Why You Should Create a Financial Life Plan ASAP
Hello friends! Today I have a special guest post by my friend Brittany Fisher of Financiallywell.info all about financial planning. I'm stoked about this post because this is something I'm about to start doing so I read and took notes on this post as much as I'm sure you will! Enjoy! :)
Why You Should Create A Financial Plan ASAP
Just because you don’t know exactly what you want to do in life it doesn’t mean you should wait to set up a solid financial life plan. In terms of investment and saving, the best time to start is yesterday.
Sure, you don’t know what your job will be in 10 or 20 years. You don’t know where you’ll be living. You don’t know whether or not you’ll have achieved all you want to achieve. But most people can agree that by the time they reach middle age and beyond, they’ll want to have saved and invested enough money to begin to think about retirement. Most people want to own a house, a car, have pets and children. All of these things are well within reach, especially if you start early.
Here’s why it is gravely important to start investing as soon as you possibly can.
It’s all about compounding
Did you know that two people can invest the same about of money but one person can end up with ten times as much - and it’s all based on when they begin to invest?
The way investments work is that your wealth accumulates, or compounds, over time. You earn a percentage on your initial investment and as the years go by that principle increases exponentially. Here’s a simple demonstration, courtesy of Forbes:
“In Case 1, the saver put away $1,000 monthly from January 1973 to December 1992, then stopped saving. In Case 4, the worked waited 20 years before starting to save $1,000 monthly for 20 years, from January 1993 to December 2012. In both cases, the workers invested $240,000 ($1,000 per month for 240 months), but in the first case, due to the compelling math of compound interest, the terminal value at the end of 40 years was $4.5 million, while in the second case the final value was only about 1/10 as much, $469,000.”
The earlier you begin to invest - even if it’s a small amount at first - the more money you’ll accumulate. It’s that simple.
You’re free of many financial burdens
Sure, when you’re in your 20s or early 30s you may not be making as much money as you’ll make later on in life. That’s just the way things work. But you do have something crucial going for you during your youth. As we age, our financial burdens tend to increase. We buy houses and cars. We have children. Our medical expenses tend to increase and we begin to care for our aging parents. As a young person, you may be free of these monetary obligations. So, when you have a little extra money you should build an emergency savings fund, work to pay off student loans and then begin to invest. If you don’t have extra money, the years before getting married and having kids are a great time to take on a side gig, like dog walking or freelancing, so that you can begin to put some money away for the future. The difference in compounding payouts from someone who begins to invest in their 20s vs someone in their 40s is monumental.
You can take the most advantage of your 401(k) match
A 401(k) retirement investment account is one of the best tools at your disposal for building a nice retirement nest egg. Retirement, you say? I’m young!
Think about this: many employers offer to match or even give extra beyond matching your own deposits into your 401(k). It’s basically free money, and the sooner you begin to take advantage of it the better.
It’s important to start creating a financial life plan as soon as possible. You never know what curve balls life will throw your way over the years, so it’s a good idea to stay ahead of the curve. It may be easier said than done, but every little bit helps, and you might be surprised by how much you’re able to save if you put forth the effort.
Ms. Fisher has spent more than 20 years as a CPA, and is currently working on a book about financial literacy (due out in 2018). She also runs Financiallywell.info.