Why Saving In Your 20s Is Easier Than Waiting

We’ve been over before why saving when you’re young is so beneficial, it gives your money a lot of time to double over and over. At an 8% rate of return (which is merely average over a long period of time), a $10,000 investment at age 25 will grow to be over $217,000 by age 65. That’s almost 22 times your initial investment! Saving while you’re in your 20s will yield incredible benefits, you just need to make sure you sock away as much as possible while you’re still young.

Those who wait until they are in their 40s or 50s to save are at a huge disadvantage. While it may take some rude awakening to realize you need to start saving, this advice is for all of you 20 somethings (or 30 somethings) who want to start off on the right foot.

There are a lot of excuses to not save (it’s very easy to convince ourselves to spend more and everyone gives into some amount of lifestyle inflation, but I think that saving while you’re young will not only teach good habits and make saving later easier, but there are several reasons why saving in your 20s is actually easier than waiting to save later on.

Why Saving Is Easier In Your 20s

When you exit college, you may have some student loans and your salary probably won’t be huge, but you have a big advantage over people in their 30s and 40s. You’re used to living like a college kid, so living with a roommate (or 3) is not that big of a deal and after living in dorms for a few years, even a small, cramped apartment will feel like a palace as long as there is air conditioning. Stay modest for a few years and you’ll be able to save quite a bit in just a few years.

When you exit college, what financial responsibilities do you have? Most of the responsibilities are the same (rent, food, alcohol), while transportation and some new work clothes are never a bad idea. But that doesn’t even compare to what you’ll be spending when you have a spouse or kids. You’re lucky to have so few financial responsibilities, so take advantage and save now!

Plus, there are tax advantages. When you’re young, you’re more likely to be under the Roth IRA income limit, so you’ve got even more incentive to save. It’s like getting an extra little boost when you start saving. And the earlier you start, the more years you’ll be able to take advantage of it!

The best way to save when you’re young is to make it automatic. If you make saving automatic, you won’t miss it. Have it transferred from your checking account the day you get paid and live off the rest. It will be natural and you definitely won’t miss it.

Readers, why else is it easier to save when you’re young?

Is It A bird? Is It A plane? No, It’s The Tourist Sector!

With the revolution, the Egyptian economy has seen some tough times the past few years, but we’ve not seen the last of it, not by a long shot.

In fact, there’s one sector that’s particularly fighting back, generating both hope and revenue: the tourist sector. The gradual recovery of Egypt’s tourist sector has generated optimism and, importantly for entrepreneurs, also business opportunities.

Making waves

In the first quarter of 2013, Egypt received 3 million visitors to the country. That’s a notable 14.6% increase when compared to the first quarter of 2012. The number was 11.5 million for the whole of 2012, a figure which Egypt will be aiming to emulate closely with its target of 11.4 million for 2013.

Spurred on by these figures, the Egyptian Government has set a long-term target of 30 million tourists by 2022. It hopes to have generated $22 billion in revenue by the same year.

To help achieve this, the Egyptian Government will be applying lateral thinking with measures such as placing cameras in tourist resorts to provide live feeds of the tranquility in them and promote a positive image of Egypt as a tourist destination.

Where Do The Business Opportunities Lie?

Sustainability

One promising area is solar power and, in general, renewable energy. Possible subsidy cuts on fuels will mean that businesses such as hotels will want to reduce energy consumption and lower their bills for electricity. As more and more business employ sustainable ways of operating, businesses and professionals who specialize in sustainable development and construction can generate some substantial trade for themselves.

Construction

As the tourism sector makes its comeback and more people head to Egypt, the demand for hotels and other tourist accommodation and facilities will also rise, especially in popular resorts like Sharm El Sheikh. This offers companies that provide export construction materials and services a wealth of opportunities, as well as technical experts such as architects, engineers, and project managers. Businesses that operate in this sector should consult their bank for advice on export services and see what services they can offer.

Hospitality

Naturally, the hotels and facilities won’t run themselves. Companies that can supply professionals in hotel management, catering and manual workers, or in the leisure industry, also have a golden opportunity to trade.

Language schools

Egypt has a demand for foreign language teachers, particular people who can teach English as a foreign language. As Egypt’s tourism sector returns to its former glory, this demand is going to increase, which creates further business opportunities for language schools.

Clearly, Egypt is a country on a mission and has announced itself as open for business, particularly its tourism sector. Construction, hospitality, sustainability, language tuition… they’re all business opportunities that you can make the most of and help Egypt become the place to be. Then ‘Wish you were here…’ won’t be just something that holidaymakers say, it’ll be something they really mean.

For more information on doing business in Egypt, you can visit the Egyptian Government website at http://www.egypt.gov.eg/english/.

Reader Question: How To Cancel PMI

I recent got an email from a reader of this blog, who asked this question:

Hi Daniel,

My wife and I just found the perfect house, but there’s a problem. We weren’t really planning on moving for another few months, and our down payment fund isn’t as high as we’d like it to be. We know we can save enough money to get us to the 20% mark over the next few months, but we also realize that if we wait until that point to put down an offer, our dream house will almost certainly be gone. Are we crazy to think about taking out a loan with PMI?

-John (not his real name)

With John’s permission – provided I keep his real identity anonymous – I’m going to give my opinion on his situation, and put it to you for some added advice. While Lauren and I are nowhere near buying a house (especially in our area), I’ve started to gain an interest in the housing market.

Today’s housing market is ever-changing; in some places, the recovery is in full swing, in other locations, housing prices and sales are still lagging. We’ve seen record or near-record low interest rates for much of the past year, and although we’d like to believe that rates will stay low indefinitely (word from the Fed suggests they will stay low, likely through at least 2013), there’s always the chance they could start to climb once again. Housing prices, too, could start their ascent. In other words, we can’t expect it to remain a buyer’s market forever. There are some really incredible deals out there, John, and if you think you’ve found one that meets your wants and your needs – and are in the position to afford the monthly payments comfortably – I don’t think it’s out of the question to do that.

But I would add this caveat about PMI (private mortgage insurance). First, aim to have a down payment of at least 10% of the purchase price, so you lock in the lowest tier of mortgage insurance. Next, continue saving after you purchase the property, just like you would if you were still working feverishly to save up for that down payment. Put those extra payments toward the principal of your home loan. Once you reach 22% equity in your home (meaning you’ve paid down the mortgage to 78% of the purchase price), your lender is required under the Homeowner’s Protection Act to automatically cancel your PMI.

There’s a way to shed your PMI even earlier. Once you reach a loan-to-value (LTV) ratio of 80% or less, you can ask your lender to cancel your mortgage insurance. We’re talking LTV here, not a percentage of your loan or the sale price. You may be able to get an instant boost by having your house appraised soon after the purchase; this is a great idea if you’re buying a distressed property at a deep discount (the value is almost definitely going to be higher than what you paid for it). Even if you don’t have your home appraised for a better LTV ratio, making those extra payments until you reach the 20% equity level – then asking your lender to cancel PMI – will help you out immeasurably.

The way I see it, if you snag your dream home right now – and take on PMI in the process – but can put enough toward the principal over the next few months, you may be able to get rid of the mortgage insurance quickly. Say it takes you six months, during which time you’re paying $100 a month in PMI – that’s $600 to get your dream home. It’s not chump change, but if you’re on solid financial footing, it’s also not the end of the world.

Reader, what do you think? Do you think taking on PMI is a horrible idea altogether, or if John plans on paying down his principal – just like he would add to his down payment fund – that canceling the mortgage insurance a few months from now is a viable option?