Let’s face it: As humans, we tend to put off important things until tomorrow. Going to the gym, starting that diet – and saving money. It’s easy to rationalize each individual purchase. But whether reality comes back to you quickly, in the form of an overdrawn account, or slowly, in a long-delayed retirement, failing to save will come back to haunt you. Here are four reasons to stop dragging your feet and begin saving now – and one reason not to save money.
Someone fairly smart once said that compounding is the most powerful force in the universe. The most compelling reason to start saving today is that a dollar put away now will be worth far more when you retire than a dollar saved later. Consider this: if you put away $1,000 at age 20, assuming a conservative 4% annual growth rate, you’ll have nearly $6,000 by age 65. Wait until you’re 40, and that $1,000 grows to just $2,666. The math bears it out: the earlier you save, the more you’ll have.
2. Habits are hard to form but easy to keep
Another reason to start saving immediately is that it may take effort to get in the routine of saving, but once you do, it’ll become nearly automatic. Research says it takes about 60 days to form a habit. Try to put a little aside each week for nine weeks (63 days), and know that it’ll get easier as time goes on. Even better: make saving automatic by routing part of your paycheck into a rainy day or retirement fund.
3. You will adapt
Some people are in dire straits and simply don’t have enough money to save after they’ve paid for basic necessities. But others confuse wants with needs, and convince themselves they simply can’t live without that gym membership, new pair of shoes or expensive night out. But if you set a budget and stick to it, you’ll adapt to your new lifestyle quickly enough. Humans establish an equilibrium, so you’re better off setting a budget based on 80 percent of your current after-tax income and putting 20 percent aside and sticking to that level rather than trying to budget each month differently. You’ll be able to work around your new circumstances – and who knows, you might develop a new love of running outdoors, thrift store-browsing or cooking.
4. People make mistakes
No matter how smart and prepared you are, you will at some point need an emergency fund. That day may come tomorrow or in a few years, but you will reach a point where you smack yourself on the head and say, “That was dumb. How will I pay for this?” Recognize that you’re only human and prepare yourself against slip-ups by setting aside an easily accessible rainy day fund. Your future self will thank you.
And one reason not to save
Finally, there’s one case where saving for retirement doesn’t make sense.You should always have an emergency fund to see you though 3-4 months of unemployment, but past that, if you have high-interest debt, you should pay off that debt before beginning to save for longer-term needs. Think of it this way: A retirement account might earn 5 percent or even 8 percent a year, but it’s not risk-free; a savings account probably doesn’t even earn 1 percent annually. The only surefire, zero-downside, double-digit return on your investment is paying off a 15 percent credit card bill. Paying off debt now and minimizing your finance charges means you’ll have more money to save later on.
Anisha Sekar is the chief consumer advocate at NerdWallet, a financial decision-making website dedicated to helping consumers understand financial basics and beyond