I Made This Mistake When I Started My First Job -- and It Has Cost Me $33,000

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  • Many people don't focus on retirement savings when they're young.
  • By neglecting my nest egg early on, I lost out on a big opportunity.
  • I regret not funding my 401(k) when I had the chance.

It's a mistake those who are new to the workforce should try to avoid.

My first job out of college was not an easy one. I worked in finance, which meant long hours and stressful days. The upside? The pay was pretty good. Not only was my salary fairly generous, but I was eligible for a yearly bonus, too.

The initial financial goal I set for myself at the start of that job was to pay off the debt I'd incurred in the course of getting my degree. From there, I wanted to build an emergency fund with enough cash to cover six months' worth of bills.

Thanks to careful budgeting and smart decisions (like opting to live at home for a bit after college to save money on rent and utilities), I was able to get rid of my debt in about six months. And a year later, I had my full emergency fund and was ready to move out and rent a place of my own.

But one thing I didn't do once I'd hit those two goals was start prioritizing my retirement savings. After all, I was in my early 20s, and retirement was the last thing on my mind. And also, after having spent a solid year and a half maintaining an extremely frugal existence, I wanted to spend some of my hard-earned money on fun things, like travel.

As such, I decided to delay my retirement savings for a year. But in hindsight, that was a pretty costly mistake.

Don't underestimate the power of time

Once I was in a solid position to start funding my 401(k) plan, there was room in my budget to contribute $500 a month, or $6,000 a year. Instead of putting that money into my retirement savings, I splurged on things like concert tickets and vacations. But it's a decision I regret now. Had I funded my 401(k) with $6,000 back then, at this point, my retirement savings balance would potentially be $33,000 higher.

I've always made a point to invest my retirement savings in stocks. Meanwhile, the S&P 500 (which is generally representative of the broad stock market) has averaged about 10.5% on an annual basis since 1957. So by shorting my 401(k) $6,000 for a single year, I've effectively lost out on almost $33,000 for retirement when we factor in lost gains.

This is why people are advised to prioritize their retirement savings from a young age. The earlier in life you invest, the more you'll be able to benefit from compounded returns in your retirement plan.

Start slowly if you have to

To be clear, I don't regret putting my 401(k) contributions on hold for a bit so I could shore up my savings account and pay off nagging debt. But I do regret not contributing to that plan once I was in a solid position to do so.

Thankfully, I got on track shortly thereafter and have been funding my retirement savings consistently since my mid-20s. But if you're first starting out in the workforce and have the option to contribute to a retirement plan, it pays to do so -- even if it's just $50 or $100 per month. You can always ramp up your savings rate over time, but the sooner you get started, the more time you'll give your money to grow.

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