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Trevor_Blake comments on Boring Advice Repository - Less Wrong
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Start saving extra money while you are young.
I have seen people argue for the reverse, on the grounds that the money you'll save while in your n-th job (for small n at least) will likely be negligible compared to the money you'll make when in your (n + 1)-th (or is it (n + 1)-st?) job.
This worked for me before I was 30; later my income stopped raising quickly. I admit this could be because I made a few stupid choices. But I think that for most people their incomes stop raising rapidly at some age.
Is there a rule of thumb which would work well for both situations? For example "always save x% of what you made N years ago"? ... Oops, that is exactly the opposite of what this article suggests. A smart seeming advice, which no one would ever use in their real life.
I had taken “young” in Trevor_Blake's comment to mean “in your twenties”.
Then I agree. I just didn't see that word used in your response, so I misunderstood it to be without time limits.
(By the way, most people seem to use the word "young" meaning "age <= my_age" or later "age < my_age". Just ask a teenager whether twenties is young or old. Then ask a 50 years old person whether thirties were young or old. So an advice based on "while you are young" has very high potential to be misunderstood.)
(That was what the “for small n at least” part was for.)
I disagree with this one if you mean in the sense that "compound interest will make you rich!" meme. If you mean in terms of having emergency funds and or saving for shorter term freedom (being able to quit your 9-5 temporarily if an opportunity you want to pursue comes up) I agree.
Maybe the saved money itself during youth is not as important as starting a good habit. Then when you start making decent money, you already have a habit of saving them, and you are already familiar with how it works (you don't have an "ugh" field about money and saving).
strongly agree. I get a lot of mileage out of the rule of thumb "keep your lifestyle expenses a pay raise or two behind you."
I agree -- though there have been times when I was more frugal than in retrospect I wish I had been.
What's the problem with the "compound interest will make you rich" meme? Is it inflation?
Compound interest gains most of its power when large amounts have been saved. So if you don't make much money, compound interest simply won't make you rich, you won't be able to save enough (though you can still have a decent retirement). If you make a lot, it doesn't matter as much anyway. If you're middle class and willing to save half your income, then it might make you rich, but that is a painful 30-40 years. Explore the graphs and savings calculator here for examples of what you would need to do to have a million by 60.
Mostly that life is too short and interest too low for that to really happen before you die.
I think that meme originated in a time when interest rates were a lot higher than today.