Do You Need to Save Money in Your Twenties?

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I never looked this good in a uniform.

“Old men are always advising young men to save money. That is bad advice. Don’t save every nickel. Invest in yourself. I never saved a dollar until I was forty years old.”
–Henry Ford

When I was in my early twenties, I was pretty carefree and footloose. Actually, I was simply fooling myself into thinking I was being responsible. I would save $1,000 a month, invest $300 in my IRA, withdraw $800 from the savings account, and put $500 a month on the credit card. Since I couldn’t withdraw the $300 from the IRA to pay the credit card, I started to accumulate debt, and it was rising at a double digit interest rate, whereas my savings account was earning 3-4% annually.

Monkey Brain didn’t care. He kept whispering into my ear.

“ONLY YOUNG ONCE. WILL NEVER LIVE IN GERMANY AGAIN. CARPE…WHATEVER FOREIGN LANGUAGE PHRASE IS.”

For those of you who don’t know who Monkey Brain is, he’s what I call the limbic system. I go into more detail about Monkey Brain and his shenanigans here.

At age 27, I decided to double down on the risk and go to graduate school. Thus, at age 30, I graduated with relatively paltry savings and a load of student loans.

I did, though, significantly increase my salary, which, as we saw in my guest post on Don’t Quit Your Day Job, is the primary reason to quit work to get an advanced degree.

Many people don’t choose that route, though. Grad school is expensive. It’s hard. It takes time. There’s not a massive amount of demand for advanced degrees in the marketplace. There is risk involved.

However, Monkey Brains never stop chattering, particularly into the ears of 22 year olds. Monkey Brain would read that Henry Ford quotation and conveniently skip the sentence where Ford says to invest in yourself.

Because of hyperbolic discounting, where we treat future pain and pleasure as much less intense and valuable than present pain and pleasure, we put off saving now and paying now, instead running up debt so that we can have our man caves and Jimmy Choo shoes right at this very moment.

The refrain that we tell ourselves – OK, the refrain that Monkey Brain tells us – is that we’ll save more in the future, and it’ll all be the same when we get to retirement.

Is that true?

Does saving and investing in your 20s really matter that much?

Is the miracle of compound interest truly that miraculous?


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When you’re 22 years old and thinking about retiring at age 67, 45 years seems like an eternity. You’re young. You just finished college. You are sick and tired of ramen noodles. You want to live it up a bit! I was that way.

I figured that, since I was stationed in Germany, I’d never have a chance to live there again, so I needed to do and see all I could while I was there, because I only had one chance.

It was fallacious thinking, the topic for another article, but it was the justification I gave myself. Once I settled down and got married – which I figured would happen when I was about 30, off by only 2 years – I could be responsible and save up.

If you’re in your 20s, this is probably a somewhat similar refrain. The names and places may have changed, but you’re young, and there’s plenty of time, right?

Let’s see what the numbers say.

To examine how much saving in your 20s does or doesn’t count, we’ll evaluate a typical college graduate. This graduate is 22 years old. He’ll earn the average starting salary for a college grad, $44,259. He’s a good guy, and does what he’s supposed to, and he saves 15% of his annual income.

Each year, he gets a pay raise equal to inflation, and his expenses rise annually at the same rate. He works through age 66 and starts drawing Social Security at age 67. He receives $2,000 in today’s dollars at age 67 from Social Security.

The question is

Does he arrive at age 97 with money still in the bank?

To answer this question, I used a simulation called Monte Carlo. This simulation creates 10,000 different futures, randomly determining stock market and Treasuries returns and inflation based on the historical ranges of all three of those variables. After 10,000 simulations, we draw some conclusions.

First, the important one: will he eat cat food?

81.16% of the time, he had more money than heartbeats.

He also had a median net worth of $9.6 million.

That’s a lot of money, right?

Surely, saving a little in his 20s didn’t count that much towards $9.6 million.

After all, here’s what he had saved at age 30.

Age 30 Investment Balance by Fort Worth Financial Planner Hull Financial Planning

The median balance was a little under $83,600.

Can’t make much of a difference, right?

So, let’s assume that our 22 year old decides not to save until age 30. What happens, then?

He’s only successful 58.5% of the time and has a median net worth of $1.57 million.

How Starting Investing At Age 22 Versus Age 30 Affects Net Worth and Retirement Success by Fort Worth Financial Planner Hull Financial Planning

So, that little balance of about $84,000 means the difference in a median net worth of $8 million at age 97. It also means the difference between having money and not having money 22.7% of the time.

Furthermore, while we tell ourselves we’ll save once we reach age 30, the reality is that we won’t. We’ll get on the hedonic treadmill, and once you’re on the hedonic treadmill, it’s extremely difficult to get off. You’re used to the lifestyle you’ve made for yourself. You start anticipating raises and how you’re going to spend that money. To suddenly stop that lifestyle expansion is difficult, and then to kneecap it by 15% because you’re going to start being responsible and saving money?

Exceptionally hard.

That’s why most of us never do it until it’s too late.

Monkey Brain don’t care. He cares less than Honey Badger.

But, wait! There’s more!

Rudy as Vince

There are ways to make amends for bad behavior in your 20s, which we explore in the next article.

Does this article make you realize that you need to save more? Not sure where to start? Let’s talk about it in the comments below!

About Jason Hull, CFP®

Jason Hull, CFP®, is the Chief Technology officer of myFinancialAnswers, an online comprehensive financial planning service.

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