I started to title this “How do I start my financial plan?” but decided not to. Why? It occurred to me that “how to start” is not a decision and when you’re talking about financial wellness, decisions must be made. In my opinion, the first decision is to save money. Let me share why.
If you ask any person of a later age who is not happy about their finances what they would have done differently, I am certain saving more money, avoiding debt, or investing will make the top of their list. The reality is you can be careless financially when you’re younger, but it does not fair very well as you get older.
Yes, saving and investing can center on affording more extravagance. It is also about continuing to afford the life you have. If you did absolutely nothing differently, your cost of living will still go up. Not only that, there will be new things to buy that will become necessities.
Do you think your parents or grandparents knew they would be paying for Wi-Fi and subscribing to streaming services? What about all of the required accessories that accommodate these must-haves? How could they have properly planned for this if, in their higher-earning years they used typewriters and watched TV for free?
- The rising costs of groceries, rent, and housing prices.
- Newer items that are becoming a necessity like, $1,000 smartphones every two years, 5G, digital assistants, wireless earbuds, video doorbells, unlimited data, and smart homes.
- Rising medical costs and new illnesses.
- The increased cost of electricity, gas, water, and sewage.
- Higher property taxes and increased cost of insurance.
Let’s take a closer look at the advantage of saving now by comparing four people.
#1 – Jade (age 27)
- Starts saving $5,000 per year until age 67 (40 years)
- That’s $200,000
- At age 67, she would have about $1,142,811.
#2 – Justin (age 37)
- Saves $5,000 per year until age 67 (30 years)
- That’s $150,000.
- At age 67, he would have about $540,741
#3 – Jeffrey (age 47)
- Starts saving $5,000 per year until age 67 (20 years)
- That’s $100,000
- At age 67, he would have about $238,674.
Now let’s look at Jordan who started but stopped after 10 years.
#4 – Jordan (age 27)
- Saves $5,000 every year until age 37 then stops (10 years)
- That’s $50,000
- If she doesn’t touch it until she’s 67, she would have about $602,070
This is based on a 7% annualized return.
How do you keep up with rising costs and still have some lifestyle amenities? You consistently save and invest. When you save and leave your money in place, you not only earn interest on your money, you also earn interest on the accumulated interest. This is called compounding or compound interest. As you can see, because both 27-year-olds started early; they fared better; even after one of them stopped.
Don’t make it complicated, start your financial plan now by deciding to save a specific amount consistently. It’s that simple.
Lana, Financial Coach
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