Start Saving in your Twenties or be Forever Broke

06. March 2017

Whether your annual income is $25,000 or $250,000, the only way to become truly wealthy is to save significantly more than you spend. There are folks all around you – neighbors, coworkers, family members – who are extremely high earners but even higher spenders. On the contrary, there are those easy-to-overlook/spit-at individuals (you don’t get my attention unless you a flashy car, big house, and social media presence) who are either millionaires or well on their way to becoming one. The difference between these two figments of my imagination isn’t necessarily the amount of money they make (in my head Mr. Flashy Car actually makes a lot more than Mr. Overlooked), but rather the amount that they save.

Don’t get me wrong, increasing your income isn’t something to shy away from. After all, there is a limit to how much you can save, but there is no limit to how much you can earn. That said, the earning doesn’t translate to much unless those earned dollars are saved and put to work for you.

Having established the importance of saving, the best way to stockpile a lot of money is by starting young. Like, in your twenties young. I’m reminded of the Chinese proverb that states, “You can’t drink all day if you don’t start in the morning.” Accepting and incorporating such a concept (the one about saving, not so much the drinking) requires a pivot in mindset for most young people. Listen, I get it. As a twenty-something, you’re still very new to having a consistent income, and it’s going to take time and discipline to break the collegiate-tendency of trading whatever money you have in your pocket for beer and weed. Maybe alcohol and cannabis aren’t your vices – I hear that designer handbags and fancy restaurants are equally tempting and just as much of a money-pit. Regardless of what calls you to spend your money, breaking the social norm of spending recklessly with the justification of “you’re only young once, you can always make more money in the future” needs to stop if you ever want real wealth. The focus of this article is going to be on the advantages and benefits of developing strong saving habits while you’re a bright-eyed, bushy-tailed youngster.

Obligations are at a minimum

I understand that you’re not making as much money in your twenties as you likely will in your thirties or forties. I also understand that you don’t have the same financial obligations in your twenties that you’ll have in your thirties and forties. And if you play the “I have student loan debt” card as a twenty something, you’re likely to play the “I have a mortgage to pay off” card as a thirty something. I’d like to take this time to harp on the fact that student loans, like mortgages, aren’t required by legislation or religious scripture. We make a decision to take these burdens on. Some of us think that taking on debt to get a college degree is a worthwhile investment, while others have a different view on the matter. Regardless of which side you fall, we can all agree that taking out a loan to go to college was a choice, dammit.

Getting back to your obligations – as a twenty-something, you likely only have yourself to take care of. And you’re a lot cheaper to take care of now than you will be as a decrepit thirty-five year old with kids, a house, and lower back pain. If you can’t save a shit ton of your paycheck when you’re fresh out of college and it’s still socially acceptable to live in a dump, drink Natty, and eat cereal for three meals a day, how the hell are you going to save anything when wine, dependents, and a presentable living space are requirements?! Take advantage of the time when your health is naturally stellar, your tastes are excusable, and your kids are non-existent.

Perhaps you completely buy-in to this idea that saving money gets progressively more difficult as you get older. Yet, you feel that saving aggressively in your twenties will deprive you of the best years of your life. You want to live your life to the fullest in this sacred decade which requires having a luxury apartment, a new car, and thrice-daily outings for lunch, dinner, and drinks.

I’ve never quite understood this perspective. Let’s push the whole saving money and building wealth thing to the side. Being of the mindset that your twenties are somehow better than any other decade of your life is so depressing to me. I understand that your twenties are unique and offer something that other decades don’t – but isn’t that true for all decades? The idea of living it up in your twenties because future decades aren’t as worthy is a miserable outlook to have if you ask Markie.

Now let’s bring that saving money and building wealth thing back into the equation and my answer is only enhanced. I’m recommending that you start saving aggressively in your twenties, so that you can get maximum joy and fulfilment from future decades. That’s not to say that your twenties will be years defined by deprivation or sacrifice. I would never ask that you delay legitimate happiness in the present for the prospect of happiness in the future. I’m simply encouraging you to live somewhat less ridiculously when you’re young, so that you can reap the benefits in the future rather than scramble to make up for lost time. There’s no reason you can’t live a fulfilled, joyful, meaningful life now, while setting yourself up for more of the same in the future.

Age and ease of habit-forming have an inverse relationship

Just as trying to learn Spanish as a high school student is a lot harder than learning Latin, Mandarin, and Elvish as a five year old, trying to develop an aggressive saving habit as a forty year old is a lot harder than as a twenty-three year old. The reason for this phenomenon is simple: at the age of forty you’ve been spending the money you’ve earned the same way for fifteen years. To change a habit that’s been instilled and reinforced for a decade and a half (or as I like to say – 360 paychecks) is hard as fuck. However, if at the genesis of your money-earning life, you incorporate the same aggressive saving program, it’s very likely that you’ll follow it forever. You just won’t know any better different. This is the first time in your life that you have a regular income, if you start saving 50-60% right off the bat, this will become the norm for you. You know what else will soon become the norm for you? Not having a boss, alarm clock, or stress-induced ulcers. That’s neat!

