Over the past year, I have become more committed to investing any extra money that we have. It all started when I realized that we had too much money in a savings account earning .1%. That’s not even 1%… it’s 1/10th of that. Part of what allowed me to start investing money in the first place is finally making a few extra dollars each month. While I still have a long ways to go to max out our investing accounts, I feel pretty good about how much progress we have made since graduating college 3 1/2 years ago.
Most young adults are not able to invest any extra money. They are too busy paying off their student loans. Sure, some may put the minimum amount in a 401(k) or 403(b) account if their employer offers it, but not very many young people are locking away their money for their future. While I feel pretty good about our progress with investing, part of me still wonders if we are investing enough money. It would be easy to say that because we are doing better than others that we are investing enough money. However, making the wrong assumption if we are not investing enough could have huge implications on our future financial status.
Am I Investing Enough Money?
It’s always difficult to say how much money is enough. Part of that is due to the fact that there is no magical number. Many people suggest that you should invest somewhere between 10-20% of your income. Yet, just because people use this as an easy answer to everyone’s question, it doesn’t make it a good rule of thumb.
The problem with suggesting 10-20% as a universal guideline for how much you should invest is that it encourages you NOT to invest more than that. If you find yourself saving more than 20%, you can compare yourself to others and convince yourself that it’s about time you spent more money on yourself.
In the past year, we were quite aggressive. Not only did we max out our Roth IRA’s, but we also contributed some money to a 403(b) and have a little extra in a taxable account. The fact that we were able to save this much money while also paying for graduate school for Mrs. 20s speaks to how dedicated we were (please remember that we don’t make that much money – after all, we both work for non-profits). When I stop and think about how successful we were last year, I feel pretty good about our progress. But, that’s when you start to get comfortable.
The More You Invest, The Earlier You Can Retire
What people often fail to realize is that the less money you invest now, the longer you will have to work. Either that or live on less in retirement. It gets worse. Investing less and spending more is in many ways, a double negative. Not only does it mean that you have a smaller nest egg to live off of in retirement, but it also means you are spending more money. That means that you require that much more in your nest egg in order to continue your current lifestyle.
Because my wife and I don’t work for the government or a company that has any sort of pension (like a QROPS pension plan), we have to save as much money as we can to prepare for retirement ourselves. There’s been enough talk about the uncertainty of social security, so I’d rather do as much as I can by myself. I was lucky enough to realize that investing is important while I’m young. Not everyone is lucky enough to realize this.
We were able to save somewhere between 10-20% of our income last year. Yet, I don’t think that’s enough. I’d like to get to about 33-40%, so that we can retire early. Instead of being satisfied with how much we invested last year, we are going to do as much as we can to continue investing aggressively while we can and let compound interest do the work for us.