Men face a pair of diametrically opposed instructions about their money in their 20s and 30s. The media, your friends, and basic instincts tell you to spend money on a good life while you’re young and can enjoy it. But your parents and financial advice articles urge you to start saving money for the future now.
Although we definitely think there’s no sin in spoiling yourself a bit, we also fall into the second camp. A man who saves is a gentleman, and the earlier you start saving, the easier it is to live the gentleman’s life for all of your days. Here are nine reasons why.
1. You Can Harness the Power of Compound Interest
Here’s the thing about compound interest, which is the kind of interest you get in your retirement and emergency savings accounts. The longer your money sits in one of these accounts, the more money it accrues through interest.
Let’s break that down, looking at how much $100 a month saved for one year would be worth depending on when you started saving it. We’ll assume a 5% interest rate, which is the low end of average, to see what that one year’s worth of savings would be worth later in life.
|Age When Started Saving||Value at Age 55||Value at Age 65|
Now, let’s take a look at what would happen if you started saving $100 every month from a certain age up to your 65th birthday.
|Age When Started Saving||Total Value at 65|
A hundred dollars a month isn’t that much money, even with a first job out of high school or college. Look at that chart again and the difference waiting even five years makes.
2. It Can Prevent an Emergency From Becoming a Disaster
An emergency fund is the opposite of retirement savings. While your retirement accounts let you stop working and spend the rest of your life pursuing your interests, an emergency fund lets you handle unexpected expenses or income losses without derailing your whole life while you are still working.
A gentleman is unflappable, prepared for emergencies, and poised to help his loved ones when they need it. An emergency fund lets you do all of that without putting yourself in financial risk. When you’re younger, and most of the guys you hang out with keep borrowing money from their parents, this can set you apart as the only gentleman of your age in the room.
How much of an emergency fund do you need? It depends on a lot of factors, but start by butting aside 3 months’ worth of your base expenses.
3. It Helps You Stay Out of Credit Trouble
Having specific and measurable goals helps a gentleman succeed in any endeavor. That’s as true in the gym as it is in the classroom, and it’s just as true with your finances.
A lot of guys in their 20s get themselves into credit trouble and spend their 30s under financial stress because they have to deal with those payments. A lot of the time, this happens because they don’t keep their eyes on the ball.
But if you set specific savings goals and you’re dedicated to meeting them, you’ll pay more attention to your finances in general. That includes what you put on your credit cards. The end result is a better credit score and better finances across the board.
As an added bonus, that extra savings gives you a slush fund you can dip into during emergencies. A car repair or bail payment that would be racking up interest on a card now just comes out of your savings.
4. You Can Leverage the 50/50 Rule
The biggest objection to saving while you’re young is you have other things you want to do with the money. Furniture for your first apartment, work clothes, and backpacking trips through Malaysia don’t pay for themselves.
But what if we told you there’s a trick that makes saving money painless? You won’t even notice it, except when you feel the benefits later in life.
The trick is called the 50/50 Rule. It works like this:
Don’t make any changes to your budget today. The next time you make more than your usual amount on a paycheck (this could be from a raise, overtime pay, or picking up an extra shift), half of it goes into your savings immediately. The other half you spend on whatever you want.
As your life progresses and you make a little more money each year, you accumulate savings without missing the money, because you were never used to having that money in the first place.
You can also do this with one-time cash infusions from a bonus at work, tax refund, inheritance, one-time paid gig, or similar sources of income you manage to find. The same rules and benefits apply.
It’s better to adopt this strategy earlier in your career because it will have more power as you continue to save. That’s because you set your baseline living expenses with your first job out of college. Start building this habit and watch how your savings increases each year.
5. It Opens Up Options in Your 30s, 40s, and 50s
This one’s short and simple. If you save money in your early decades, things are easier in the decades to come. Generally speaking, a gentleman in his 40s has more responsibilities and fewer savings options than he had in his 20s and 30s. Once he gets older, there is even less time to save.
If you have your savings and finances under control as you enter your 30s, it will help you out tremendously. It means your financial options won’t dwindle with each passing year. That lets you change to a more fulfilling career, have more kids, move into a better neighborhood, travel more, and worry less.
For our money, that’s a great reason to invest more during that first decade.
6. You Can Take Bigger Investment Risks
There are two kinds of investment opportunities: those with high potential returns that carry greater risks of losing money and safer options with more modest returns. (Well, there’s also bad investments that return very little and remain risky, but you don’t want anything to do with those).
