Your 20s are an exciting time, and you should enjoy them to the fullest. You probably have lots of people offering advice on some of your life choices, especially your finances. Lately, some folks have been recommending that young people spend their money on exciting experiences rather than saving.
It’s a tempting argument. Ignoring savings and buying whatever you want sound like fun! However, the consequences of living for today can last a very long time. Here are a few reasons you should keep those hard-earned dollars in your savings account rather than splurging:
1. The time value of money is real.
Have you ever heard of the time value of money? If not, here’s a quick definition. The time value of money is the idea that money gains value over time if it’s in an interest-earning account. If you save $1,000 today, it will earn interest. That means your original $1,000 will be worth more in 10 years. But if you wait until 10 years from now to save that $1,000, you’ll lose out on all of that interest.
2. It’s good to have a cushion—just in case.
Things happen, and we can’t predict what life holds for us. If you lose your job, get in a car accident, or suffer some other mishap, savings will help cover your expenses until you can get back on your feet. Memories of exotic trips are great, but they won’t cover the deductible on your car insurance. And not having the cash to cover emergency expenses can send you into a spiral of debt that it will take years to unravel.
3. You can build the person you want to be.
Building your savings in your 20s isn’t just about tucking money away and forgetting about it. And it’s not just about saving for retirement. It’s about building the future you want and creating the person you would like to be. Do you dream of traveling? Do you want to give more to your favorite causes or pay your way through graduate school? Saving and investing can make that happen for you! Smart investments now can build a future of financial independence for you—and that family you’re hoping to have someday.
4. If you make a mistake, you have time to fix it—and learn from it.
You had a great idea for a startup that never took off. The Kickstarter invention that your best friend said would make you a million dollars turned out to be a dud. If you’re keeping a healthy reserve of savings, you can take the occasional financial hit and learn from your mistakes.
5. You can live your best life now—and in the future.
Your 20s are a great time to start figuring out who you are and what you stand for. Good stewardship of your resources is a huge part of that. If you’re caring for your money and your health now, you’ll be able to live better—not just now, but far into the future. Whether you want to start a family, build a business, write the great American novel, or all of the above, a sound financial foundation can make those dreams come true.
This article should not be considered legal, tax, or financial advice. You may wish to consult a tax or financial advisor about your individual financial situation. This article was updated 11/22/16 for accuracy of links.