Why Future-You Will Thank You For Saving Young

As a high schooler, college student, or young adult, what you do now can set yourself up for life.

But how does this really work?

The concept of this can be hard to grasp. Especially since money is certainly not coming out of thin air. Moreover, many young people are unexposed to these kinds of ideas, simply lacking the opportunity to learn about such a cheat code.

Today, we will learn about the two most important things: How it works and how time plays such an important role.

1. Money Making its Own Money

Money grows exponentially as you earn interest on top of interest. Starting out early allows your money to multiply exponentially, requiring you to pay significantly less money in the future to reach the same amount you would've reached if you had started saving today.

This process is known as compound interest. Unlike with simple interest which is calculated only on the original principal amount, compound interest calculates interest on the principal plus the accumulated interest. This can quickly create a snowball effect, as your "multiplier" essentially gets bigger with each passing day.

Although it starts out with just a slight difference, this gap accelerates rapidly, becoming a powerful tool to long-term wealth building.

2. Time Matters More Than The Amount You Start With

At this point in your career, you may not make much, but you are young. And being young is your biggest asset because it gives you the power of time. As I've learned through the National Institute on Retirement Security (NIRS), time is invaluable. A great quote from the NIRS that compares the process of investing at age 50 rather than 25 beautifully puts this claim into perspective: "The default comparison shows that someone starting at age 50 would need to save 43% of pay to catch up and produce the same result as someone saving 10% starting at age 25."

In other words, time is really important. With the way compound interest works, time becomes your biggest tool. More time means more compounding, and ultimately means your wealth gets bigger. So whether you make $10 or $10,000, do not wait until tomorrow. Start saving today.