We’ve all heard the advice:
- Start investing in your twenties and you will be ahead by millions by the time you reach retirement
- That money you’re spending on a latte today will be worth the price of a Ferrari 40 years from now
- You can never start investing too early – start saving your baby food jars for recycling as soon as you can digest solid food
When I read this, I often wonder: can saving early be too much of a good thing? I was broke in most of my 20s and 30s and still achieved FI before 50. And I don’t regret any of my expenditures for a minute. But I realized that there are perfectly logical reasons for delaying savings:
Start Saving at 40 – the Contrarian Savers’ Strategy
First of all, I discovered that it was OK to have $0 in my savings account, and even to limit my 401k contribution to the company match (not at least doing this much is stupid) – as long as I was, in some way, investing.
And in many ways, what looked to other people as spending was in my world, investing. Here are some examples of things I “spent” on in my 20s and 30s that are still paying off:
- Education: I was an English major undergrad… how’s that for impractical? Then I went to a fancy business school and took out huge student loans to do so. But – I tripled my (admittedly pathetic, English major-y) salary after getting my MBA. So although it delayed savings, it was worth every penny.
- A home (or several): I bought a house for $799,000 with 5% down and an adjustable mortgage rate. I couldn’t afford it. I even refinanced so I could wrap the radioactive remains of my student loans into the monthly payment. Yet: I sold it 10 years later for $1.8m+ and started building a real estate business from the profit. So stretching yourself for a house is not always a bad idea (btw, I bought my first condo with a credit card cash advance and don’t regret that either, but more on that later).
- Career: I spent money on all the usual stuff – business attire (suits were required when I was back at The Coca Cola Company), dry cleaning, an apartment in an expensive neighborhood to reduce my commute. And a lot of cash when I was job searching, on conferences, lunches, etc. But I considered this an investment too, facilitating my career advancement which did, ultimately, lead to a higher salary.
- Experiences: I spent money on things like travel, dining out, scotch whiskey. Kind of a lot of money, actually. But I just can’t see looking fondly back at my youth if it was spent clipping coupons and re-using tin foil. I have always tried to balance saving/spending/investing at all life stages. And frankly, I kind of got a lot of that useless spending out of my system back then – so strangely, it’s much easier to eschew these luxuries now – even if I don’t have to.
(By the way, did you realize that spending lavishly on cars, home furnishings and jewelry can also be an investment? I go into a lot more detail in future blog posts)
I’m not saying don’t invest in your twenties… just that “investing” can and should mean more than storing cash in a 401k or savings account. It may be OK to start official savings when you’re out of your 20s or later, if you are putting some resources towards investing – primarily in yourself.
Are you one of those “early investors” vs. “early savers”? Tell me your story in the feedback below. I want to hear from you!