I recently had someone ask me, “I’m 28 years old and haven’t started saving money. Is it too late?” The quick answer is no, it isn’t too late. While it’s true that the best time to start saving money is when you first get out of college and start your first job, the second-best time is today.
I’m 28 Years Old and Haven’t Started Saving Money Is It Too Late
The issue when it comes to saving money in your twenties is that chances are you don’t have that much of it.
You may still be in college until you’re 22 or even 25 if you go to graduate school.
For a good portion of your 20s, you aren’t in a position to be making money from a full-time job.
Even if you are, you may have student loans worth thousands of dollars to pay off.
Your pay will be low as you are an entry-level employee.
That doesn’t leave a lot of extra money to shove into a savings account or your retirement accounts.
So, while it is great to start saving earlier if you don’t, not all is lost.
And…you’re not alone.
Only 39 percent of 20-year-olds have started saving money in a retirement fund.
Twenty-five percent of people in the United States start saving in their 30s.
For 15 percent, they don’t start saving until their 40s, and 6 percent start in their 50s.
Finally, almost half of adults between 18 and 34 aren’t saving at all.
This, of course, is not something you want to aspire to, but it is where the country is at.
How Much Should You Be Saving
Experts say you should save at least 10 percent of your income. Some will say as much as 20 percent, but this might not get you where you want to be if you have started saving later in life.
One of the reasons saving money early on is important is the magic of compound interest.
If you invest money and let it sit in your investment accounts, you will see growth from the first year on, but it will be modest at first.
In fact, the most exciting growth happens in the last ten years.
For example, let’s say you start saving money when you’re 28 years old.
You’re making $35,000 dollars per year and you are able to invest 10 percent of your income before taxes.
That means you are saving $3,500 dollars per year or $291 dollars a month.
To make things easier, let’s bump that up to $300 dollars a month.
If you invest this amount every month for the next 30 years, with an annual return of 8 percent you will have $410,000 dollars.
If you keep that investment for an additional 10 years, it will grow to a little over $939,000.
That’s quite a difference.
The problem with not investing early is you won’t have enough time for your money to grow to its full potential.
That means you will need to invest a higher percentage of your annual income to increase your passive income later on.
Of course, as your salary grows over the years, the amount you save can grow as well.
Most experts say you should have about 2 million dollars to retire on.
If you live in a high cost of living area you might need more.
In a lower cost of living area, you might need less.
Your retirement plan will depend on your own personal situation.
Saving Early On Reduces the Risk
There is another reason to start saving and investing early.
It will give you enough time to weather the ups and downs of the markets.
The stock market and your 401k or whatever you decide to invest in go up and down.
If you start investing later rather than sooner, and the market takes a big hit, there may not be enough time for your investments to recover.
Over the long haul, your investments will go up.
I know mine makes about 9 percent interest, but there are times they fall and times they rise.
Having decades for your money to grow will reduce a lot of risks.
You Won’t Have to Play Catch Up
If you are like the 15 percent of people that don’t start saving until their 40s, you are going to have to play catch up.
That means you will need to start saving a much higher percentage of your income each month.
It will be more difficult to save enough to live comfortably in your retirement years.
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Don’t Always Believe the Internet
Okay, I know you are reading this on the internet, so this is kind of a silly thing to say, but the point is, when you read averages or what you need or don’t need for financial independence in your retirement years, you need to take it with a grain of salt.
It is said that by the age of 30 you should have one year’s worth of annual income saved.
That means if you are making that $35,000 per year, you should have that much in your retirement accounts.
The upside of this is if you invest it for 35 years and receive 8 percent interest you will have $517,000 dollars at the retirement age of 65 even if you don’t add to this investment.
Just keep in mind, these are averages and they don’t know your lifestyle or how much debt you may have or what you actually see yourself doing in your retirement or even at what age you want to retire.
You will be the best judge of your financial situation and what is right for you in the long run.
If you are starting a bit later in life, it really comes down to this…
Get your debts paid off such as student loans and credit card debt and build up an emergency fund that will cover 3 to 6 months’ worth of expenses.
Then put as much money as you can reasonably afford into your retirement savings.
Do this, and you should be in good financial shape.
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To Sum it All Up:
No, it’s not too late to start saving money at 28. Yes, you might have to play a bit of catch-up, but you should still be able to save enough money to have a good retirement.