I recently read an article, If You Have Savings In Your 20s, You’re Doing Something Wrong. There can be nothing farther from the truth, yet reflect the reality prevalent today. The author essentially says that if you save money early in your 20s, then you are a boring person planning for his/her death. Saving money early, in your 20s is not a good idea according to the author.
I don’t want to sound preachy and hence a disclaimer. The author is entitled to her opinion and I respect that. But whatever I will write in this post are solely my opinions on why I disagree with the author.
Lots of bad advice
One of the advice author gives is:
“When you’re 40, you’re not going to look back on your 20s and be grateful for the few thousand you saved. You’re going to be full of regret.”
No, in fact, the very opposite. Because the few thousands I would have saved in my 20s would have grown even larger in my 40s. That is the power of compounding. As an example, if one saves Rs. 50,000 at 10% annual interest when they are 20 year old, they get Rs. 3.6 lakhs when they are 40 year old. Additionally, if you think you will spend now and save a lot later when you are making more money, you can’t be far from reality. Reason is, it is very easy to increase spending but a lot difficult to reduce it. If you don’t inculcate a habit to save money early in your 20s, it is a moonshot that you would be able to develop that habit in your 40s. It is also known that the older we get the difficult it is to change. Hence, save money early.
Another piece of gem is:
“When you live your life around your retirement fund, you may as well retire now. “
Isn’t this same as a 13 year old saying why do they have to study now to get returns in the future. Why not just go out, play, hang out with friends and enjoy? I can’t blame the author though, the instant gratification bug is real and has bitten a lot of people.
She goes on further to say:
“I don’t have any savings, but I also don’t have any wants”
That is great. But what about your needs? You do realize that you are not getting any younger. The older you get the difficult it gets to compete with younger generation. Would you dare say that a 40 year old you would be able to compete with the 25 year old you? I think not. And that is when a few thousands saved in our 20s that become lakhs when we are in your 40s give us a mental peace we are searching our whole lives and cater to our essential needs.
Some good advice though…
I do like one of the advice the author gave though. I am not sure if the underlying meaning is the same that I am interpreting but here it goes:
“$200 a month isn’t going to make the dent that a $60,000 pay raise will after spending all those nights out networking.”
I do agree with it, but only because you are investing that $200 instead of just aimlessly spending it for instant gratification. We may debate about the best investment avenue, but the idea is correct. Someone might have invested that $200 in Apple stock in 1999 when stock price was around $1 and made tons, while someone might have invested it to network with people, build a business and sold it for millions. But that is the core idea, invest early. That investment might be saving it in stocks, or investing in networking to reap benefits.
Just because you have money doesn’t mean you spend it all
Okay imagine this. You are at a wedding and have access to a lot of free food. Do you gorge on it, just because it is there? I think no, unless you want a trip to the hospital. Similarly, just because you have money doesn’t mean you should spend it all. Of course, you don’t have to be cheap, but you can be frugal.
We humans become habituated to luxury very quickly. If one is spending all of his/her money by shopping in the mall every week, visiting clubs etc. etc. and suddenly one looses his/her job, then it would be tougher to adjust vs if one had some savings to support the basic lifestyle.
But why do people think people who save money early are not cool!!!
I am no researcher in this field. But this is my hypothesis. Our social media generation is a generation that loves instant gratification more than any other generation in the past. For us, a candy today is much better than two candies tomorrow. We are on a constant lookout for another drug that pleases our senses in the short term.
Another reason is that when we are in our 20s, we think that we would always be young. After all, who likes to imagine themselves being old. But the reality is, I am growing old after each word that I type. The reality is, that at some point in future I would have to hang my shoes and sit back. And that is when the investment in my 20s would help me get by in my 70s. Hence, it makes sense to save money early, when you are in your 20s.
So do I sacrifice in my 20s?
If you think living sensibly is a sacrifice, then probably you should sacrifice. I don’t subscribe that a person should become a miser and just focus on saving. But at the same time, I don’t agree that one should just spend whatever he/she earns. You are the best judge of how much spend levels are you comfortable with, but as a thumb rule if you are earning Rs. 1 Lakh in India and are spending more than 80% of that in things that are not investment, then most likely you are falling in a trap.
In the end, I would like to say that saving money in your 20s is a good idea. Heck, it is a great idea. But you are the best judge of your life, blogs like mine and the article I shared can just give you different perspectives. It is upto you which school of thought you follow and what do you prioritise in your life. Is it spending money to buy things you don’t need or is it buying financial independence? The choice is yours, save money early or spend it all.