“Time Is Money”: Your Financial Future Deserves Attention
As the popular saying goes, “The best time to plant a tree was 20 years ago. The second-best time is now.”
When it comes to securing your financial future, there’s one thing you can be sure of: the earlier you start planning and saving, the better. While everyone's financial situation is different, taking action now can have a significant effect on your retirement.
The Power of Starting Early
Starting your savings journey sooner rather than later can help you build a foundation for your future. While retirement may seem like a distant goal, putting aside money now, even in small amounts, may help your savings grow over time through compounding interest. This could potentially make a difference by the time you’re ready to retire, especially when compared to waiting until later in life to begin saving.(1)
The chart below shows the theoretical effects of compound earnings on an investment if you were to start contributing steadily five, 10 or even 15 years earlier:
Source: Edward Jones. Accessed February 13, 2025. Past performance is not indicative of future results. Assumes investing $550 per month and a 7% average hypothetical annual return. This example doesn’t include taxes, fees and commissions, which will reduce the return. Figures rounded to the nearest $5,000.
The Benefits of Long-Term Planning
In our opinion, saving early could give you the opportunity to weather unforeseen financial challenges or pursue opportunities that may arise. The more time you have to save, the more room you may have to adjust your strategy if necessary.
Saving vs. Paying Off Debt
If you're still managing debt, such as student loans, auto loans, or a mortgage, it might feel challenging to prioritize savings when you’re working to pay off what you owe.
However, treating retirement or long-term savings as another essential monthly expense is, in our opinion, a forward-thinking move. This approach helps you develop a consistent saving habit early on, reducing the temptation to spend those funds elsewhere. If possible, consider setting up automatic deductions from your paycheck directly into your savings account can make this process automatic.(2)
Take Advantage of Potential Tax Breaks
Whether you're contributing to a 401(k), traditional IRA, Roth 401(k), or Roth IRA, these retirement accounts offer potential tax advantages.(1)
Contributions to a 401(k) or traditional IRA are made with pre-tax dollars, meaning the money may grow tax-deferred, and you won’t owe taxes until retirement when you start making withdrawals. It’s important to note that your tax bill could decrease as a result of depositing funds into pre-tax accounts.(1)
Roth 401(k) or Roth IRA accounts, on the other hand, don’t offer an immediate tax break. However, the advantage comes later: While you pay taxes on contributions now, your withdrawals are typically tax-free in retirement, so the earlier you begin saving, the more you can maximize the tax benefits of these retirement plans. Keep in mind, to avoid taxes, you'll need to hold the account for at least 5 years and be 59.5 or older when you withdraw.(1)
Closing Thoughts
Ultimately, the best time to start planning and saving for your future is now. While no one can guarantee specific outcomes, taking early steps toward securing your financial future may offer long-term rewards. It’s never too early to begin, and the sooner you take action, the greater the opportunity you may have to achieve your financial goals.
Article Sources:
(1) “The value of saving earlier.” Edward Jones, https://www.edwardjones.com/us-en/market-news-insights/investor-education/investment-age/value-saving-earlier#:~:text=The%20earlier%20you%20start%20saving,savings%20grow%20faster%20and%20faster, Accessed February 13, 2025.
(2) “The importance of saving early.” HSBC, https://www.us.hsbc.com/financial-wellness/the-importance-of-saving-early/#:~:text=In%20fact%2C%20building%20a%20nest,will%20have%20longer%20to%20grow, Accessed February 13, 2025.