When the blogger and personal finance expert known as J. Money started saving for the future, retirement was the furthest thing from his mind. He was in his late 20s, working for a tech startup, and thinking about buying a house and getting married. Now, roughly a decade later, he runs his own company and extols the life-altering virtues of saving prodigiously and starting young.

Money's Washington, D.C.-based business, which publishes his ad-supported blogs Budgets Are Sexy and Rockstar Finance, earns $60,000 to $160,000 annually, depending on how hard he chooses to work, he says. Money, who uses a pen name to protect his financial privacy, started publicly tracking his net worth on his first blog back in 2008. At the time, he had just $56,000 in retirement savings. Today, he has nearly 10 times that amount, and he is on track to become almost a millionaire by his 45th birthday. That's probably not enough for a full retirement, of course, but it's a more than ample cushion to have by that age--and he's already reaping the benefits of his planning ahead.

What You'll Get for What You Save
Nine years is the average amount of time it takes to double the value of your nest egg, assuming about an 8 percent average annual return and no added contributions.
The annual fee you'll pay for the average actively managed mutual fund.
The amount of the average stock investor's return that would have been lost, over the past 10 years, to that average fee.
The amount you would lose over 30 years to that fee, assuming you started with $100,000 and averaged an 8 percent return before investment management fees were deducted.
The amount of additional monthly retirement income that you could generate for 30 years from that $344,730. (Assumes a 4 percent rate of return while in retirement.)

The savings Money built up in his 20s gave him the wherewithal to start his own business, and already have offered him a measure of financial freedom. He and his wife have two young boys; and now, when there's a lot going on with his young family, he can take time off without wondering whether the break will destroy his long-term plans.

"It's about having the freedom to wake up and do what you want to do and not think about finances," says Money. "I want to work on projects I'm passionate about without worrying about whether they're going to be profitable."

As he's found over the past 10 years of saving for his own goals and advising others how to do so, smart retirement planning boils down to a few simple truths.

Time is on your side. Use it

The earlier you start socking away money, the more time you give compounding to work for you. That's simply the effect of earning returns on your returns. For instance, if you began with $100,000 and earned 10 percent interest, you'd start the following year with $110,000--which, at 10 percent, would add another $11,000 to your savings the following year before you've made your own contribution. With a small account and a short time frame, compounding's impact feels marginal. But as your balance builds over decades, it does yeoman's work.

Consider Money, now 37 years old. He contributes an average of $20,000 per year, or up to 25 percent of his income: $15,000 goes into a tax-deferred retirement plan for self-employed people, known as a SEP-IRA, and an additional $5,000 of after-tax money goes into a Roth IRA. His current balance is about $500,000, thanks in part to more than $300,000 in investment returns.

And compounding is just starting to gain momentum for Money. If he stopped contributing to savings now--an unlikely possibility--he would still nearly double his current nest egg by his 45th birthday, assuming his investments earn about 8 percent on average. (A portfolio that's half stocks and half bonds averaged an 8.3 percent annual return during the 90-year period ending in 2015, according to Morningstar, which shares an owner with Inc.) If that average holds, by the time he hits age 65, Money's current investments could be worth more than $4.6 million. In other words, a $200,000 investment could earn you more than $4 million in returns, thanks to compounding and lots of time. If Money had started saving a decade later, he would likely accumulate less than half as much by age 65, assuming he earned the same 8.3 percent average annual return and invested the same amount. The price of procrastination: $2.5 million.

Take risks when you're young


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Money has earned considerably more than 8 percent on his investments and is likely to continue doing so, because he invests almost all of his retirement assets in stocks. If he were older, he'd be in more danger of losing money that couldn't be recovered. But at his age, the risk is likely to pay off (see chart, left).

The investment world measures risk by "volatility," or the amount a security's value swings up and down. By that standard, stocks are about three times more volatile than government bonds, but have historically earned nearly twice the average annual return (10 percent versus 5.6 percent, roughly). In their worst years, big-company stocks lost 43.3 percent of their value, while bonds lost 14.9 percent; a portfolio made up of 50 percent stocks and 50 percent bonds suffered a 24.7 percent loss in its worst year. However, over long stretches, stocks look far less risky. If you look at the rolling 10-year periods tracked by Morningstar, only four have produced losses. During the remaining 76 periods, stocks earned money, usually considerably more than bonds. Those higher average returns can make a vast difference. For example, with a diversified portfolio, Money would expect to accumulate that $4.6 million by the time he reaches 65; but if he keeps the bulk of his wealth in stocks, the average 10 percent in market returns could boost his portfolio to $8.1 million.

Don't pay high fees for fancy accounts

Every dollar you pay to a fund manager is a dollar that can't compound in your account. The average actively managed equity mutual fund charges about 1.27 percent of assets each year, to pay managers to buy and sell stocks on your behalf, according to Morningstar. But many index funds charge just a fraction as much, because they don't hire high-priced investment managers to pick stocks. Instead, those funds buy and hold every stock that makes up a set index. Money buys index funds, specifically Vanguard's Total Stock Market Index Fund (VTSAX), which charges a paltry 0.05 percent of assets each year. That allows him to pay about $6,100 less per year in investment management fees, a cost differential that will grow with his balance. "I hate to think how much I lost to fees before I switched to index funds," he says.

It's not about a rocking chair

Yes, saving for retirement is your goal--but if you follow these steps, you'll also get a more immediate payoff in peace of mind. The bulk of Money's assets is invested in tax-favored retirement plans that he's not likely to tap for decades, but he's already benefiting from the happiness that financial security can offer. "When I first started, I thought money was for buying a lot of stuff. I wanted things," he says. "Over the years, I realized that I didn't care about the money. I cared about the lifestyle. Now the goal is to get up in the morning and work on whatever project you want. If you save enough, you can do that."