Why should one start investing early in life?
One question that always seems to be on the minds of young people is when they should start saving money. However, when questioned about it and when forced to think, the usual suspected answers that the younger generation are giving is that they are too young to start saving, they hardly earn enough money to save, they need money to enjoy life and they can save later when they earn more money. Let me tell you, this is the biggest mistake that you can do as an individual. It’s like a sin not to save money in your life as early as possible. Following are some of the facts why I say that you should start saving as early as possible.
Encourages a savings habit
Right from your early days, you will receive some money from elders, especially during festivals and pujas. It’s your right to enjoy every penny that you receive. I am not suggesting you to save the money and not spend it on your desires. The more you control your desires, the more desperate you will get and eventually when its bursts, you will end up spending more money. I suggest you to save at least 25% of the money you receive as gifts. Remember this money is for you only and you can utilise it at times of need. Do not saving this money and out in your piggy bank. Open a child savings account in a bank and also enjoy the interest you will receive
Impact of time on investment
Here we will see a practical example of the impact of time on the value of your investments. Take 3 people X, Y and Z. X invests Rs 5,000 at age 18 and invests for 10 years. Y on the other hand says that he will invest 10 years later but will invest Rs 5000 for 30 years. Z invests Rs 5,000 at the age of 18 for 40 years.
Now when we compare the amount earned at retirement for X and Y. You will realise that although Y has invested for more number of years and 3 times more money, X has actually ended up earning more money than Y. Yes, you read it correctly. X earned more than Y. There is no match for Z as the value of his investments are twice that of X.
Power of compounding
Compounding interest means you will earn interest on interest. The interest portion you earn on your money will be reinvested to earn more interest. Suppose you invest Rs 40000/- in an instrument giving compound interest of 8%. The value at the end of 3 years with a compound interest of 8% stands at Rs 50389/- and the value at the end of 4 years with a compound interest of 8% stands at 54420/-. So if you see the investment of Rs 50389 from year 3 to year 4 has grown a little more than 8%. This can now be multiplied for say another 40 years till retirement. Now imagine the same happening over a period of 40 years. So the early you start the more gain you will get due to the compounding effect
Risk and better prepared
The earlier you invest in life, the more risk you can take, risky investment earn handsome returns but in case things go wrong, it allows you time to earn back the money. The earlier you start, the more you save for a better quality of life and achieving all your goals and unexpected future expenses