Why is it important to save money at a young age?
One key benefit to starting to save earlier in life is making the most of compound growth.
When you invest your money, you stand to benefit from compound growth, which is similar to compound interest.
With compound growth, you’re essentially earning interest on interest – you earn interest on your original and following investment contributions, plus on all the interest that has built up over time. This gives you a larger balance to earn future interest on, leading to even bigger returns.
Overall, compound growth represents the key difference between investing your money through a financial institution and shoving it in a shoe box under your bed. It’s what can help your money grow – in some cases, far beyond the amount you originally invested.
Manage market volatility
Even cautious investors can be affected by market downturns, which is another reason it’s so important to save early. It means that if the markets take a downturn, you have time to make up for it.
On the other hand, if a market change hurts you while you’re scrambling to save for retirement, it can be a lot harder to recover. To put this in perspective, imagine setting aside a large percentage of your income for retirement while also trying to meet responsibilities associated with a mortgage, a child’s post-secondary tuition , car loans, etc.
Additionally, investing smaller amounts over longer periods of time allows you to take advantage of dollar-cost averaging. Under this approach, you balance the highs and lows of the market by buying units at consistent intervals, rather than going all in when prices may be high.
Create a safety blanket
It’s always a good idea to be prepared. You just never know when something will come along to change your financial outlook. From an unexpected career change to last-minute job opportunities, life’s all about surprises.
Putting money aside can help you handle these little emergencies without having to significantly change your financial plans. But being prepared isn’t just about putting money into a savings account – it could also mean protecting your family through life insurance, critical illness insurance or disability insurance.
Save more for your dream retirement
No matter how you plan to spend retirement, 1 way you shouldn’t have to spend it is worrying about whether you’ve saved enough.
Saving over the long-term can help you feel more confident about your retirement budget, and can help you avoid running into worries about relying solely on government benefits as well as whether you’ll need to stay working during retirement or downsize your home to generate more income.