I’ve often lamented about getting a late start in the savings game. Unlike many of my peers that went into the workforce at 22 years old, I opted to head off to law school (and goofed off for a year before doing that). Choosing this path meant that I had to take out nearly six figures worth of student loans and made it so that I earned essentially no income for the majority of my twenties. By the time I started my first job, many of my friends had already been in the workforce for 4 or 5 years.
When it comes to late starts though, I don’t think anyone can beat my wife. She spent five years in college, another four years in dental school, did a one-year general practice hospital residency and is now currently in year two of a three-year specialty residency. For those of you keeping track at home, that’s 8 years of post-college training! And unlike medical residencies, most dental residencies pay nothing or offer their residents a tiny stipend (usually a few thousand bucks a year – my wife made about $4,000 total in 2016). By the time Mrs. FP earns her first real paycheck, she’ll be 32 years old. Oh, and she’s also got a healthy six figures of student loan debt to boot. Quite a position to be in at 32 years old.
Going a decade without an income isn’t great for anyone financially and it’s especially worse when you come out of it with a ton of debt. It’s why any medical professional or lawyer needs to be super aggressive with their savings and debt crushing plans. When you’re starting off your working career so late, saving 10 or 20 percent per year just isn’t going to cut it.
The good thing though is that if you opted for a professional degree, you’re hopefully going to be in a position where you can earn much more than an average income. You need to treat that income wisely. How you use it right off the bat and the way you think about that income is going to matter a ton.
So for us late starters out there, the options are pretty simple. We can give up and blow all of our money. Or we can roll up our sleeves and play some catch up.
The lucky thing is that given how compound interest works, playing catch up is pretty easy.
The Doubling Penny Example
My favorite way to demonstrate the power of compound interest is through the example of the doubling penny. Basically, this hypothetical asks you a question – would you rather have a million dollars right now or a penny doubled every day for 30 days?
Without much thinking, most people would opt to take the million dollars upfront. A penny is such a tiny amount that it doesn’t seem possible for it to turn into more than a million dollars, even if doubled every day.
Of course, a question that simple must have a trick answer, and indeed it does. Just take a look at the doubling penny in action:
Turns out that the penny doubled every day for 30 days becomes well more than a million dollars. By day 28, your penny has already become more than a million dollars. By day 30, your penny has turned into $5,368,709.12. It really goes to show you just how valuable compound interest is.
So what does this mean for someone like me who is getting a late start in the savings game?
Compound Interest Doesn’t Matter Early On
The power of compound interest is an amazing thing. It can turn pretty regular sums of money into enormous sums of money. It’s how that penny can go from a single penny to over 5 million dollars.
The good thing for us late starters, though, is that compound interest doesn’t actually do all that much in the beginning It’s hard to think about it, but money doesn’t grow in a linear fashion. Instead, it’s exponential. If you let your money grow over a decent period of time, it’ll probably look like the graph below:
You can see that at the front at the beginning of the line, growth is slow. The amounts are just too small for compound interest to do a whole lot. Sure, your money is still growing, but not at huge clips like it’ll do later on in life. The exponential power of compound interest just hasn’t had the time to take hold yet.
This is good for us late starters though. It means that it’s possible for us to save aggressively and get ourselves right back into the same position as our peers that have been able to save for much longer.
It’s Easy To Catch Up
Let’s go back to the doubling penny. You can see that in those last few days, the penny is just too far ahead for most people. Anyone getting started at that point will have a hard time catching up to that penny.
But if you’re a late starter, it means you’ve got an incredible opportunity to get yourself right back on track early on. Five days in and the penny is worth just a few cents. By day ten, that penny is still worth only five bucks. That means playing catch up isn’t all that hard. If by day ten, you find yourself wanting to get in on that doubling penny action, all you need to do is save up five bucks as fast as you can.
That’s how my wife and I look at our savings plan – it’s a game of catch up. Sure, we’re starting out our savings journey late. I didn’t start aggressively saving until 2016. My wife hasn’t really been able to save anything since she’s never earned a real income. But the nice thing is, we’re only five to ten years behind most of our peers. Even someone who has maxed out their 401k since graduating college (which I think isn’t very likely for most people), would have put away about $180,000 over the last ten years. That’s a huge number, sure, but it’s not an insurmountable amount. All we have to do is put away $60,000 per year for 3 years to end up right at the same level as someone who’s been saving fairly aggressively for a decade. Save $100,000 per year and we’re potentially ahead of the person that’s been saving a good amount for their entire 20s. Considering that we should be earning well into six figures as a lawyer and dentist couple, that type of saving isn’t an impossible thing to do. And it’s not necessarily impossible for other folks either that are coming from similar backgrounds.
