Your 20s are supposed to be fun, right? It’s supposed to be a decade of your youth you’ll never get back—full of new experiences and learning from your mistakes. Besides, won’t you have all the time in the world to be frugal when you’re older? If you saved now, would it even make that much of a difference?
It is true that your twenties are a special time and you should make the most of them. But if you think saving now won’t make much of a difference later in life, you could miss out on some huge benefits. By creating healthy saving habits now, you can take steps towards enjoying your life not just in your 20s but in your 30s, 40s, 50s, and beyond.
In this blog, we’ll explain the benefits of saving money in your twenties, including the financial advantages of saving early for retirement.
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The Benefits of Saving in Your Twenties
The earlier you save, the more you will have when it’s time to cash in and you could even retire earlier. Along with retirement preparation, you can take advantage of some huge benefits by saving now, including:
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1. Compound Interest
The sooner you start saving, the longer you’ll have to take advantage of compound interest. Compound interest is the interest that has accrued on both the initial principal and the accumulated interest from previous periods.
In savings accounts, interest can be compounded, either daily, monthly, quarterly, or annually and you earn interest on the interest earned up to that point.A
For example, suppose you deposit $5,000 in a savings account that earns 2% in annual interest and you don’t touch the account for 30 years. Do you know what your balance would be in that account after 30 years? It would be $9,056.81.
While the results may seem small at first, the amount of compound interest accrued can be significant over decades. To see the impact of compound interest for yourself, this handy compound interest calculator from the U.S. Securities and Exchange Commission can be a helpful tool.
Rule of 72
In the financial planning world, there is something called the “Rule of 72.” It’s an easy yet effective way to calculate how long it will take your initial deposit to double. Take the number 72 and divide it by any percentage return to find out approximately how many years it will take to double your investment.
Let’s revisit the example we shared earlier. By using the Rule of 72, we can calculate that your $5,000 initial deposit earning 2% annual interest will double in 36 years. We simply took 72 and divided it by 2, which is your annual interest rate. Thanks to compound interest, the growth of your savings account balance accelerated over time as you earned interest on increasingly larger balances.
Benefit From Interest in a Savings Account
If compound interest has you excited, you may want to consider opening a savings account! With banking services provided by MetaBank®, National Association, Member FDIC, Porte is a mobile finance app offering an optional savings account.1 Open a Savings Account and earn 0.20% Annual Percentage Yield (APY) on your balance automatically. Receive Direct Deposits of $3,000 or more in one calendar quarter and make 15 qualifying transactions in the same calendar quarter to unlock Bonus Savings and earn up to 3.00% APY for that quarter on savings balances up to $15,000.1 Download the Porte mobile app today from the App Store2 or Google Play and open your account!3
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2. Protect Yourself From Inflation
Inflation is the rate of an increase in prices over a given time. This general increase in prices reflects a decrease in the purchasing value of money. Essentially, this results in needing to spend more money to purchase items over time.
A recent survey by Personal Capital and Kiplinger’s Personal Finance found that inflation is now the primary concern for retirees.B Seventy-seven percent of the survey’s retiree and near-retire participants stated inflation as a greater concern than even rising costs of healthcare.
By building equity, making wise investments during your adulthood, and saving, you can have peace of mind for your retirement in the future.
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3. Create Healthy Financial Habits
Perhaps one of the greatest lessons we can learn in our twenties is that the best things in life often require our time and commitment. They don’t happen overnight. But by staying consistent and practicing discipline, we can fully appreciate and be prepared for those big moments in our lives, such as purchasing our first home or taking our dream vacation.
Saving is an endurance game, and as such, it requires discipline. It can be hard to stick to our budgets when we drive past our favorite stores, restaurants, and car dealerships. But creating healthy financial habits and practicing self-discipline over the course of your adult life, including your 20s, can reap tremendous rewards.
When it’s time to cash in, you’ll be grateful for every penny you socked away.
This blog is not intended to provide any tax, legal, financial planning, insurance, accounting, investment, or any other kind of professional advice or services. To make sure that any information or suggestions in this blog fit your particular circumstances, you should consult with an appropriate tax or legal professional before taking action based on any suggestions or information that we provide.
B. https://www.personalcapital.com/blog/whitepapers/survey-how-pandemic-is-reshaping-retirement/