The Cost of Delayed Savings

We often hear that saving early is important, but it's easy to put off saving for another day, thinking there’s plenty of time to catch up. However, the longer you delay starting a savings plan, the more you can lose out in terms of potential returns and financial security.

What is Delayed Savings?

Delayed savings refers to the act of postponing regular contributions to savings accounts, retirement funds, or investments. The longer you wait to start saving, the harder it becomes to achieve your financial goals, as you miss out on the benefits of compound growth—the accumulation of interest on interest over time.

Remember the lesson on the Time Value of Money. This is the same thing, only we are calculating the cost of not saving as opposed to the gains from investing. In simple terms, delaying savings is like letting a growing snowball sit in the sun; it loses its potential to grow bigger over time, making it harder to achieve your financial objectives.

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We all know the importance of saving for the future, but have you ever considered the true cost of delaying your savings? Whether it’s postponing retirement contributions, putting off saving for a big goal, or simply delaying regular savings, the effects can be much larger than you might expect. In this blog, we'll explore how delayed savings can impact your long-term financial health and demonstrate how you can use our software to stay on track.

Understanding Delayed Savings

Delayed savings occur when you choose to save less today or delay putting aside money for future goals. The longer you wait to save, the greater the opportunity cost and the harder it becomes to reach your financial goals. Let’s break down the true cost of delaying your savings and how you can model these scenarios in our financial software.

What Are the Costs of Delayed Savings?

Missed Compound Interest: One of the biggest losses due to delayed savings is the missed opportunity for compound interest. Albert Einstein famously called compound interest the "eighth wonder of the world." The earlier you start saving, the more your money works for you through compounding. Delaying even a few years can lead to a significantly smaller retirement fund.


Sequence of Return Risk: The sequence of return risk is particularly relevant when it comes to delayed savings and investing. This concept refers to the risk that the order of returns (positive or negative) can significantly affect the value of your investments, especially in retirement.

Expert Quote:

"The sequence of return risk is one of the most critical factors to consider when planning for retirement," says Wade Pfau, professor of retirement income at the American College of Financial Services. "Delaying savings and contributions can expose you to greater risks during periods of market volatility."


Lost Investment Opportunities: Delayed savings mean you are missing out on the chance to invest your money and watch it grow. If you wait to save, you're losing valuable time that could otherwise be used to grow your wealth.

Infographic Insert: An infographic comparing the long-term growth of starting to save at age 25 versus starting at age 35. This visually shows the opportunity cost of delaying savings by just ten years.

Delayed Savings in Real Life

Imagine you’re planning for retirement—you've budgeted to save a certain amount each month, but life gets in the way, and you postpone those savings for a few years. Let’s look at how delayed savings can impact your retirement goals and how our tools can help.

Modeling Delayed Savings with StartingOutPlan

Although our software doesn’t force you to adhere to a strict savings schedule, there are ways to model the impact of delayed savings on your long-term financial scenario. Here are some steps you can take to explore the effects of waiting to save:

1. Adjust Contribution Start Date

One way to model delayed savings is by adjusting the start date for your savings contributions. For instance, if you planned to start saving at age 30 but delayed until age 35, you can adjust the input to see the impact on your retirement goals.

How-To: Navigate to the "Investments" section of our software. Modify the start date for your contributions to reflect a delay of 5 or 10 years. This will give you a clearer picture of how much more you will need to save to catch up.

2. Calculate the Lost Compound Growth

Our system allows you to visualize the impact of compound interest over time. By modeling a delayed start, you can see just how much growth you might be missing out on.

3. Simulate Sequence of Return Risk

Delaying savings can also expose you to sequence of return risk, particularly during market downturns. You can model the impact of different market conditions by simulating a delayed start and observing how volatile market returns affect your outcomes.

How-To: Use a  "What If" to simulate how market volatility might impact a delayed savings plan. This will help you understand the potential downside of delaying.

Visual Demonstration with Our Platform

Using PlanTechHub scenario modeling tools, you can clearly see the ripple effects of delayed savings over time. By adjusting contribution start dates, visualizing compound interest, and modeling sequence of return risks, you can understand how small delays today can lead to major setbacks tomorrow.


Using Our Software to Stay on Track with Savings

Set Automated Savings Contributions


Track Your Progress

Tracking your savings progress is key to staying motivated. Our system allows you to see how much you’ve saved and how close you are to achieving your goals.


How Delayed Savings Affect Emotional Health

Financial security brings peace of mind. On the other hand, delaying your savings can lead to stress and anxiety, especially as retirement looms closer. Understanding the long-term impact of delaying savings can motivate you to stay consistent.









Key Concept:
The Double Whammy of Inflation


Inflation's Double Whammy refers to its dual impact: rising costs of living and the declining value of money. Not only do everyday expenses go up, but your savings and investments also lose purchasing power if they don’t grow fast enough to keep up with inflation.

Visual Demonstration with StartingOutPlan


Reflection Questions

What steps can you take today to ensure you’re not falling behind in your savings?
How does delaying savings impact your long-term financial goals?

Key Quote:

“You must always be prepared for the unexpected, including sudden, sharp downward swings in markets and the economy. Whatever adverse scenario you can contemplate, reality can be far worse.”

— Seth Klarman

Conclusion

The cost of delayed savings is more than just financial. It affects your ability to grow wealth, exposes you to unnecessary risks, and can create stress and anxiety about your financial future. By understanding these hidden costs, you can make more informed decisions and prioritize saving early and consistently to avoid unnecessary setbacks.


Key Takeaway:

The earlier you start saving, the better off you will be. With our software, you can create a personalized savings plan, track contributions and investments, and stay on track to reach your financial goals.

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