What You Need To Do
- Don’t succumb to lifestyle inflation. Without a doubt, falling into lifestyle inflation will destroy you. You see medical folks and big shot lawyers do this all the time. Instead of living like a student early on, new grads snag that first paycheck and then go to town with it. Some buy a huge house. Others get the luxury apartment or the nice cars. You cannot do this if you want to catch up to your peers financially. It’s much easier to keep the status quo then it is to downgrade your life. If you upgrade your life right away, you’re going to have a hard time cutting back in the future.
- Stay humble. Remember, even if you’re a big shot lawyer or doctor, you’re starting off way behind everyone else. Your friends have had years to build their careers and save money. You just got your first paycheck. Keep that perspective in mind. I think if you stay humble, it makes it much easier to avoid the problems of lifestyle inflation and to be happy with what you already have.
- Invest aggressively. No doubt about – you need to play catch up. And the only way to do that is to save as much money as you possibly can. This can include paying off debt aggressively as well. Remember that saving 10% or 15% of your income isn’t going to cut it when you just got your first paycheck in your late 20s and early 30s. If you’re trying to catch up, you need to be saving more like 30% or 40% of your income. If you can swing it, saving 50% or more of your income is ideal.
I’m still bummed that my wife and I are starting our savings journey so late. But the more I think about it, the more it doesn’t seem so bad. My wife and I are only 30 years old right now. The mighty power of compound interest probably hasn’t taken hold yet for most of our peers. It means that even though we’re behind, we should be able to catch up pretty quickly.
More Recommended Ebike/Scooters
Check out these other ebikes/scooters I've had the chance to do a review for:
- GEN3 Outcross Bike – The GEN3 Outcross is a solid, affordable fat tire ebike that does a good job of doing what I need it to do. It works great for city riding, giving me a smooth ride in all conditions. It’s works really well as a winter ebike since the fat tires give it good traction over snow and ice. Check out my GEN3 Outcross Review.
- Himiway Escape Bike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
- Espin Sport Bike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
- Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
- Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.
More Recommended Investing App Bonuses
For additional investing app bonuses, be sure to check out the ones below:
- M1 Finance ($10) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
- SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with $100 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
- Moomoo (5 free stocks) – Moomoo is a free investing app currently offering 5 free stocks (usually worth around $75-$100) if you open an account using a referral link and deposit $2,000. Read my Moomoo referral bonus guide for more information.
- Webull (5 free stocks) – Webull also gives you 5 free stock valued between $3-$3,000 each if you open an account using my referral link. Here’s a guide I wrote about how to earn your free stocks using Webull.
- Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
- Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.
More Recommended Bank Account Bonuses
If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.
- Chime ($100) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
- Digital Federal Credit Union ($100) – Digital Federal Credit Union (DCU) is a free, nationwide credit union that I recommend to readers for two reasons. First, DCU has a $100 referral bonus if you open a free DCU checking account with a referral link. Second, DCU has a saving account that gives you 6.17% interest on your first $1,000. Check out my in-depth post on how to set this account up.
- Upgrade ($100) – Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Importantly, this bonus says that it’s now scheduled to end on January 31, 2023. As long as you get your account opened before January 31st, you should be eligible. Here’s a post I wrote with more details: Upgrade $100 Referral Bonus – Step By Step Directions.
- SoFi Money ($275) – SoFi Money is a free checking account from SoFi. They’re currently offering a $25 referral bonus if you open a SoFi account with a referral link and deposit $10. You can also make an additional $250 as well if you complete a direct deposit. This is a good bank that is also 100% free, so you won’t have to worry about managing this account. Here’s a post I wrote with instructions on how to earn your SoFi Money bonus: SoFi Money Referral Bonus: Step By Step Guide.
- Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link.Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
- Fairwinds Credit Union ($100) – Fairwinds Credit Union is offering a referral bonus for users that sign up using a referral link. Fairwinds has no fees or minimum balance, so this is a particularly easy bonus to earn. Since this is a smaller credit union, my gut instinct tells me this offer won’t be around long, so if you’re in a position to meet the bonus requirements, grab this bonus before it’s gone. Here is my step-by-step guide on how to earn your Fairwinds Credit Union bonus.
- OnJuno ($60) – OnJuno is a fintech/neobank that is currently offering a $10 referral bonus if you open an account using a referral link and make a deposit of $50 or more. You will also get 1000 JCOIN. The 1000 of JCOIN is cryptocurrency. At the time I'm writing this, it'll be worth about $50. Check out my OnJuno referral bonus guide here.
- Varo ($30) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $30 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.
- Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
- Albert ($150) – If you can manage to do a real direct deposit, Albert is an easy account you can use to earn a referral bonus. Here’s a review about Albert I wrote. And here’s a step-by-step guide on how to earn your Albert referral bonus.
