“Good habits will make time your ally. Bad habits will make time your enemy.”
From Atomic Habits by James Clear
Depending on your life goals and financial goals, saving money early might be beneficial if accumulating a sufficient amount money is an important goal. There’s a magical formula that occurs when time and compounding interest rates get mixed with money. I like to describe this formula in $1,000,000 increments. For many people, $1,000,000 of liquid funds is a lot of money, and many people never get to accumulate this amount of money. If saving money is an important activity, it’s an interesting perspective to understand how $1,000,000 can be broken down over time.
Here's a fun thought: $2,000 = $1,000,000
Money saved on a consistent basis over a long period of time is normally thought to be a good habit to employ. Over the course of 20 years, a $2,000 monthly saving growing at a 7% rate of return is $1,000,000 ($1,050,468.56 to be more precise). If having $1,000,000 is a goal or a significant milestone, completing a minimum savings of $2,000 per month might be a good step in the right direction. The 7% rate of return is the biggest variable in this equation. Rate of return in the stock market can’t be guaranteed, of course, but controlling the habit of saving a specific amount of money is the habit that can make time your ally.
If you aren’t developing a saving habit, and you do want to accumulate money for the future, you don’t have a problem to solve now – you have a problem to solve in the future. The future (approximately 20 years from now), without saving the $2,000 per month (for example), exists with about $1,000,000 less than if you had saved the money today. In creating the habit of saving, you’re actively solving a future problem.
By reaching the future without saving the money, you may well be making time your enemy. If we play with the time component a bit, you can see that the more time that passes having saved the $2,000, the more beneficial the habit. All else being equal ($2,000 monthly saving at 7% return), here are a few results with different time periods:
10 Years: If you save for 10 years (half of the time in the primary example), you end up with $348,573.95. Half of the time results in about a third of the money! Waiting 10 years to get started can have a tremendous cost.
30 Years: If you saved $2,000 for 30 years, then time might be your best friend. In this case, the habit of saving $2,000 per month at 7% resulted in nearly $2,500,000! Adding 50% more time produced 250% more money!
A Chinese proverb frames this situation quite beautifully: “The best time to plant a tree was 20 years ago. The second-best time is now.”
Looking at a habit from the lens of a result can be a powerful motivator. $2,000 = $1,000,000. The result of saving money now, whether it be a struggle, a chore, or an afterthought, is acknowledging and solving the problems of the future. With this $2,000 savings, the future might be $1,000,000 more affluent.
Money solves only so many problems, and it doesn’t fill every void. The laws of physics don’t allow us to travel back in time and buy forfeited memories, so while saving $2,000 each month can equate to $1,000,000, there is no price on an adventurous life, gifting memories to your family, and seeking out a variety of experiences. Everyone has different goals and objectives in life, and money-for-the-sake-of-money isn’t a common goal. Money is generally a tool to provide freedom, security, opportunities, or to consume exciting experiences. Striking a balance of saving and indulging might be the way forward but finding that balance – and staying consistent! – is the fundamentals of your financial plan. The consistency of habits, more specifically, habitual saving, might be the key to unlock a successful financial future. Unlocking your life’s excitement is another story entirely.