Last Updated on 3 years by Mohit Pareek
When we are young and start our professional lives, none of us thinks of investing our money. As we have no such responsibility or any such experience, we start spending our earnings on entertainment, luxury items or we use our earnings to meet our day to day expenses.
But if you start investing at this young age, then you can build massive wealth. Even a small amount of investment in young age can create a corpus over the long term.
Many surveys and studies prove that the sooner you invest, the richer you get. Many people waste a lot of their precious time of thinking about the right time to invest their money. But the right time is to start investing is as soon as you start earning money. In this post, we will learn six reasons why you should start investing early.
You can start with a small amount of money
One of the biggest reasons why you should start investing early is that you can begin investment even with a small amount and can still make a meaningful corpus over the long term. On the other hand, if you delay your investment, you have to invest more money to achieve the same amount of wealth.
Let us understand with an example.
Suppose you are 20 years old and you want to retire at the age of 60. You have 40 years on hand before you retire. At the age of 20, you start investing Rs 1000 / – per month and keep investing till the age of 60 years. During these years, you were successful in investing Rs 4.8 lakh and if we consider an annual return of 12%, then by the time you retire you will get Rs 1.18 crore.
Suppose you delay your investment by 10 years. Then you have to start investing at the age of 30. Now, you have only 30 years left before you retire. To get the same amount of corpus, you have to invest Rs 3,500 per month till you retire. The total investment during this period will be Rs 12.60 lakh and you will get Rs 1.22 crore.
Suppose you again delay your investment by 10 years. Then you have to start investing at the age of 40. Now, you have only 20 years left before you retire. To get the same amount of corpus, you have to invest Rs 12,000 per month till you retire. The total investment during this period will be Rs 28.80 lakh and you will get Rs 1.19 crore.
Looking at the above example, it proves that a 10-year delay in investment costs you 3.5 times more to achieve the same financial goal and a 10-year delay costs you 12 times more.
To build wealth, start investing early and remain invested for the long term.
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Better Financial Habits
We are not taught to manage finance in schools. We learn to manage finance from our family and our experience. Therefore, the beginning of our professional life is very crucial from the point of developing financial habits.
When we start earning income at an early age, most of us want to enjoy our lives. We start spending money on entertainment, buying items that are not so important, start taking loans to buy things that we cannot afford.
However, the beginning of our career is the right time to save and invest our money. Reductions in unnecessary expenses and investment of surplus money will develop better financial habits among us.
Always remember, a good investor always wants to get rid of debt. He likes to earn interest and does not want to pay it.
If you deduct a small part of your expenses and divert them towards your investment, it will increase your fund by manifold.
If we develop this habit at the beginning of our career, then this habit will remain for our lifetime. This habit can be developed only when we start focusing on investment. Therefore, to develop better financial habits, it is necessary to start investing early in our professional career.
You can take risks
The biggest advantage of investing early is that you have many years of further earnings. Investing early allows a young investor to take risks and make more profit. Because, if a young investor suffers a loss, he has a lot of time to recover his money.
As you get older, your risk-taking ability will decrease. After a certain age, people want stability. With the increase in responsibility, people start saving money for their family and children. A single financial mistake can bring a lot of trouble at this age. Besides, you do not even have enough time to get your lost money back.
Starting early investment allows you to make mistakes and experiment with your investment. As long as the time is with you, you can earn higher returns. Once the time is out of your hands, you will not be able to do anything. You will only have the option to invest in risk-free instruments like fixed deposits, Public Provident Funds etc.
Power of Compounding
Albert Einstein reportedly said, “Compound interest is the 8th wonder in the world. He who understands it earns it. He who does not understand it pays it.”
The power of compounding work better once you invest for a long duration. Therefore, to get the benefit of compounding, you have to be invested for a long period. Let us understand the power of compounding with an example.
Suppose you start investing Rs 1000 per month at the age of 20 and continue to invest for the next 40 years, then your investment value will be Rs 1.18 crore. By investing only Rs 4.80 lakh, you will get Rs 1.18 crore. (Assuming the interest rate is 12%)
Now compare this performance with your friend, who realized the value of investing after ten years. He started investing Rs 1000 every month at the age of 30. Suppose he also invests for the next 30 years and gets the same interest rate of 12%. By investing Rs 3.60 lakh, he will get Rs 34.95 lakh after 30 years.
Another friend started investing Rs 1000 every month at the age of 40. He will get Rs 9.89 lakh by investing Rs 2.40 lakh in an investment period of 20 years.
By comparing the above example, we find the difference in the amount that one can make by investing early in his life.
You started early and invested just Rs 4.80 lakhs, and you’ve got Rs 1.18 crore after 40 years. Your friend started 10 years later and he gets Rs 34.95 lakhs after 30 years. Your other friend started at the age of 40 years and he gets only Rs 9.89 lakhs after 20 years.
Compare the figures and you will realize the importance of start investing early. If you start early in your life, you will get more time to keep investing. It is clear that compounding is a powerful tool to grow your money, and the longer you stay, the better it gets.
You can retire early
Most of us hate our jobs but we have to do it for money. None of us wants to work for others forever.
But if you start investing your money at a young age, you can retire early and enjoy post-retirement.
It is better to think of retirement at the age of 20s instead of 40s.
Investing at a young age increases the chances of achieving financial stability at a very young age. When you start investing at a young age, you get an opportunity to stay invested for a long period. The sooner you start investing; your money will start working for you and will create more and more money for you.
The future is unpredictable and full of uncertainty. Uncertainty can happen anytime in your life and you may need a lot of money. Therefore, it is always recommended to save for emergency time before investing your money. Once you have saved for emergency needs, you should start investing to achieve your financial independence.
Once you are financially secure you can chase your dream without worrying about your job, your monthly bills.
Due to the lack of financial education, most of us do not understand the benefits of investment. However, with the better use of modern technology, more and more youth are educating themselves about their financial lives and trying to make themselves financially independent.
With the use of technology at a young age, you can invest in investments that can give high returns. An investment with self-research gives you confidence and helps you make more bold decisions in future life. The earlier you start, the better you create wealth. You may face difficulty in investing early in life because you do not have enough money. But you cannot wait for a time when things are convenient for you. You can start investing with a small amount and give time to your investment.
I hope you have liked all these reasons why you should start investing early. May I know why you have invested or why you want to start investing? What are your hopes and aspirations?
If you have more reasons than this, you can comment below. I look forward to your comment.