- Netspend ($20 + 5% Interest Savings Account) – Netspend is a company that provides 5% interest savings accounts. If you sign up using my referral link, you’ll get a $20 signup bonus once you make your first deposit into your Netspend account of $40 or more. That means you get a 5% interest savings account and a free $20 to start! Make sure to check out my in-depth guide on how to set up these accounts.
Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.
Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.
Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:
- SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $250 if you complete a direct deposit.
- DCU. Digital Federal Credit Union (DCU) is a free, nationwide credit union that I recommend to readers for two reasons. First, DCU has a $100 referral bonus if you open a free DCU checking account with a referral link. Second, DCU has a savings account that gives you 6.17% interest on your first $1,000.
- Novo Bank. Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. It’s the business checking account I currently use for this blog.
- M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account.
- Personal Capital. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.
Feel free to send Kevin a message here.
Your article is spot on and what many people struggle with. I’m just starting to see the space shift lift off the ground. Three years ago I was at $150,000 and now I’m pushing $400,000 and those dividends are really starting to move the needle on my investments. Outside of my 401k where I don’t actively track dividends I’m pulling in $500 a month where a few years ago it was only a $1300 for the entire year.
That’s amazing! That’s what’s nice about compound interest for us late starters. Even though a lot of my peers are so far ahead, it’s not that hard to just buckle down and catch up.
Great point, FP! Being able to throw gobs of money into investments can make a huge difference real fast! I’ve been on both sides of the penny myself. I started saving right away, but with a small salary it didn’t amount to much for quite a while. But with a couple promotions and fortunate advancement in my career I’ve been able to throw six figures into investments for the last four or five years. Couple that with a solid investment plan and the accounts can grow quite quickly.
You folks are definitely focused on the right aspects and will be catching up very quickly indeed! Keep up the great work!
Thanks GS! Hopefully, we’ll be following in your footsteps one day and throwing tons into our investments.
Yeah. It really depends on what profession you enter. I have a friend who worked in the art industry until age 28, went back to school for 1.5 years for a post-bac, entered medical school (5 years), and neurosurgery residency (8 years) and is currently in fellowship. Doesn’t look that great.
Yup, the remuneration is pretty good but boy the lifestyle is also pretty rough.
Yeah, it’s crazy, BUT, at least they’re getting paid during residency. Sure, they’re only making 50k or whatever, but that’s still a respectable income (about median for the US). The dental world is rough for those that choose to specialize in non oral surgery fields because you have to go an extra 3 or 4 years and make literally no income. In fact, making matters worse, they actually make you pay tuition!
Exponential growth is difficult to wrap your head around, but the Exponential Hydra is real. There’s a turning point somewhere in the exponential chart where, like a ballon filling with helium, gravity lets go and it floats off on its own. That’s the moment the FI community is saving for. You bring up a great point that the demon is getting to that point. Whether right away or over time, trip that switch and with low expenses your money army is marching on its own!
Nice way to think about it! I’m just waiting to hit that point one day.
I think we’re on the same page today. I also got a late start due to 3 years of goofing off (just posted a similar story) and did basically the same as you to catch up. The compounding factor is interesting, and not something I thought of immediately. But I think it’s true! For a long while, my money grew so so slowly because there wasn’t much to grow, but once you reach 100k it just kind of blazes past, which is super fun to watch.
With the salaries you and your wife will be making, you’re definitely gonna be alright.
Oh no doubt, we know we’ll be alright! Just gotta not let the lifestyle inflation happen.
It seems like every high school kid in Canada who’s ambitious wants to be a doctor. Most family doctors don’t make that much money!
After years of school and residency, they graduate with hundreds of thousands in debt. Then Canada caps the family doctor’s pay at $200k.
If you have your own office and hire a secretary, prepare to shell out $80k a year. So really you’re only taking home $120k a year before taxes. Then you got to pay back all the student loans, equipment costs, and account for the years that you weren’t working.
It’s an interesting topic and something I may talk about in the future – basically, it seems like a lot of us are sort of pushed towards certain types of jobs. It’s why I became a lawyer – I didn’t really know of any other types of jobs. These jobs are obviously good careers, but there are so many more options out there than just doctor or lawyer.
Interesting topic! I’m a late starter, too when it comes to career and personal finance. I was working for the government and traveling the world (a couple of years here and there). I didn’t come back to the states until 31 and started thinking about my career (and life) goals, while my peers had been practicing law for a few years. I then went to B school at 32 and got a finance MBA with close to six figure in debt. But a few years later now, I’m debt free and just got a promotion making decent income (I work in a large consultancy).
So my question is what to do with your extra savings. Say I want to save aggressively, like 30%- 40%, or even 50% of my income. Only 10%-15% can going into (401)K and IRA, given my income level. I have an account with E*Trade but am considering better options.