When Should You Start Saving To Achieve Financial Stability?

By Matt Ramey | October 9, 2023

Below is a guest post on MoneyByRamey.com. Enjoy!

In Spring 2022, the Employee Benefit Research Institute (EBRI) released the Retiree Reflections Survey to better
understand current retiree sentiment. 1,109 American retirees were asked, “When should you start saving to achieve
financial stability?” An overwhelming consensus was revealed: current retirees wish they had planned earlier for
retirement. In fact, up to 70% would advise their younger selves to save or invest more or earlier.
Saving as early as possible is, therefore, key to achieving financial stability. But why? And, more importantly, how to
start? If you’re asking yourself these questions, you’ve come to the right place. Keep reading as we discuss
compound interest, inflation, and the best ways to save today.

Why you should start saving early

The power of starting early lies in the concept of compounding — famously ascribed by billionaire Warren Buffett as
one of his keys to success. Compounding is when your savings generate earnings, and those earnings, in turn,
generate more earnings over time. The Milken Institute reports that 25 years old or younger is the optimal age to start saving money for your golden years. Doing this can help your assets grow to about $1 million by age 65. For
instance, you can save $100 a week in your retirement account from the age of 25, and receive a 7% return on that
investment to retire with $1.1 million. If you begin saving that same $100 per week at the age of 35, however, you’ll
end up with only $300,000.

Otherwise, saving early also helps you create an emergency fund, a crucial aspect of financial stability. It acts as a
safety net during unexpected financial crises, such as medical emergencies or job loss. Financial experts typically
recommend saving three to six months’ worth of living expenses. The Federal Reserve found that 40% of Americans
couldn’t cover a $400 emergency expense without borrowing money or selling assets, and the aforementioned data
from EBRI shows that emergency and preventative medical costs continued to be the second and third most
frequently cited concerns of retirees.

How you can start saving early

Diversify your income sources

From our discussion of compound interest, you may assume that salary is the only source of income. However, this
isn’t the case for most people who obtain financial stability.

Saving a percentage of your salary is not enough to hedge inflation — the first and most frequently cited concern of
retirees at EBRI. Therefore, one of the best wealth-building tips is to be in constant search of earning opportunities.
Your mindset must shift to saying “yes” to more lucrative opportunities such as speaking gigs or even self-funded
business ventures, as personal finance author Barbara Stanny explains. If you have expertise in digital marketing,
you can offer your services as a freelance consultant, potentially earning an extra $500 per month. Or, you can offer
your services to local businesses for a substantial fee. Completing just one project per month at $2,000 can
significantly boost your income.

Create passive income streams

Business ventures can help you create passive income to earn without physically working and make better use of
your time. Passive income is one of the best financial life hacks you can use, but note that creating these streams
takes patience! Whether you start an online business or buy dividend stocks, these ventures require you to invest
capital instead of spending on immediate needs.

One of the best ways to create passive income is by investing in a portfolio of dividend stocks. These can yield an
annual passive income of 3-4% of your investment amount, or $3,000 to $4,000 if you annually invest $100,000. As a rule of thumb, financial experts suggest allocating 70% of your investment portfolio to stocks and 30% to bonds to balance risk and potential returns.

Seek professional financial advice

If you need help calculating how your newly found income sources affect your compound interest, especially
alongside tax deductions and spending, consider tapping a professional for financial advice! A financial advisor acts
as your emotional guardrail while managing a comprehensive financial plan for you. The Certified Financial Planner
Board of Standards reports that individuals who work with financial advisors tend to save and invest more effectively
for their retirement, and approximately 9 in 10 retirees from EBRI who had a financial advisor felt the value they
received outweighed the cost of the service.

While searching for a personal financial advisor, brush up on your own financial literacy with our 52 Week Financial
Freedom Journey and learn from those who have walked the path before you. Start today, and pave the way for a
financially secure tomorrow.

Author Bio

Jodie Billar is a New Orleans-based investment advisor who specializes in real estate. When she’s not busy helping
her clients, you can find her training for her next triathlon or playing with her golden retriever, Trumpet.

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