Sunday, February 17, 2008

Inadequate savings in your 20s?

I pondered my feelings of inadequate savings while in my 20s. It's hard not to feel this way, because you have people telling you to pay off your mortgage, car loan, student loan, credit cards, etc.

But how do you save money outside of retirement? It's next to impossible for DH and I to save more than the maximum in our retirement accounts. Right now we're treading water, paying for our current bills, retirement, and just regular home ownership expenses.

We're milking our cars and praying they last another 2-3 years. We haven't got the savings in a taxable account to replace them with good newer cars. We could afford cheaper beaters (basically replacement value), but to actually buy nicer cars might be impossible without a loan.

Are we misguided? Should we stop saving for retirement and scale down to just 15%? Then save more in taxable accounts? Or should we look for ways to increase our income?

I think the problem is that in your 20s you have so many pots of money to fund and not enough income to fund them all. You can only pick and chose what is most important. And as your income grows, as ours has, you can start to have more pots.

I believe as we leave our 20s behind, we'll be in a good financial position of fully funding buying newer cars, college, and just growing a taxable account. And by maxing out our retirement options and ESPP, we have established the habit of saving and living well below our means. We are used to saving $35k/year so all extra money can be diverted to buying a large home, newer car, college, daycare.

So my advice to people in their 20s? Stop feeling overwhelemed. Start saving for retirement so you'll get into the groove of not seeing or using the money. That way as your income begins to increase, you'll be able to fund all the pots you desire while knowing you've already established a nice retirement nest egg. And stop feeling inadequate over not being able accomplish everything. Rome wasn't built in one day, and neither will your net worth be established overnight.

So I just have to keep on trudging and reconcile I can't be perfect immediately. I can just strive towards perfection and hope to get somewhere close to it.


minimum wage said...

I didn't know people tell others in their 20s to pay off their mortgages! How many people in their 20s even HAVE mortgages?

Do you have any advice for people in their 50s who are feeling overwhelmed because the income they had in their 20s never increased and they can't save for retireemnt, let alone have any other pots? (Talk about feelings of inadequacy!)

Fabulously Broke said...

Thanks for the encouragement. Sometimes I feel overwhelmed I don't have enough in an EF (only 1k) and that I don't save enough... when in reality, savings to me is not as important as clearing my high interest debt :P

Living Almost Large said...

Trust me LOTS of people say to pay off the mortgage and be debt free. Then you wince and think about how many more years you have MW and sigh. Can't do it all.

Advice for 50 year old? Saving something and doing it now is better than doing nothing and having nothing later!

Better late than never! You can't go back in time but you can improve in the future.

I need to think positively because sometimes it's overwhelming as wel.

I'm Grace. said...

You are SO right about saving money for retirement while in your twenties--it's a lesson this now 58 year old woman wishes she'd learned a heck of a lot earlier! I bought my first home at age 26 during the era of double-digit inflation. My interest rate was 10% and I felt darn lucky to get it that low. Of course, the whole house only cost $16,500.

I wouldn't necessarily recommend that a homeowner in their twenties pay off the mortgage--at least not before having a large amount of savings, being otherwise debtfree and having a good start on those retirement funds.

MEG said...

You're very right to start saving for retirement in your 20's - but you shouldn't do that exclusively at the expense of other types of savings.

It's important to have taxable savings for emergencies, unexpected expenses, a future home, and - yes - indulgences like a vacation.

In your 20's those "other" savings buckets are of significant importance since, as you pointed out, your income is smaller. Therefore you're less likely to be able to absorb the cost of an unexpected expense or emergency into your regular budget.

And there's nothing wrong with having a car loan if it's short term and at a very low rate - and as long as you can quite easily afford the payments.

MEG said...

Just as there's nothing wrong with having a mortgage, especially when you're young. If you can easily afford the payments, just do so and put some money in other buckets! I'm sure your rate is super-low, so you're probably better off doing that anyway.

Living Almost Large said...

Nope, except a lot of people seem to preach debt free. It's not going to happen when you are just starting out. It becomes saddening because you feel like your climbing up a mountain, but nothing is accomplished overnight. Instead just keep on hiking up the mountain.

Actually I think it's more like sisyphus.

Anonymous said...

I totally relate to this. It is frustrating to try to "fill" all the buckets, because it make for such slow progress when you have to split it between an efund, retirement, student loans, car fund, etc.