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At age 22, I had just graduated from college and was about to embark on my grown-up life. I had a grand plan for how my future would unfold, and I thought I had everything figured out. It’s one of those age old mistakes that young people make—we head out into the world armed with the knowledge that we have, completely oblivious to all that we don’t know and all that we will learn, earn and experience along the way. If there is one lesson that rings true and always bears repeating it is that wealth is attainable, especially to those who start saving early and have the benefit of time on their side. Source: NLG

To all you twenty-somethings out there about to start your grown-up lives, follow these 5 simple steps to work towards a wealthier future:

  1. Start saving as much as you can, as soon as you can. Time is the most powerful asset that you have toward accumulating wealth. The more you put away in your early years, the more it will compound over the years. Even if you are only able to put away $50/month, it will make a huge difference in your accumulated wealth down the road. When starting at age 25, just $50/month averaging 5% interest would be worth more than $76,000 at age 65. The key is to start early, and save as much as you can. Starting at age 25 and saving $675/month averaging 5% interest would be worth more than $1,000,000 at age 65 before tax.

  2. Increase savings as your income increases. Over the course of your working life, your income will grow over time. Usually those increases in income are slight and don’t make a significant impact on your paycheck, so they are very easy to spend. But, if you make the conscious effort to do so, those increases can also be very easy to save. Whenever you receive an increase in income or a bonus allocate all or a portion of that money to your savings before it even hits your bank account. You will be far less tempted to spend that money if it is out of sight and out of mind. Increasing your savings every time you experience an increase in income could result in hundreds of thousands more in your later years.

  3. Live within your means. Better yet, live below your means. One of the best books I ever read was “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko. The book reveals common traits of single generation, self-made American millionaires and it is fascinating. One trait that self-made millionaires have in common is that they are very frugal and they consider their spouse to be even more frugal. The bottom line is this–you will never be able to save if you are spending every penny you have, and if you increase your lifestyle to always consume what is available no amount of money will ever be enough.

  4. Make saving a high priority. There will always be expenses. There will always be bills to pay. There will always be things you need and things you want. If saving is not a priority, there will always be opportunities to spend your money. If you put off prioritizing saving until later in life, it will be far more difficult to change your behavior to save and your ability to save as much will take exponentially longer. Making a commitment to save a percentage of your income early in life, and taking that percentage straight off of the top before you make any other payments will ensure that you are setting yourself up for the accumulation of wealth in the long run.

  5. Don’t put it off, don’t make excuses. If your employer has a qualified retirement plan (401(k), 403(b), 457(b), etc.) start making contributions right now. Even if you are only contributing a small amount it is worth it to start rather than waiting. If your employer doesn’t offer a qualified retirement plan or if you want to save even more, look into options for traditional and Roth IRAs (Individual Retirement Accounts) which are other vehicles that allow you to save on a tax advantaged basis. No matter what, start something now.

Wealth is attainable, it is possible, but for most people it doesn’t happen overnight or without effort. There is a wonderful quote by James A. Owen, that reads: “Never, ever, sacrifice what you want the most for what you want the most at that moment.” Taking the time when you are young to invest in the future you want most will pay greater dividends than you can imagine.

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Distributions from qualified retirement plans and traditional IRAs are taxed as ordinary income and, if taken prior to reaching age 59½ may be subject to an additional 10% federal income tax penalty.

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