We have two main jobs with our clients, understand their goals and help them reach the goals they set for themselves. It is inspiring work. Truly, we have one of the best jobs on the planet. We try and account for everything that will help or hinder a client in achieving those goals. However, there is often one person who cares the most about you goals and plans, but can’t do anything about it right now: your future self. In our work, we often try to advocate for this poor, unfortunate soul – you, but the older, feebler version.
We want this version of you to live a good life with dignity and independence; but whether or not that happens will depend largely on the decisions the current version of you makes today.
Two of these decisions include how much money to save, and when to start saving it. How much to save depends on many factors and I’ll leave that question unanswered until we’re talking directly to you. For now I’ll merely state that I have rarely met a person who lamented over saving too much money. Let’s talk about when to start saving.
In the equation of wealth accumulation there are really only three factors:
- The amount of money you save
- The return you get on your investments
- The time you leave your money invested
Which is most important? They are all important. Which should you focus on? Most doctors get this wrong – most doctors get too fixated on #2, the return on investment. The problem here is that the answer lies too far outside your influence. Meanwhile, they start saving too late and/or save too little.
But today I’d like to focus on saving now, not later. To emphasize the power of saving now, let’s compare two hypothetical, but identical doctors: Dr. W and Dr. F. They are both 35 years old, they earn an 8% return on their money and they plan to retire at age 65. They both save $82,500 per year ($53,000 for Dr. for 401k, $18,500 for spouse 401k, $5,500 each for IRAs). They are identical in every way but one: Dr. F waits just two years to start saving money, while Dr. W starts today.
What’s the big deal? I’m sure Dr. F had a good reason to wait, but here are the cold, hard numbers:
- F has $1,598,844 less at age 65!
- Or, Dr. W could have stopped saving 12 years earlier and still had the same amount of money!!
What’s the point? Start saving today! The other point is that, like I mentioned in an earlier post, the decisions you make early in life are far more important than the decisions you make later.