second year, it earns another $262.50 (5% of $5,250), bringing your total up to $5,512.50.
Slowly but surely your account balance will grow, and that’s without investing any additional money. By the tenth year, your balance will have grown to $8,144.47. If you invest $250 per month under the same conditions, your balance will be $45,878.15. That’s a nice return without much effort.
Obviously, the earlier you start investing, the more time your money has to compound. Time is valuable here, which is why starting while you’re young is so important.
You Have an Easier Time Developing and Sticking With Good Habits
It’s very easy to graduate from college and continue to live like a broke student. It’s not so easy to go back to that after 10 years of being in the workforce, receiving a nice monthly paycheck of $3,000.
Developing frugal financial habits now combats lifestyle inflation and helps you take advantage of years of good financial decisions.
For example, learning to live on less (while being happy) early on will allow you to save more money.
You’ll Have Less Financial Regrets
Sure, lots of people encourage you to make mistakes in your 20s because it’s better to learn what not to do early on. Additionally, it’s “less costly” for you to make investment mistakes now, because you have so many years in the market ahead of you.
That doesn’t mean you should make as many financial mistakes as possible. There are plenty of people out there who wish they had known better from the get-go. Financing purchases you can’t afford, getting into debt, and not taking your debt or savings seriously can lead to some big regrets in the future.
It might even be enough to feel like you should hold yourself back in life. What if your debt gets in the way of obtaining a mortgage?
Do you want to look back when you’re 45 wishing you hadn’t made a certain financial decision? Of course not, and you can prevent it from happening by, you guessed it, developing good financial habits!
You’ll Achieve Your Financial Goals Faster
Procrastination is rarely your friend, but it’s even less so when money is involved. The value in getting started today can’t be stated enough.
For example, if you get serious about paying your student loans off a year after graduating, and manage to pay them off within 3 years, you’ll be in much better financial shape than someone who takes the full 10 years to pay them back.
You’re saving money on interest, and you’ll be able to move onto your next financial goal after 3 years. Having that burden out of the way can make it easier to save for a wedding, car, or house.
By investing early, you may also have a choice to retire earlier, if that’s an avenue you want to pursue. There’s no downside to getting your finances in order today.
You’ll Set a Great Example For Your Kids
For those who choose to have kids, getting into financial shape early on means the ability to provide a good life for your family.
Even worse, if you are in bad shape, you might be tempted to hide it from your children as to avoid worrying them. But kids sense when things are wrong — you’re only teaching them that money is taboo, and you’re also not letting them foster a great relationship with money. This can come back to hurt them in the future when they have a mentality based on scarcity rather than abundance.
In contrast, if you’re financially set by the time you have kids, you won’t have to worry about these issues arising. You’ll be able to teach your children how to manage money and have open conversations with them about it. Kids learn by example, and it’s important to set a good precedent.
Your Quality of Life Will Be Better
Overall, getting into good financial shape when you’re younger results in better quality of life. By developing good financial habits early on, and by saving (and investing) your earnings, you’ll have less to worry about later on.
There are so many people between the ages of 40 and 50 panicking, wondering how they’ll afford retirement. That’s a lot of stress to put yourself under. You want to look forward to retirement at that point — not worry about if it’s even within the realm of possibility.
Additionally, there are many people who go through their 20s and 30s buying things on credit. The “debt is normal” mentality takes hold, and they end up spending their way through the years without realizing the impact it has on their finances.
Learning early on to save up for big expenses saves you a ton on interest and sanity. Debt takes its toll on people, but you’ll be able to avoid it.
It’s Never Too Late to Start Getting in Good Financial Shape
All that being said, it’s never too late to get in good financial shape. Don’t be discouraged if you’ve missed out on a few years. There’s no time like today to take the actions that will set you on course to a successful financial future.
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