It's easy to be carefree and unconcerned about the future while you're in your 20s. However, this could be a costly mistake. Getting into good financial shape when you’re younger is worth the effort and long-term planning required.
Why not simply live in the moment? You certainly can, but by improving your financial circumstances now, you may build a stronger basis for a brighter future. Let's look at the many advantages of putting your finances in order while you're still young.
Compound Interest Rewards You
Quite Simply, compound interest is the biggest key to building your wealth and saving for retirement. 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.
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.
Adjust to Good Habits Easily
It's incredibly easy to graduate from college and remain a broke student. After ten years in the workforce with a comfortable monthly wage of $3,000, it's not easy to go back to that.
Developing thrifty financial habits today will help you beat lifestyle inflation and capitalise on years of wise financial decisions.
Learning to live on less (while still being happy) at a young age, for example, will help you to save more money later on.
You’ll Have Less Financial Regrets
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 isn't to say that you should make as many financial mistakes. There are a lot of people who wish they'd known better from the beginning. Financing purchases you can't afford, going into debt, and failing to manage your debt and savings all lead to major regrets in the future.
Achieve 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.
Improved Quality of Life
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.