BUSINESS

Save Money In Your 20s. Anyone Who Tells You Not To Is Ridiculous.

Please don't listen to Elite Daily on this one.
Please don't spend every cent you make in your 20s in the name of "life experience."
Please don't spend every cent you make in your 20s in the name of "life experience."

Over at Elite Daily, where privilege is in the name, Lauren Martin writes that people in their 20s should give up on saving money and instead enjoy life while they are young. Having a backup plan is for people who have hit 30.

"When you live your life by numbers, you strip yourself of poetry," Martin writes. "When you deprive yourself, you don’t learn how to TREAT YO SELF."

Her premises are ridiculous, but her conclusion isn't totally off-base. People in their 20s probably do spend and save differently than they will a decade or two in the future, and that's OK. The reason, however, is not because they want to live poetically. It's usually just because they want to live normally, with regular meals and a decent apartment that's fairly central and plenty of money to go out and socialize the way that most people do when they are young and single. 

It's the concept of consumption smoothing: If you are fairly sure that you will make more in the future than you do now, it's not crazy to spend more and save less, proportionally, now in order to have a better quality of life. But that doesn't mean that you don't save any money. The idea is that you keep roughly the same quality of life as you get older and make more, but funnel more of it into savings. For people with student loans, this is even more true.

That said, consumption smoothing doesn't mean saving nothing. Just because retirement is decades off and some people are OK with being renters forever doesn't mean that you won't face any unexpected costs: Things like losing a job, breaking up with a partner and needing to find a new apartment immediately or having an unexpected medical bill are all reasons a young person might need to have several thousand dollars saved for an emergency. You know what is not even a little bit poetic? Being buried under medical debt.

You also have to spend a little bit of time thinking about the kind of person you want to be in your 30s before you get there. Do you ever want a house or kids? Unless you are miraculously making multiple times more money than you were in your 20s or age into a trust fund, those aren't life events you can be totally financially unprepared for at 29 and just suddenly fall into at 31. Saving for big things takes time. (Plus, "kids are like a nuclear bomb going off in your financial life," says personal finance journalist Helaine Olen). 

Even if you expect your income to go up by a lot over time, how sure are you? And how much more will you be making?

Take my job as a journalist: Julia Haslanger recently did a project where she asked a bunch of journalists about their salaries and shared her results. Her data sample was small and respondents skewed young, but this is how things broke down by age: 

The median for a journalist 10 years into his or her career (around 33 years old) is about $65,000. That's quite a bit different from the $37,000 or so median for 23-year old journalists. But it's still quite low, particularly if you live in a big city. It's not necessarily enough to put away the tens of thousands of dollars needed for a down payment on an apartment here in New York City in just a few years. That kind of saving, for a journalist making the median expected wage, is going to take time. And a 26-year-old journalist (hello!) should probably be taking advantage of every bit of an employer's 401(k) match that he or she can, plus putting away a couple hundred extra every month. 

There's an additional advantage to saving in your 20s: The power of compound interest. Putting just a little bit into a retirement account in your 20s can make you better off than if you put a lot in every month, but don't start until you are 35. Behold my former Business Insider colleague Sam Ro's favorite chart:

If you are a woman, these facts are doubly important. Personal finance for women is sometimes just unfair. First, there's the wage gap. Then, there is the double-edged sword of long life expectancy, which means a more expensive retirement. And then, of course, if there's even the slightest chance you're going to have children, you probably don't have the luxury of thinking someone else is going to step up and help with that: It's either pay thousands of dollars a month for childcare, or give up your career. 

Definitely spend what you need to in your 20s  -- just don't spend so much that it kills your quality of life in your 30s. (And 40s. And 50s.)

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