Most of us have heard the adage, “Start saving young.” But do enough young graduates understand why it’s so important?
At J.G. Wentworth, we talk to young people around the country, many looking to put money in their pocket now in exchange for all or a portion of their future structured settlement or annuity payments. And while we cannot offer specific financial advice, we can give some general thoughts – tried and true tips on how to set yourself up for a financially successful future. Here are five reasons we truly believe that your graduation party is the best time to start saving.
1) The ‘miracle’ of compound interest
There is a famous quote attributed to Albert Einstein that states, “The most powerful force in the universe is compound interest.” When it comes to financial numbers, frankly it’s hard to disagree.
Let’s say, for instance, that at the age of 21 you started putting $2000 a year into an account that earns 7% annually. By the time you were 65, due to compound interest, you would have saved a whopping $569,498. But if you put that same amount into an account starting at the age of 35 – meaning you had 14 less years to watch that savings grow – that number shrinks considerably, to $202,146! The bottom line is that the 14 years you did not save on the front end of your life causes a massive reduction in savings at the backend – arguably the most important reason to start saving as early in one’s life as possible.
2) You can be aggressive in your investing
Another reason why starting post-graduation is so important is because of the types of investments you can make. The older one gets the more protective one usually is of the money that’s been earned and saved; but younger savers and investors can, with the proper guidance, be selectively aggressive and potentially reap higher rewards before turning fiscally conservative later in life.
3) You can take early advantage of a Roth IRA
The Roth IRA is a special government-created retirement plan that gives people the opportunity to deposit after-tax savings now in exchange for the promise of no more taxes getting taken out in the future. This means that money one puts in at an early age will, under most conditions, be able to grow tax free for decades to come. Compared to other savings plans like the 401k, the Roth IRA is something uniquely suited for the young graduate, and can reap enormous benefits down the road.
4) You can learn the importance of saving – period
Yet another benefit of saving from the moment graduation ends are the financial habits young savers can develop that will reap amazing benefits down the road. Shopping frugally, never buying more than one can afford, limiting credit card purchases, learning to put money aside every month – these are just a few financial habits that could turn many young graduates into millionaires later in life.
5) You’ll create an emergency fund
Last but certainly not least on this list of benefits is the creation of an emergency fund. Unfortunately no one truly knows what life has in store for them, including medical problems, unforeseen unemployment, a car accident that could demand a new automobile purchase – the list of wrenches life can throw at you is truly endless, as anyone over 50 can tell you! Certainly any savings fund begun post-graduation could help mitigate the effects of such events and help you defend yourself financially should misfortune strike.
As we stated at the top of this blog, J.G. Wentworth frequently gets calls from young people around the country, and we take great pride in trying to help them get the money they need out of their structured settlement or annuity and into their pockets sooner. But we also take great pride in helping people of all ages make the best choice for their financial futures. So make no mistake: the more money you start to save following your graduation party will, without a doubt, help you years down the road. And always remember that if you’d like to talk to someone about selling your structured settlement or annuity, call J.G. Wentworth at 877-227-4713.
Nothing above is meant to provide financial advice. You should meet with appropriate professionals for such services.