The Power of Starting to Save Early
How Saving Across Decades Shapes Your Financial Future
Building wealth isn’t about luck, timing the market, or chasing trends—it’s about establishing consistent financial habits early and letting compound interest work its magic. As I discussed in the last blog post, the only secret behind building wealth is that it’s boring. Moreover, there is always another excuse to stray from your savings goals, each decade of your life introducing new tradeoffs and challenges with sticking to your plan. The earlier you start, the easier it becomes to stay the course and fewer tradeoffs needed to be made in each subsequent decade, and the more you push off the decision to start tomorrow, the more painful the savings become.
Below I break down real life lessons applied by our most wealthy clients that helped them reach where they are today, and we outline how much savings is needed to reach $2M when you start at different life stages—emphasizing how much harder it becomes to reach this goal the longer you wait.
Your Twenties: The Foundation for Wealth
When most of us think of our twenties, we think about the newfound freedom we experience from becoming financially independent from our parents and making our own decisions. All of a sudden we have income, usually a very modest one, and we want to spend it on fun, vacations, and shiny objects. We are bombarded with noise: promise of crypto alt coins pumps, tech startup dreams, and influencer lifestyles. However, if you are able to avoid procrastination for saving, control your desire for instant gratification, sort through the noise, and act like the future begins now, then you will create a foundation that sets you up for life. If you learn to budget and prioritizing savings, over lifestyle inflation, then you will already be ahead of most of your peers.
The average income for a 25-year-old is about $50,000 per year. Whether or not your income is substantially higher than this at this age, it’s imperative that you live in a modest apartment and drive a reliable, used car instead of seeking luxury and a new car. If you invest 20%, or $10,000 annually, assuming an 8% return, by the time you are 70, that money will have grown to $4.1 million due to compounding. If you delay saving until age 30, you now need to save 25% of your income annually to hit the same $2 million goal by age 70.
Your Thirties: The Balancing Act
When we enter our thirties, the financial decisions start to carry more weight and we are asked to become even more attuned to our goals. We see our friends start to get engaged, have children, and buy houses, while others are nowhere close to reaching those milestones. The variability of experiences in your thirties is dramatic, but the most important thing to note is to never compare your timeline to someone else’s timeline. Which, truthfully, is one of the most difficult mental tasks to accomplish, especially in our media ecosystem. The pressure from social media has made us go from keeping up with the Jones to keeping up with the Kardashians. Wealth feels more attainable and pervasive than ever.
The reality is that most of us in our thirties have substantially increased our income and spending power since our twenties, making it more difficult to not justify buying a bigger home, upgrading your car, or spending more in general. The more that we are able to our expenses and spending flat as we earn more, the more we can invest in assets that compound—helping us start to create separation from the pack with our quiet wealth. At age 35, the average income rises to about $70,000. If you invest 20% ($14,000 annually), assuming an 8% return, by age 70, this savings will grow to about $1.5 million—falling short of the $2 million goal, even if still a substantial amount.
Your Forties: The Make-or-Break Decade
Our forties come with substantial lifestyle shifts and even some upgrades, but it’s important to not splash cash around like you have already accomplished your goals. Career demands and growth means you are still in the grind. The lifestyle creep that comes with a higher salary and a growing net worth can encourage many to abandon some wealth building principles. While this might be the time to upgrade from your starter home to a larger, more comfortable home to fit your growing family, resist the temptation to upgrade to your dream home just yet. Many of your peers will seem wealthier because of what you see them spending and doing, but it is important to continue prioritizing investments and embodying the idea that wealth is not what you see.
The average salary for a 45-year-old is around $90,000. If you save 20% ($18,000 per year), your investments will only grow to $900,000 by age 70—not enough to retire comfortably. If you are starting your savings journey now, you’ll need to save 35% of your income annually to reach $2 million by age 70. Saving that much during this decade is especially challenging given increasing family responsibilities and other financial commitments. While there is still enough time left in your work life to take a few high-risk investments, do not risk this at the cost of your future. Are you starting to see how painful it is to wait if you are hoping for a carefree retirement?
Your Fifties & Sixties: The Hard Work Pays Off
The decades where you start to reap the rewards from wise choices made earlier in life. If you are in your fifties and sixties and lagging behind on your financial goals, then urgency really starts to kick in. If you have children, it is likely that they are graduating college and creating their own newfound financial independence, providing the opportunity for you to reduce unnecessary expenses and downsize where possible. If you never had children, then it’s quite likely you need to reduce as many expenses or downsize since you never scaled as much as parents. The important thing to continue to practice, given you likely only have two decades left of your career, is maximizing contributions to retirement accounts and tax-advantaged investments.
It’s important to avoid high-risk investments to make up for lost time during these decades. Do not let the emotions of your life stage impact the sobriety of your financial decisions and lead you to financial ruin just for the dream of living the most lavish and comfortable retirement. If you are waiting until this late in your life to save the amount you need for retirement, then it is time you reset your expectations of what retirement will look like to something more practical. At age 55, to hit $2 million, you now need to save nearly 70% of your income—a near-impossible feat for most people.
If you are on track to achieve your financial goals, then this is the moment in which you want to start transitioning to a protection-oriented strategy to safeguard your savings—shifting out of too much risk. Your financial strategy should start planning for long-term care expenses and ensuring estate planning is in place. Now should be the time where healthy financial practices start to pay the most dividends, as overall expenses start to decrease, allowing you to enjoy a bit more luxury. Those that consistently practice good financial behaviors will benefit from the fruits of their physical and emotional labor.
The Best Time to Start Is Now
Remember, time in the market beats trying to time the market. It’s easy to get carried away with being very risky early in your life as you see people in your network experiencing huge windfalls, but even modest investments made early grow exponentially over decades. Take the risks as you see fit, so long as those don’t get in the way of your savings goals, and slowly shift out of risk later in your life. Also, do not get frustrated with yourself: you don’t need to save perfectly every year—just stay in the game. Focus on increasing savings as income grows rather than making up for lost time in one go.
No matter where you are in your financial journey, the most important thing is to start today. Wealth-building is not about making perfect choices—it’s about making smart, consistent decisions over time. If you work hard, it’s easy to get lucky once, but what is difficult is to continue building on your wealth with healthy financial practices and not get carried away with your own success. If you’re in your twenties, you have the advantage of time. If you’re in your forties or beyond, don’t be discouraged; adjusting your savings rate and making smarter financial choices can still set you up for a comfortable future.
Start now. Stay consistent. Let compounding work for you.