The compounding magic:
The most obvious and key reason to start investing early in your career is to gain from the effect of compounding. You would have learnt in school that compound interest means the interest earned on interest. All of us know that the principle of compound interest works magic on building money. But very few of us take advantage of this. When you continuously reinvest your earnings, your money grows exponentially.
Let’s understand the effect of compounding with a few examples:
Example 1: Let’s take the case of 2 individuals- X and Y. Both are 30 years old and have 30 years left for retirement. X invests for the first 15 years only, but does not withdraw the corpus after 15 years. He lets the money grow for another 15 years. On the other hand, Y invests for the entire 30 years. This is how the corpus position looks like after 30 years:
Example 2: In this example, both X and Y start working when they are 25 years old. X starts investing early in his career, while Y starts 5 years later.
Risk-taking ability: When you start investing early, you have the opportunity to explore different investment options and also choose risky ones and experiment. However a person who starts late is more wary in his investment choice, as he knows that he does not have sufficient savings back-up.
Prudential spending habits: Investing early brings a discipline in spending habits, as you have lesser disposable cash with you. You learn to be prudent with your expenses.
Money available during emergencies: Early investment habit guarantees a cushion of savings which can be used in sudden emergencies and times of need.
Ability to accomplish financial goals: As seen in Example 1 above, you build a larger corpus when you start investing early for the same investment amount, you can opt for better lifestyles, which helps you fulfil your financial goals.
So remember, no amount is small to start saving. Pay yourself, first. Start now! Invest wisely! And build a secure future for yourself.
Team Getting You Rich