If you’re a tough guy or gal and want to kick obligatory-work to the curb even sooner, aim to increase that savings rate as you progress through your very brief career. If your entry-level salary is $40,000 and you’re saving 50%, you’re living on $20 G’s and saving (read: investing) $20 G’s. Fast forward a couple years, maybe you’ve been promoted once or twice and now earn $60,000. Don’t immediately default to saving 50%. You’ve proven that you can live off $20,000 – maybe reward yourself with an additional $5,000 spending allowance, and save the remaining $35,000. Your savings rate is now at 58% (I did that in my head) and you’re the baddest mother fucker on the block.

Thus, establishing these saving habits in your twenties is dually beneficial. First, you accept saving at least 50% of your income as the norm. But also, you get used to living off a certain amount of money, so any increased in compensation can be immediately put into savings. Even if you want to reward yourself with spending a chunk of your raises, it’s very reasonable to increase your savings rate with each pay increase you receive.

Tap into that gnarly growth potential

You’re probably aware of it but just in case you’re not, Uncle Mark is going to regurgitate that infamous fact about compound interest and the affect it has on supersizing your stash.

  • Lance Musclepants is twenty-five years old and handsome. He has great hair and $10,000. He invests that money into a Vanguard index fund and doesn’t touch to it for forty-five years.
  • Hank Droopynuggets is fifty years old. He has back hair and $100,000. He invests that money into a Vanguard index fund and doesn’t touch it for fifteen years.

Whose stash is bigger?!

Of course the answer is Lance Musclepants! It’s become a tired anecdote at this point but it does a fine job of getting the point across.

Much like the Wu Tang Clan, the power of compound interest is nothing to fuck with. Use this shit to your advantage. Get that nest egg stocked so you can reap the passive benefits down the road. Let your dead president money soldiers work for you for forty years instead of ten.

I find it helps to consider money as having greater value the younger you are. Spending a dollar in your twenties hurts a lot more than spending that same dollar in your fifties. Why’s that? Because a dollar spent in your twenties has the ability to turn into nearly $25 when you’re sixty-five due to compound interest. A dollar spent in your fifties only has the ability to turn into $3 when you’re sixty-five. The moral of the story is: your money has stupid amounts of potential when you have it as a twenty-five year old, spend it wisely or suffer the consequences of being like Hank Droopynuggets.

Take the blinders off

We’re really set up to fail at this whole saving money thing. We’re convinced at a young age that college is a requirement for all of us. We get into debt without learning how to properly get out of it. We’re tossed into the real world and if we’re lucky we make a decent buck. But we’re compulsive consumers and continuously pressured to spend our money on dumb shit.

Maybe you heard someone say one time that saving 10% of your income is a good goal to have so you aim for that. Following this advice will have you paying off your student loan debt at just about the same time as your take out your first mortgage. If you’re the average consumer, you’ve probably financed a car during these years as well. This is a plan that will force you to work until you die. I understand how morbid that sounds but this is reality for all the 10% savers out there.

Maybe you’re a regular reader of this blog or some other outstanding personal finance blog and realize that saving 10% is for clowns and that 50% is a much better target. Even so, you think that doing so will deprive you of your twenties – “the best years of your life”.

It’s my opinion that your twenties are the best decade of your life only if you choose not to save. And it’s the best not because it was incredibly memorable or exciting, but because all future decades were rather bleak.

I hope that when I’m on my death bed at the age of 131, I look back on my twenties and consider it as one of the worst decades of my life. Not because it was actually a bad decade (I’d say it’s been great to really great so far), but because all the other decades were that much better.


2 thoughts on “Start Saving in your Twenties or be Forever Broke”

  • 1
    Marie on April 5, 2017 Reply

    This post was really inspiring and put the whole youth/FIRE concept in a new perspective, particularly for me as a 20 something. When a friend first heard about FIRE (and especially the saving part), he said it was sad to not live life to the fullest. I think its sadder to work forever.

    I like your point regarding how *each* decade has something to offer, and I never thought about how sad it is to think your twenties are the best decade. Thanks for the post.

    • 2
      Markie on April 6, 2017 Reply

      I’m glad some of my thoughts resonated well with you!

      I would suggest that your friend’s reaction to the FIRE concept is more or less the typical reaction. I think people in general aren’t wired to be as concerned with their future well-being as their present well-being. As I harped on in this article, there’s no reason why your present and future self can’t both be extremely fulfilled!

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