EDITOR'S NOTE: The guest commentary below was written by longtime Hedgeye "Power User" Jeff Tyburski, Founder of Your Financial Sherpa (FREE eBook available). Jeff began his career as an engineer for 13 years, then worked as a senior analyst and portfolio manager for over two decades. He graduated from the University of Rochester where he also earned an MBA in finance and is a CFA Charter holder.
Takeaway: A recent Hedgeye discussion on the cardinal sin of investing inspired me to consider the cardinal sin of saving. I came out of this exercise even more driven to teach kids and young adults to start young. Save in your 20s and try to achieve financial goals by age 30 (not just retirement). Early success will ensure you have the personal processes and habits in place to succeed the rest of your lives.
The Catalyst
Did you see Hedgeye’s recent ‘Real Conversation’ with David Salem? Radiating stillness, experience, and perspective, David said "What's the cardinal sin of investing? Being an involuntary seller. How do you avoid that awful fate? Get your policies, your foundation, that base of the Eiffel Tower right." In Hedgeye speak, that means establish and adhere to a sound process.
Since you can’t invest if you haven’t first saved, I’d like to apply David’s investment advice to saving money. Hedgeye focuses on investing. My content focuses on saving money and is especially applicable to young adults (who want to earn and save more) or parents (who want help teaching their kids about money and life).
The Value of Setting Near-Term Goals
Have you ever run a marathon? I’ve run one full marathon in my life. Full disclosure, I hated every minute of it, as well as the 100s of miles of training during that humid summer. I also have no desire to do another. But I accepted the challenge of some diehard marathon-running friends, and I did finish, near my target time. More relevant to this discussion is that at no time in the first 5, 10, or even 13 miles, was I thinking of mile 26. The only way to succeed (and survive the pain) was to think in the moment and to have a near-term goal I was driven to achieve. So too with money. I’ll show you the power of setting near-term financial goals.
Avoid the Cardinal Sin of Saving: Set Your Sights on Age 30
Circling back to David Salem’s remarks, our inspiration here, what is the cardinal sin of saving money? It is tempting to think about a disastrous result (akin to the forced selling he discussed) like being dependent on others at a relatively early age or not being able to care for your family. But, I argue, the cardinal sin of saving money is failing to meet a relatively near-term goal (e.g., at the age of 30). Because, if you fail at age 30, you do not have the personal process and habits in place to succeed by retirement age.
I’ll spare you the underlying math, disclaimers, and assumptions but trust me, it is reasonable to expect that money can double every 10 years. If you save $1 by age 30, it can double to $2 by age 40. It can then double again to $4 by age 50. And double again to $8 by age 60. Notice how the last doubling (from $4 to $8) yields 4x the original $1 you saved! Pretty incredible, uh? Seriously, this is life-changing growth. Remember though, you will only get that ‘last doubling’ if you started saving in your 20s. If, on the other hand, you start saving in your 40s, and you save $1 by age 50, then it may only double once by age 60. ‘Set Your Sights on Age 30’ thus refers to setting specific savings goals for the relatively young age of 30.
Start Young! Because Success Breeds Success
The key to saving money is to start young, not just to maximize time for money to compound and grow, but also to ensure you have a personal process in place (habits focused on saving and avoiding obstacles to saving in the first place). Specific savings goals by age 30 are better than a vague long-term goal like “save for retirement” (at age 60 or 70). As with the marathon (ugh), it is easier to achieve a more near-term goal, and success breeds success! Reaching a near-term goal will give you the confidence that you will eventually achieve long-term goals as well (e.g., reach the finish line). Best yet, the life skills you learn and apply to reach the near-term goal will benefit you your whole life and put you on the path for sustained success.
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About Your Sherpa
Your Sherpa works with young adults, and teams up with parents, to bring financial literacy educational content to young people. Your Sherpa has a unique approach to teaching financial literacy, offering a roadmap from start to finish (a true personal process with the life skills and mindset to succeed). Please enjoy our FREE eBook .
