What Is The Right Age To Start Saving?

If like me you are an avid reader of all matters to do with personal finance, the cartoon (see below) of a toddler fretting over his lack of savings is a hoot. I simply loved it! But beneath the humour lies a deeper question that all of us ask ourselves at some time or other: “When is the best time to start saving money?”

Usually the typical Kenyan goes through his/her twenties thinking “Am too young to worry too much over the lack of savings” and then find themselves in their mid-thirties, kids and mortgage to boot, and thinking “My paycheck is too stretched to be able to save anything”. Then on to the fifties when the kids are through with school and retirement looming large then the thinking changes to “I wonder how long my pension savings will last me before i have to depend on my kids”. Now this obviously is not the case for all Kenyans but describes a general path travelled by many especially those who depend on a paycheck all their lives.

In my own case I hardly gave a thought to savings through my twenties on the basis that I really couldnt be expected to save anything on the kind of money i was getting from my employer. Although the money was indeed not anything to write home about, I had few fixed expenses (rent and food) and I even managed to buy my first car on the same meagre paycheck. As i moved jobs my pay kept on rising but i saw no urgency in getting started on savings. Soon enough the big three-Oh came and passed and yet i still had no savings and no worries. However, it was beginning to dawn on me that my dream of being rich had a very real chance of going up in smoke unless i hit on a big business idea fast. Although i had no problems with a middle class lifestyle, i wanted a life of financial freedom. Thankfully, in my thirties i realised that, big business idea or not, i could still attain a life of financial abundance thanks to the time-tested concept of “getting rich slowly”. The more i read up on the subject the more convinced i got that indeed this was not only viable but could also be attained before i was too old to enjoy my money. Obviously, the key plank in the “get rich slowly’ school of thought is the idea of saving and investing regularly and i embraced the saving culture with zeal. Looking back, i wish i had started earlier but the question is, when is the right time to start saving?

An interesting piece on CNN Money shows a chart depicting the difference in networth between someone who starts socking away money at 25 and one who starts ten years later at 35. Each of the individuals saved a $400 monthly except that the guy who started at 25 saves the money upto age 35 then stops and leaves the money earning a 7% return till the age of 65. The other starts at age 34 and saves the same amount of money from age 35 to age 65, same 7% return. The first guy (lets call him “Early Start”) amazingly has a higher networth of USD 602,559 at age 65 compared to the other fellow (“Late Start”) who has USD 528,222 at the same age. Considering that Early Start only saved for 9 years and then let the power of compound interest do the rest, it is a very strong case for starting early.

Now in Kenya, most 25 year olds are just out of college and earning minimum wage. Add to this the fact that the priority for most at this age is to acquire some sort of “life” for themselves meaning purchasing a car, buying some furniture, paying back their HELB loans and for others supporting their parents and siblings. I found that it was easier to save when i had acquired most of the furnishings and furniture for my house plus a car as it reduced the pressure on me to “spend spend spend”. However, it would still be a good idea to contribute fully to one’s pension scheme at whatever age as the money is deducted directly before one receives their pay. In addition, one should try and save even the littlest amounts starting from the day they receive their first payslip.

I find the chart so inspiring. Is there a better time time to start than now? After all, they say that “Where there is a mountain to climb, dont think that waiting will make it smaller“