It’s OK Not to Invest, It’s Not OK Not to Save

by RJ

in Investing

You may be surprised that these words are coming out of my mouth, but listen closely. For someone in their 20’s, it’s OK not to invest.

I love compound interest as much as anyone. I understand that ten extra years added to your investments, can add a nice million to your retirement portfolio. However, I also understand the complex situation that most people in their 20’s are in.

Take a typical Gen Y’er, who hasn’t found their right career path. Their #1 goal shouldn’t be to invest their money, so they can stop working 40 years from now. Their #1 goal, needs to be to find the right career, so they can enjoy the next 40 years.

What they need is flexibility in their financial situation. They need to be able take three months off to look for a new job. They might need 12 months of living expenses, to take a shot at starting their own business.

There is only one way to have a lot of flexibility in your short-term financial situation, and that is to SAVE a lot of cash. Unfortunately, this means putting off retirement savings for now.

It’s Not OK, Not to Save

Just because you’re not investing for retirement, doesn’t mean you shouldn’t be saving. No matter your situation, you need to be living on less than you earn. You need to be actively saving your money, for shorter-term goals.

Not knowing what you want to do for the next 40 years, is a valid excuse for someone in their 20’s, to not invest for their retirement. It’s not a valid excuse, to not live on less than you earn.

P.S. – You get this flexibility until your  30. Starting to save for retirement beyond 30, causes you to save upwards of 20-25% of your income.


Photo by: Photo8

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Sam DavidsonNo Gravatar August 2, 2010 at 9:08 am

This is a gem:
“Their #1 goal, needs to be to find the right career, so they can enjoy the next 40 years.”

Indeed! Here’s to saving, but not investing (yet).

RJNo Gravatar August 2, 2010 at 5:09 pm

Thanks Sam.

“Yet” is the key. To me, I think you have until your 30. Once you’re 30, it’s time to invest for retirement no matter your situation.

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