Teaching Younger Generations the Power of Saving Early

November 11th, 2015     Guest Authors

From Generation Y to the Baby Boomers, we know that each generation has unique aspects, values, and tendencies.

We must learn to embrace each other with respect and understanding to live our day to day lives.  That being said, some generations tend to be “savers” and have learned from the generation ahead of them the importance and power of saving.    We also know that some generations do not place the same value on saving or home ownership that others do, but experience will prove for most everyone that saving for life events such as disability, college, marriage, children, and eventually retirement are critically important.

Keep in mind that if you work, say from age 22 to 66, that is 44 years.  Many people are working past this age in today’s environment.  If you are in your twenties or thirties, and possibly even your forties, the vision of retirement is blurred at best.  There are so many questions to answer and the basic one is typically “will Social Security be there for me when I retire?”

Increase your savings rather than your expenses as your income increases in future years.
To illustrate the effect of saving over a long period of time, and the power of compounding interest, we will assume a basic annual savings amount, deposited monthly however, and earning a nominal 5% return.  If, however, you were fully invested in the market, time is on your side, and the historical market return is about 9.8% when decades of returns are evaluated.

Even if you are a worker earning $12-$14 hourly, you can save and make a significant impact.   For example, with this nominal 5% return, saving $2000 annually for 25 years will yield $95,454 and for 35 years will yield $180,640.

If your income is higher, saving $6,000 per year for 25 years will yield $286,362 and for 35 years will yield $541,921.    And saving $10,000 per year for 25 years will yield $477,271 and for 35 years will yield $903,203.  Increase your savings rather than your expenses as your income increases in future years.

A good rule of thumb is to start early with a reasonable amount to save monthly, and to first build an emergency fund that has at least 6 months of household expenses.

For many families, we see four different financial stages or financial cycles.   These are 2 cycles of surpluses, 1 cycle of deficit, and then the retirement cycle.

  • The first surplus cycle usually occurs in the early income earning years.
  • Next, the deficit cycle occurs when most families are raising children and paying for education.
  • The next surplus cycle occurs when the kids are out of the house, education is complete, and income typically outpaces expenses.
  • The final cycle will be the retirement years when typically income and expenses flatten and move through time very closely related.

Therefore, the primary take away for younger people that cannot visualize or plan a retirement yet would be to save, and then save some more.

Additionally, to eliminate the need to guess,  a household budget is required so you know exactly your sources of income and the detailed categories of expenses.   The Association of Independent Certified Public Accountants estimates that 61% of households do not have a budget, so therefore they have nothing to gauge their plan against.

Do you have a financial question you’d like help with? Patrick will be glad to answer your questions. Send them to him in the Comments section below, or privately via the NAnewsweb’s TCB Page.

Patrick McDowell

Investment Advisor Representative



Information Sources:   AICPA;  Broadridge Investor Communication Solutions; CFFP.edu


*Securities, Insurance, and investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC.   Radian Partners is not affiliated with FSC or registered as a broker-dealer or investment advisor.


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