When money is tight, most opt to pour their available resources into today’s financial obligations versus tomorrow’s financial goals.
After all, that is where we reap the immediate benefit of the money we’ve earned, instead of waiting decades for a retirement we can’t properly picture in our mind.
It’s easy to avoid saving for the future, but what’s easy today will make those later years infinitely more painful and harder to manage.
Citing age or debt as a reason to wait to start thinking about the bigger picture is a luxury – one most of us can’t afford.
5 Reasons Why Saving for the Future is Important
Here are five reasons why it’s time to throw those excuses out the window and start saving today.
1. The younger you are, the less you need to save overall.
If you think starting a savings plan later can still get you to the same point as starting today, compound interest says you might want to reconsider that logic. The truth is, the earlier you start saving, the less you have to save overall simply because your contributions have longer to grow.
Consider this example from the American Institute of CPAs:
“…a 20-year-old who saves $200 a month until age 65 and earns exactly 6% on saved funds annually would have accumulated around $550,000. But a 40-year-old contributing the same amount each month at the same earnings rate would have accumulated only $138,600 by age 65.”
2. You may never reach the “right time” to start saving.
Most young people are quick to fall into the trap of believing their later years will bring a huge salary increase and more disposable income to throw towards saving. But whether you’re 20 or 40, there are simply no guarantees that your financial picture will look better tomorrow than it does today.
In fact, age might also bring more financial responsibilities — whether that’s in the form of kids to raise or aging parents to support. Therefore, in the grand scheme of things, today might really be the best time financially to start thinking about the future.
3. The money you count on to help you later might not be there.
If you’re waiting on an inheritance to fund your retirement, you might be in for a rude awakening.
A study conducted by Allianz Life Insurance Company found that 86% of Baby Boomers are not committed to leaving an inheritance to their heirs. Pair this with seeing their own savings impacted by the 2008 financial crisis and rising health care costs, and suddenly leaving money for future generations no longer seems like the priority it may have been in the past.
Unless you know you have money coming to you, it’s always better to count it out. You’ll be glad you did.
4. You could pay less in taxes now.
If you want to see some financial benefit today of saving for tomorrow, you might be in luck.
Saving in a tax-deferred account, like a 401(k), means your contributions are taken from your paycheck pre-tax, which will lower your taxable income for the year.
Say for instance your salary is $50,000, but you directed 10 percent of your earnings into your 401(k). This means you will only be taxed on $45,000. The more you save, the bigger the tax benefit.
Be aware that these taxes are simply deferred until you retire. But if these small savings will get you to save now instead of putting it off, it’s certainly a good avenue to consider.
5. Establishing a saving habit now can lower your financial stress in the future.
At this point in your life, you have likely established a habit of paying your bills on time every month. You don’t think twice about doing it because you know it’s not an option.
Treating your savings like a bill and getting into the habit of putting money into it at the same time, in the same amount every month will ensure you take care of this financial responsibility with as much care and diligence as all of your other financial responsibilities.
Instead of playing catch up and drowning in financial stress down the road, you can sleep easy knowing you’ve already established a plan and you’re sticking to it. As we pointed out in a previous article, getting help with debt can give your confidence a major boost.
If you find it difficult to plan and stick to a budget, consider speaking with a certified debt counselor. Counseling sessions are generally free and your counselor will help you to formulate a plan to attack your debt.