There’s nothing wrong with sticking to safe and reliable investment strategies from your first year of saving until the day you retire. We showed you a chart earlier that shows how powerful that can be. But if you’d rather take risks for greater potential reward, the earlier you play that game, the better.
As you get older, your window before retirement age gets smaller and smaller. As that timeline decreases, losing money and slower growth hurt your progress more. Saving money early in life helps a gentleman with that in two different ways:
- If you make risky decisions early, you have more time to recover from any losses because that pre-retirement window is still wide open.
- If you create a safe cushion of established, reliable savings early, you can experiment with less risk for the rest of your life.
Either way, those early savings means more options with your investments.
7. It Helps You Live Better in the Coming Decades
Remember a few paragraphs ago where we talked about how the course of a gentleman’s life generally reflects a slow erosion of his options and a gradual accumulation of more responsibilities? We want to talk a minute about those responsibilities.
We’re talking about things like more demanding and fulfilling jobs, getting married, buying a home, having children, and becoming a leader in your areas of interest. These are the things that make the burdens of adulthood worth the tradeoffs, and your financial situation impacts all of them.
The more you have saved by the time this stage of your life begins in earnest, the better you’ll be able to handle the challenges. You can afford a better house, not just the one you can get a loan for. You can choose which job you want, rather than taking what’s available. You have the funds you need to send your kids to enriching camps, take them on great vacations, and help them with their college tuition.
And you can spoil your family because you started saving well before any of these things were part of your reality.
8. The More You Save, the More You Can Potentially Splurge
This one’s subtle, and a little complex, but it has the potential to be extremely fun. It works best if you go big on your savings as early as possible, but miniature versions can work for any gentleman who starts saving early. It’s based on what we like to call “retirement escape velocity.”
Retirement escape velocity works like this:
- You can retire once you have a certain amount of money saved. Your target amount depends on a variety of factors, but whatever it is, there’s a specific number you want to each by your 65th birthday.
- If you save enough money before your 65th birthday, interest alone will let you reach your savings goal in time for retirement, and you won’t need to add more deposits to the account.
- If you save aggressively early in your life, you will reach that point where you can let interest do all the work well before your 65th birthday.
Let’s see that in action. Imagine you need to save $500,000 by age 65 to retire in the gentlemanly lifestyle to which you would like to be accustomed. (This is an example amount only, so check with your financial advisor to determine how much you would need to save.) Again, using that 5% return rate we used from the first entry:
- If you saved $250 a month starting at age 20, you’d have just over $500,000 around your 65th birthday.
- If you saved $500 a month starting at age 30, you’d reach $500,000 around age 62.
These are both solid investment strategies that get the job done. But let’s say you buckled down before you had kids and saved $1,000 a month.
- Starting at age 20, you would reach $500,000 by your 43rd birthday — more than 20 years ahead of retirement age.
- Starting at age 30, you’d reach the target at age 53. That’s not 20 years early, but it’s still more than 10.
For a lot of reasons, you might not be able to retire on the day you hit your target, but you can stop saving. You can take that money you had been putting toward retirement and instead splurge on whatever you want: vacations, cars, spoiling your wife and kids. Your nest egg is solid, and you’ll be able to spend the extra money during the years you can use it best.
9. You Can Retire Early
Retirement escape velocity can also mean retiring earlier. It’s not as simple as just hitting that target number, though. For one thing, that number is likely to be higher the earlier you stop working. You’ll also need to cover health insurance if you retire before you reach Medicare age.
But if your plan accounts for it, you can retire a decade or more earlier than you would otherwise. Let us ask you: What sounds better? Spending the 10 years of your 20s working full-time and spending money without paying attention? Or spending 10 years in your 50s not working at all?
Most gentlemen know the right answer.
Final Thought: Getting Started
Have we convinced you? Good! The first question you probably have at this stage is how to get started. We have two answers to that, depending on your current job situation.
If you have a job with retirement contributions as a benefit, max them out. It won’t amount to more than 5% of your income and quickly becomes a budget item you don’t even notice. That’s especially true if your employer matches your contributions.
If your job lacks that benefit, start by running your budget and figuring out how much you could start investing if you started with your next paycheck. Begin there, and use the ideas we discussed above to grow your contribution over time.
William McCary is a freelance writer in New York who writes about finance. He started out saving a little each week when he graduated from college.