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I would encourage everyone to make a spreadsheet (or math tool of choice) and work out how much an extra $X/mo saved and invested buys in terms of years until r

I would encourage everyone to make a spreadsheet (or math tool of choice) and work out how much an extra $X/mo saved and invested buys in terms of years until retirement. That number is a really important one in my financial planning because while you’re young a little bit goes a really long way. I also wonder how much innumeracy contributes to financial illiteracy. They seem to go hand in hand in my experience.

ryandrake 5y ago
This is a great way to quantify the benefits of saving instead of spending in terms of something other than a dollar amount. Just saying, save $ABC today and you'll have $XYZ in your bank account when you're 80 is not as powerful as saying "Save $ABC more every week, and you can retire two years earlier." Also, keep in mind that a dollar saved in your 20s has a much bigger impact on your retirement date than a dollar saved in your 30s, 40s or 50s. I wish I would have saved every penny in my 20s, as I'd probably be close to retirement by now.
- jltsiren 5y ago
  It's also good to remember that each $1000 you save in your 40s has a bigger impact than each $100 you save in your 20s. That $1000 may also be easier to afford. For many (most?) people, early career is the time when the financial pressure is the worst. Income is still low, while expenses are not much lower than later in life. You may have student loans to repay and mortgage down payment to save for, and you can't delay having kids indefinitely. It's one thing to know that each decade should double the real value of your savings, and it's another thing to afford saving any meaningful sum of money. The real choice comes when your income increases or your mandatory spending decreases. Do you then increase your discretionary spending, or do you save some of the extra money instead?
  - allendoerfer 5y ago
    > It's also good to remember that each $1000 you save in your 40s has a bigger impact than each $100 you save in your 20s. Not necessarily. Historically that is a very close call. I just googled, 8.3% real returns of S&P 500, which would make $100 invested at your 20th birthday exactly $1009 (after inflation) when you are 49 years old.
RhysU 5y ago
The spreadsheet that stuck in younger me's mind was as follows: How long do I have to keep contributing $X periodically until the returns are greater than my periodic $X contributions?

ryandrake 5y ago

This is a great way to quantify the benefits of saving instead of spending in terms of something other than a dollar amount. Just saying, save $ABC today and you'll have $XYZ in your bank account when you're 80 is not as powerful as saying "Save $ABC more every week, and you can retire two years earlier." Also, keep in mind that a dollar saved in your 20s has a much bigger impact on your retirement date than a dollar saved in your 30s, 40s or 50s. I wish I would have saved every penny in my 20s, as I'd probably be close to retirement by now.

jltsiren 5y ago
It's also good to remember that each $1000 you save in your 40s has a bigger impact than each $100 you save in your 20s. That $1000 may also be easier to afford. For many (most?) people, early career is the time when the financial pressure is the worst. Income is still low, while expenses are not much lower than later in life. You may have student loans to repay and mortgage down payment to save for, and you can't delay having kids indefinitely. It's one thing to know that each decade should double the real value of your savings, and it's another thing to afford saving any meaningful sum of money. The real choice comes when your income increases or your mandatory spending decreases. Do you then increase your discretionary spending, or do you save some of the extra money instead?
- allendoerfer 5y ago
  > It's also good to remember that each $1000 you save in your 40s has a bigger impact than each $100 you save in your 20s. Not necessarily. Historically that is a very close call. I just googled, 8.3% real returns of S&P 500, which would make $100 invested at your 20th birthday exactly $1009 (after inflation) when you are 49 years old.

RhysU 5y ago

The spreadsheet that stuck in younger me's mind was as follows: How long do I have to keep contributing $X periodically until the returns are greater than my periodic $X contributions?