LinkedIn asked people what they would say to their 22 year-old selves if they could. I would like to tell my 22 year-old self that he really needs to start saving for the future, right now…
Yes I know, the future, especially your retirement may seem like it is (literally) a lifetime away, but it’ll be here before you know it. You really need to start saving and investing for your retirement; the earlier you start, the better.
The effect of compounding is astounding. The amount of money that you are investing now may seem insignificant, but it will grow and compound. You have about 40 years until you retire. The more you put aside (especially early in your career), the more you will have when you retire.
You should pay yourself first. Yes, you need to pay your rent (and later your mortgage) and your utilities, but before you pay for anything else, put 15% of your income into investments. Yes, at least 15%, regardless of how much you earn.
As a 22 year-old, you aren’t earning all that much, say about $25K. So 15% of that is $3,750. Make sure that you put at least that much money into your investment account. Make sure that every year, regardless, you put 15% of your salary into your investment account. You’ll thank me when you’re my age.
Even if you were never get a raise, which even though you don’t know the future like I do, you know is impossible due to the effects of inflation, make sure that you invest at least 15% every year. Let me show you what will happen after 40 years (when you get to be 62).
Investing just $3,750 for 40 years will provide you with over $1.1 million when you turn 62. (The average annual return for the S&P 500 index has been a little more than 8%.) Most Americans are going to need to start drawing upon their Social Security benefits then, but you won’t!
$1.1 million is nice, but it gets better. You are going to get raises and promotions over the years. Conservatively, let’s just assume that you are only going to get a 3% raise every year. (I can tell you, because I know the future, that you’ll do better than that, but let’s just say that you’ll be getting 3% more each and every year.)
So yes, you will have more disposable income, but before you go out and buy a new car, or buy a new house, or anything like that, you need to do something first. Yes, you guessed it, you have to pay yourself first. Each year you will be getting 3% more than you received the prior year, Make sure that you are increasing the amount that you are investment by 3% each year as well. If you do that, by the time you get to age 62, you will have over $1.5 million.
As I said, since I know the future, your raises will be larger some years, so make sure to always pay yourself first. The real key is the compounding effect, so start early in life.
Your older self