Enjoying Life Now vs. Enjoying Life in the Future

A listener asks:

I’m a 20-year-old college student from Dublin, Ireland. My question is, how should a young person like me balance saving money to invest with traveling and enjoying yourself in your 20s.

I’ve used this one before but it’s worth showing my favorite money cartoon again:

This is the conundrum for most of us when it comes to balancing enjoyment versus saving for the future, but this is especially true for young people.

Young people have an enormous advantage when it comes to saving and investing — time. I’m sure you’ve seen an example like this before but it’s worth using to make a point here.

Tom begins saving $300 a month from age 22 through age 31. After those 10 years of saving, he stops putting money in altogether. Greg, on the other hand, begins saving $300 a month at age 35 and keeps saving that much all the way through retirement.

Assuming an 8% annual return, who ends up with more money by age 65?

It’s our boy Tom, by a wide margin of nearly $220,000 ($661k vs. $444k)

Even though Tom saved for just 10 years and Greg saved for 31 years, Tom had the wind at his back through the power of compounding. Pretty neat, right?1

Unfortunatley, it can be difficult for young people to both save and enjoy themselves. Not every 20-something makes enough money after paying for rent, student loans and bar tabs to be able to afford to save and still have the ability to travel.

My first job in my 20s right out of college paid very little. With student loans, rent and a car payment, I was living on very thin margins with the salary I was being paid.

But I still wanted to start saving and somehow enjoy my youth.

So I started small, saving just $50 a month into a targetdate fund. Each year I would increase that amount. At first that increase was maybe $25 a month. Slowly but surely I was able to increase my income and thus the amount I saved.

Even though $50 a month didn’t lead to a huge amount by the end of the year, it did help build good automated savings habits.

I also chose to live in a crappy apartment my first few years out of school. I could have upgraded to a nicer, newer apartment but it would have cost me like $300 more per month.

When you don’t make that much money these are the trade-offs that are required. That $300 was more useful to my social life and I didn’t really care about my living situation at the time since I was by myself.

In our 20s, my wife and I had 3-4 summers that were packed with weddings. That’s what tends to happen after college. We made it a priority to go to as many as we could, even when they were out of town. We also wanted to travel before we settled down and had kids.

To make this happen we drove older cars. Our furniture was all from Target and Ikea. And we didn’t spend a ton of money going out to fancy restaurants.

I do think it’s important to enjoy your life when you’re young. I’m not a personal finance person who is going to tell you to make your own shampoo in your backyard and eat Ramen noodles every night so you can save every penny.

That’s no way to go through life. You’re going to regret it if you don’t have fun in your youth.

You just have the be mindful of the trade-offs involved and at least get the ball rolling when it comes to developing good savings habits.

I covered this question on this week’s Portfolio Rescue:

We also discussed questions on year-end tax moves, investing money on behalf of your family and more.

Further Reading:
Now & Then

1Obviously, this example is somewhat ridiculous. No one saves the exact same amount each year or earns the same return year in and year out. And I certainly wouldn’t recommend ending your savings in your 30s if you can help it. But this does show the power of compound interest and the huge impact it can have.