The Importance of Saving Early... and I Mean Early

Austin Colby, CFP^®, MBA

My family and I are currently going through old bins that have been collecting dust in storage for years. As one can imagine, it's a long process that brings with it many difficult determinations about what to keep (always too much), and what to toss (never enough).

The project has been greatly enjoyed by my children, who have been amused by findings such as pictures of their father with frosted hair-tips in college (yes, that happened), aged newspaper clippings of my former athletic glory years (much former), and three credit union gift certificates made payable to me only a couple of weeks after I was born.

My oldest child pulled these out of a bag that contained birthday cards given to me by various family members from birthdays one through six. He immediately had me research them to ensure we weren’t leaving any money floating around somewhere in Riverdale, North Dakota.

The three gift certificates totaled $15.25. Naturally, I had to stop and consider the potential that these papers held all those years ago…

Had I been a wise and savvy investor at the ripe old age of 13 days and invested those funds in the U.S. stock market (as measured by the S&P 500 index), the three seemingly insignificant gifts would be worth over $1,800 today—a total return of nearly 12,000%!!

Now, imagine if I had used all my birthday money each year to continue to add just $5/month. That $1,800 would have turned into $51,500.

If I had started working hard early on to add $50/month, those dollars today would be worth just under $500,000. $15.25 on day one and just $50/month since then would have allowed me to pay cash for the average home sold in 2021 in 48 of the 50 states (California and Hawaii excluded).

“Well, Austin, I’m not 13 days old now, so what’s the point of starting to save or increasing what I’m saving each month?”

I'm glad you asked: the point is that it is never too late to start a good personal finance behavior (of course, it is never too early either). Earlier is obviously better, but increasing the amount you invest for the future will 100% of the time improve your long-term financial outlook, regardless of the amount or timing of when you do so.

Below are some helpful tricks to try to increase what you are investing on a regular basis:

• Up your monthly investment amount by $100 every month until you notice your bank account getting smaller each month.
  • If you make it just three months, you still increased your annual savings amount by $3,600!

• Pick a bank balance as a comfortable cushion and sweep 100% of the dollars above that amount into your investment account monthly.
• With each raise in pay you earn, first increase your monthly investing by 50% of the dollar amount of the raise before making any other changes.
• With each bonus/stock compensation you receive, take one-third of the after-tax amount and add it to your investment portfolio while saving the remaining 2/3 for other goals.

Seemingly small changes or habits have a powerful effect when paired with time. What is one financial behavior you could improve or implement today?