There is a notion that you should be paying yourself first. What they typically mean by that is to put 10% of your money away into an RRSP, TFSA or, once those are maxed, invested in a non-registered account.
I agree with paying yourself first. You will always find a way to spend all your money, so if you think you can pay yourself later, you’ll quickly realise that you have no money to do so.
However, I don’t agree that you should be investing for retirement in your 20s.
Why most people in their 20s should not be saving for retirement in their 20s
There was a very cautious man, who never laughed or cried.
He never risked, he never lost, he never won nor tried.
And when he one day passed away, his insurance was denied,
For since he never really lived, they claimed he never died.
– Denis Waitley
This quote has stuck with me for some reason… probably because I never want that to happen to me. I never want to live a life where I never tried new things, discover my passions and get excited about life weekly, if not daily.
But I think that is exactly what most people in their 20s are like. We don’t know how we want our future to be. In fact, if I were to ask you what you would be doing 20, 30 years from now, you’d probably get anxious. It probably isn’t because you don’t know how to get there, but you don’t know where there is. So why should you be saving for that unknown?
It’s hard to save for a future that doesn’t excite you so it’s no wonder most people do not save. I’m okay with that. I’m just not okay with what they’re doing with the money instead.
What to do with that money instead
Just because you shouldn’t be saving in your 20s doesn’t mean you can do whatever you want with that money. Back in the intro, I mentioned that I believe in paying yourself first.
It’s not the 65+ version of you that you’re hoping to help make ends meet. It’s the happy you. The fulfilled you. The you that gets excited weekly, if not daily about the life you’re living.
That’s right, we’re looking to use money to buy happiness.
Not the material type of happiness, but the purpose type.
Instead of investing in a future that gets you anxious, let’s use the money to discover and create a future you’re excited about.
Taking a few months off between jobs
Usually, people will not leave their job until another one is secured. The usual claim is that they cannot make their ends meet if they don’t do so. It’s a fair argument, but it’s also usually those people who are stuck in the rat’s race who have no idea what they would be happy doing for the rest of their lives.
Instead of leaving one job and going to the next right away, I would suggest giving yourself a month or two. Or, if you’re willing to take it to the extreme, take 6 months and do a mini retirement.
Yes, it will be scary to leave what you’re familiar with – I struggled real hard to follow through on it. But doing so will help you experience what it feels like to truly have control over your life.
With the month or two, you can use it to explore some of your hobbies, develop specific skills, or pick up your things and go away.
In fact, if you’re looking to try or develop specific skills during that time, you will notice that you’ll be far more efficient at doing so – partly because these are things you personally want to try, and partly because you want to make these experiences “worth” going unemployed for.
Explore new things
Have you ever wanted to learn to cook? Be a yogi? A singer? A writer? A professional e-gamer? Or have you ever wanted to try out home renovations?
This month or two will give you plenty of time to try it all out. Do each of these a few times a week and by the time your time is up, you’ll know which of these activities can become hobbies. Which of them can become passions, and which of them you can see yourself doing day in, day out even in retirement.
I had always wondered what it would be like to create my own small home, so I renovated my basement, taking just over 3 months to complete. I went from never using a power tool to installing new electrical circuits to building my own bathroom. Through that experience, I knew what parts of home renovations I enjoy, and which ones I rather outsource (I don’t have the patience for the finishing touches). More importantly, I know that I do want to create my own small home in the future.
I also had put writing a book as a life goal, and so I wrote about personal finance. I wrote and wrote for one month and by the end of it, there was enough material for it to have become a book. It was after I finished when I realised that I prefer to have that material available for all, for free. Hence why this site now exists. Once again, I now know that I enjoy writing and will most likely write my own book in the future.
The best part about all this exploring is that these hobbies and passions can help earn you money on the side, allowing you to bring in more right away (though it might not be much at first).
If you’re not sure how your hobby or passion project can bring you extra money, leave a message on the Facebook group and I’m sure we can help you come up with a few different ideas.
Develop and sharpen your skills
Another thing I wanted to do is become a top performing marketer. I believe there are so many great solutions to global problems out there, but many of them never become successful because they lack marketing. But if I could help connect people with products and services that will make everyone better off, then I can feel better about myself.
So I could do what a junior marketer does (I have no idea what they do, I have never done a role like that) and slowly develop your skills and wait to be promoted. Or you I take this time off to develop my marketing acumen so that you can qualify for higher roles.
And that’s exactly what I’m doing. So instead of waiting for a company to tell me that I’m capable, I’ve been learning from marketing thought leaders. I’ve been implementing what I’ve learned into this site. I have also tracked my own progress, and now every time I have an interview, I can easily use these experiences to demonstrate what I know.
I’ve also noticed that because I am not stuck with day to day tasks, I have more time to actually improve my output quality, and thus, have a very rounded experience and understanding of marketing. This easily allows me to qualify for more senior marketing roles, moving up my earning capabilities.
In fact, I can see myself becoming a marketing consultant within the next 3 years if I wanted to. This would have never been an option for another 5+ years if I were to have worked up the corporate ladder.
So not only am I getting these accelerated experiences, I am also helping myself qualify for roles that would otherwise not be possible, which means that I’ve increased my earning capacity far faster than most others.
What could you potentially be giving up
It’s nice and all to say why one shouldn’t save for their retirement, but that’s only one side of the argument. The other side is understanding how much your decision might cost you.
Let’s assume that you get your first full time job at 22. Your annual pay, after taxes, is 40k and it’s expected to go up 3% every year. You plan on saving 10% for retirement and we’ll assume that you invest in index funds that gives you 7% return each year until retirement (age 65)
This is how the numbers will look
This decision could cost you $570k. It’s not a small amount what-so-ever, but this isn’t considering how you could be qualifying myself for higher paying roles much faster, or the additional income that you could be made through your hobbies.
More importantly, this doesn’t help you discover a life you’re excited about. And that is priceless.
The notion of paying yourself first is a very good one, especially in a world that’s run by instant gratification. It’s just that how people like to define paying yourself first (saving for retirement) is not how I would define it (use it to get time to discover hobbies, passions, skills).
Speaking about instant gratification, I believe that people find it hard to save because they do not know what type of future they want, thus it’s easier to spend the money now to be happy than to save for an uncertain future.
However, if you are able to spend your 10% savings on discovering your hobbies, passions and developing the skills to support those passions, you will find saving for a future where you can spend more time on those hobbies and passions quite easy. In fact, you might start comparing what you’re currently spending your money on to the life you could be living in the future and naturally start saving even more.
Just with like everything else, there is an opportunity cost in doing something like this. From a financial perspective, if you were to go through your 20s not saving, it could cost you $570,000 by the time you’re 65. However, this does not consider how you could be able to qualify for higher paying jobs faster, or how much happier your life could be.
If you had a month or two each year to try different things out, what would you spend that time on? Leave it in the comments!