I attended a small, liberal arts women’s college in western Massachusetts for my undergraduate education. One of the things that they did upon graduation was held a seminar (and the seminar could have been just for student loan holders, or it could have been completely optional to attend – the details are fuzzy in my head) with a financial planner, and she gave a presentation and some advice to the graduates. One thing she said stuck in my head, and I don’t know if pure math backs it up, but it is about the power of compound interest.
Save $2000 a year in a retirement account every year in your 20s, and even if you stop saving right then, you’ll be ahead of those who start saving $2000 a year every year from 30 to retirement by the time you are 65.
At the time, it seemed like magic. in fact, it still does kind of seem like magic, but compound interest is quite magical. I was already 22 at the time, so I was already behind on this plan, but I thought to myself – I need to do this. Or at least, I need to try. And I did try – but my biggest money mistake, or maybe biggest money regret, is that I didn’t continue to follow through on my decision.
I started graduate school that fall, and I was living on a teaching stipend with no savings, so it took me a little while to save up that first contribution. But by the next spring, I had saved up enough money to open an IRA and deposit $2000. At the time, the limit was $2000 a year, which may be why the financial planner picked that number. I did this early enough in the year that I could have done a contribution for the previous year as well as the current year, but I didn’t have enough money to do that and I didn’t think ahead that I could save up for the current year, and I’d never get that previous year back. So, at the age of 24, I made my first $2000 retirement contribution, with a financial planner I chose because she sent me a mailing. That’s all the criteria I used to choose a financial planner. No other reason. In hindsight (and kind of at the time) I actually knew a little more than she did about IRA contributions, so she wasn’t really the best choice. But, I digress.
I kept saving, and the following year made another $2000 contribution. I was also contributing $25 a month to a separate investment account that I started with $500 I had also saved up. By the year 2000, I had about $1900 in the investment account and was about to make my next IRA contribution. I really did have the best of intentions, but without a real understanding of what I was doing and why other than saving was important, the risk of me changing course because of a change in the market was always looming.
Because then, in 2000, the dot com bubble burst and my financial planner was an idiot and encouraged my fears about making further IRA contributions, and I basically transferred my investment account (which was about $1100 then) into my IRA for the current year, and never made another contribution to it.
My biggest financial regret is that I didn’t continue to save for retirement earlier. I’m now fast approaching 34, and as an individual, I haven’t really done much else to save for my retirement. My spouse and I as a couple have made some plans, and we’ve been using his 401K to save some, but I wish I had not only started earlier, I had continued what I started once I did. My goal for the coming year is that by the time I turn 35 (my 34th birthday is this weekend) I have a realistic plan for what I want to accomplish as far as retirement savings, and have a plan to execute it once the student loan debt is taken care of. That will most likely be a combination of my spouse’s 401K and some sort of IRA for me (since I am self employed, I need to look into the self-employment options for IRAs more carefully) but I need a plan.
Nothing like starting 15 years late. But the only thing worse than that is never starting at all.
This post was written in part as a response to a “Biggest Money Mistake” contest at Millionaire Money Habits. If you’d like to enter Ryan’s Biggest Money Mistake contest, click on over to his site and read his post!