When it comes to saving for retirement, saving early is one of the most effective strategies. Due to the power of compounding, when you are able to get a head start at an early age, you can make time work wonders. I’m sure you all have seen a variation of the chart where Person A saves for 10 years and then stops while Person B waits but saves for 30 years and Person B still can’t catch up to Person A.
That’s all good and settled if having the largest sum for retirement is the goal. During my recent trekking trip in Bolivia, I learned there’s a different way. I call it Experience Early.
Experience Early means you prioritize some experiences early in your life. If that makes you not able to retire as early or not have as much money when you do retire, so be it. Because you already had your experience early, you are not yearning to finally do what you always wanted to do after you retire.
I learned this from other travelers I met on the trip. Some of them were literally half my age. They were practicing Experience Early.
Alex, 27, took a one-year unpaid leave from his job in Canada. He started his travel in Ushuaia, at the southernmost tip of Argentina. He worked his way up north, staying in a place for however long necessary to satisfy his interest before moving on to the next place. By the time I met him in Bolivia, he already went through Argentina and Chile. Peru and Ecuador would be next.
Because he was young, Alex was able to save costs by taking buses between places and staying at inexpensive hostels. His expenses while traveling was actually way less than his living expenses in Canada if he didn’t travel. He wouldn’t earn a salary during this one year but there wouldn’t be taxes either. Combined with lower expenses, his net cost for one year of travel was very low.
Michael just graduated from college in Maine. He didn’t have a job offer that was satisfactory to him. Before continuing to look for the right career opportunity, he decided to travel for a few months first. His opportunity cost for traveling was also very low.
They’re not alone in practicing Experience Early. A former colleague visited 130 countries already before he was 35. He took semesters off during college. It took him longer to graduate but he thought the experience also helped him get into the MBA program at MIT.
By prioritizing experiences early they are entering the workforce later or taking a break in their career and therefore giving up income and delaying saving for their retirement. All else being equal they’ll retire later or retire with less money than otherwise. Some of them will be part of the statistics for the younger generation not owning homes or having low retirement savings. The great experiences they enjoyed early in their life don’t show up on their personal balance sheets but those experiences contribute to their happiness nonetheless. You may also have heard of the joke about an American banker and a Mexican fisherman. The American banker wanted the Mexican fisherman to work on expanding his fishing business so that one day he’ll be able to retire early and finally do what the fisherman is already doing today.
Prioritizing early experience over earning an income and saving for retirement is both more optimistic and riskier. When they forego earning an income and saving for retirement now, they believe their future will make up for it. When you’re not so sure about the future, you try to hang on to what little you have now. If when Alex comes back from his one year of travel his employer no longer has a job for him, he’ll have to find a new one, but he’s willing to take that risk. Maybe he’ll find an even better job than he had before. Michael is confident that he’ll be able to find the right job opportunity after he gets back. If those plans don’t work out, they may find themselves unemployed or having to compromise on their careers.
What makes some people more optimistic and more willing to take risks than others? Genes and upbringing must play a big role. Privilege probably has something to do with it too. Privilege reduces the cost of failures. It gives you a second, third, and fourth chance if the risks you took didn’t pan out as expected. One of those chances may very well pay off. So how do you decide whether you should go with Experience Early or Save Early? If you have privilege, use it to your advantage. Whatever you wish to do after you retire, do it before. It’s both less expensive and more enjoyable. If you don’t have privilege, you have smaller margins for failure. Then save early and shore up your margins before you take those risks.