The High Cost of Waiting: Why Some Financial Decisions Are Better Made When Younger
From the moment we’re old enough to think for ourselves, we have choices to make. Some decisions are easier than others, and some decisions are costly. There’s also a high cost to pay when we wait too long to make certain financial decisions.
Every financial decision we make affects us in some way — either in the long or short term. Making the wrong financial decision or waiting too long on certain things can impact us for years. That’s why making certain financial decisions as early as possible in life is essential. The younger you start making wise financial decisions, the better your financial situation will be.
Learn To Budget and Stick to It
The earlier you can learn to plan your budget and stick to it, the better life will be for you long-term. Some habits are just good to have, and budgeting is one of them. When you make a budget, you manage every penny of your income. You’re telling your money what you want it to do for you. This is not your income leading you but you taking charge of your finances. If you can have that down by turning 30, you’re on the road to financial success.
Plan for Your Financial Future
With your budgeting down, you can now decide on your financial goals. Financial goals can include short- and long-term goals and can include anything like going back to school, buying a home, investing, taking a trip around the world, or paying off your debt.
These goals are hard to reach if your finances are a mess with no relief. Knowing what you want down the road will make you focus on doing what needs to be done so you can achieve them. Don’t wait until age 50 to have goals; start focusing on them now so you’re there by age 50.
Figure Out Your Debt Situation and Deal With It
Debt brings with it a heavy burden and much stress. The more you owe, the harder it can be to cope. There’s never a good time to wait to pay off your debt, and excuses like “Until I get a better job” or “Until we start making more income” won’t fly.
Once you realize you’re in a debt crisis, the best way to handle it is to devise a plan to eliminate it. Deal with your debt, regardless of how young you are. It’s best to tackle it in your younger years and learn from the mistakes you made wrong, never to have to go back there again.
Once you get out of debt, do everything you can to keep your debt to a minimum. Understand the difference between good and bad debt so that if you have to borrow money, it will be of value to you later. Here are some tips for managing your debt:
- Borrow only for needs, not for wants
- Keep your credit utilization ratio low
- Manage your payments. Your monthly payments should never exceed 36% of your monthly income
- Pay your bills on time
Invest and Build for Your Retirement
The act of investing today is not what it was 20 years ago. It used to be that only people with excellent incomes could make smart investments. Today, investment tools are accessible to everyone, which means anyone can do it. The sooner you start investing, the better your chances of saving more than you need for your retirement goals. While it’s hard to think about retirement in your 20s and 30s, remember that when you’re in your 30s, you’re halfway to retirement. That’s actually a perfect time to start building your retirement savings, and investing is a perfect vehicle for that.
There’s definitely a high cost of waiting to build your retirement nest egg. For instance, if you were using a hypothetical investment example with a 9% rate of return compounded and were trying to save $1 million by age 67:
- Starting at age 27, you would have to save about $214 each month.
- At age 37, you’d have to save about $540 each month to reach that same goal.
- At age 47, you’d have to save about $1,490 each month to do it
- Procrastinate even longer; at age 57, you’d have to save over $5,000 a month.
- If you wait until the last minute or age 62, you’d have to put away over $13,000 each month to reach your retirement dream fund.
If you’re in your 40s and haven’t started saving for retirement, you’re already behind.
Financial Education
You’re never too young to start educating yourself on various financial aspects. Not everyone’s financial situation is the same, so your financial decision may not be appropriate for someone else. Educating yourself as much as possible is the best way to decide what’s best for you. Learning and doing go hand in hand. Once you learn more, you do more. So use the education you gain to make the best financial decisions as early as possible.
The Bottom Line
There are many things in life you might fare better if you wait, but making smart financial decisions isn’t among them. Sure, you’re only in your 20s for a short period, which may give you your pass. But understand that it is only for a short period — so don’t try to extend that time.
At some point, real life starts. By the time you’re 30, the financial decisions you’ve already made have impacted your life, whether you realize it or not. Remember, by that time, you’re halfway to retirement age, so decide that the days of reckless financial living stop there. Learn to budget and start planning for your financial future, get out of debt, invest and start building toward your retirement, and educate yourself at every chance!
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