Reality Check – Capitalizing on the in-between years

Let me give you the stories of two men. One we’ll call Jim. He married straight out of high school—rather an anomaly today. He didn’t go to college, but immediately took a job at a financial planning firm in Windsor.

He became certified in investments, and worked his little butt off building his own client base. He looks about 12, but he always dresses impeccably in suits.

Jim’s first child was born two years ago, when he was about 20 or 21. Today his family is still doing quite well, despite the economic downturn. They’re saving up for a down payment on a house, and building their little nest egg at a time when most men his age are still living in their parents’ basement. Several decades ago Jim would have been quite typical; today he sounds like a dinosaur.

Now let’s talk about Bob. When Bob was Jim’s age, marriage was the furthest thing from his mind. He concentrated on working as little as possible so that he could play as hard as possible. He took extended vacations to the Caribbean so he could scuba dive, renting apartments with other 20-somethings. He lived a carefree life until well into his late 30s, working odd jobs, minimizing his income and maximizing his fun.

At 38, though, he met the woman of his dreams and settled down. They’ve since had three kids, and while both he and his wife are working, money is tight. They’re starting almost 20 years after Jim did, and neither of them used those in-between years to shore up any sort of nest egg.

Many people just don’t worry about saving when they’re single. But in the long run they do themselves a disservice, because when they do start a family (if they do), they’ve lost about a decade or so of good earning years and saving years.

Now 44, Bob is juggling saving for a house, putting money aside for his kids’ education, and contributing to an RRSP. He’s in a really difficult bind, because time is no longer on his side. He has to put money into an RRSP if he’s going to have anything at retirement, but he also has incredible family expenses right now, too.

One thing Jim teaches his financial clients is that if they save $2,000 a year in a retirement account from ages 19-26, as he is planning to do, they can then afford to stop for a bit and save up for a house. If you wait like Bob did, though, and don’t start contributing until you’re in your late 30s, putting in $2,000 a year until you’re 65, guess who has more money in the end? Jim does, even though he actually contributed far less. That money has more time to accumulate and grow! It’s starting early that makes all the difference.

If you’re in your 20s right now, even if you don’t have a family of your own, chances are one day you will. And if you want the rest of your life to be much less stressful, squirrel away money for a house and retirement now, before you need it, to avoid feeling the crunch later. I know cash is short when you’re in your 20s, but you don’t need a big-screen TV. You don’t need to eat out every night. You don’t need all the latest gadgets. It may seem like responsibility is a long way off, but think instead of these years as the breather years. You don’t have any major expenses, so now is the time when saving is actually the easiest. Don’t just coast through life until responsibility hits. Act responsibly now, and you’ll be so much more comfortable in the end.

You can find Sheila at http://www.facebook.com/sheila.gregoire.books.

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