Reasons Why You Should Invest Early
When we are in our early or middle 20s and get our first job, the pay is not very high. From there, we have to figure out how to pay for things like rent, food, transportation, etc. every month. At this point in our lives, saving money and making investments are the last things we think about. But there are many reasons to start investing early. And we'll talk about all of that in this blog. Here are 5 reasons why you should start investing as soon as you can. Number 1: When you start young, you can start small We all have things we want to do, like buy our favourite car or get married in an exotic place. For example, let's say you want to get married in 5.25 years and you need to save Rs 15 lakh for this. You decide to put your money into equity mutual funds. Even though mutual funds don't offer guaranteed returns, their long-term returns are around 12%. Now, you would have to put away Rs 11,250 every month to save Rs 15 lakh in 5.25 years. Alternatively, if you start saving for the goal 2 years later, you would have to save Rs 18,750 per month to reach the goal on time. You would also have to save more. In the same way, if you start early on any goal, whether it's to buy a house or save for retirement, your monthly investments and total investments will be much less than if you wait. Number 2: It brings discipline to your life If you start saving and investing early on, it will improve your spending habits on its own. We'll tell you how. If you want to save a fixed amount of money from your fixed salary, you will have to limit your spending by making a monthly budget. And making a budget is the best way to change how you spend money because it helps you keep track of how much you spend each month on things like food, utilities, rent, entertainment, etc. And after doing this simple task for a long time, it becomes a habit. Now, to get into the habit of saving put away the amount you want to save each month. Then, use the money you have left to make a monthly budget. If you make Rs 25,000 a month and want to save Rs 5,000, for example. Then, as soon as you get paid, put away the Rs 5,000 first. Use the rest of the money to keep up with your expenses. Number 3: Compounding makes you wealthy The longer you keep your money invested, the more the benefits of compounding will help you. Let's look at two examples of this to see what we mean. Let's say you want to save Rs 8 crore for your retirement. In the first scenario, you start investing in a mutual fund when you are 25 years old. And to do this, you would need to save Rs 12,000 every month until you were 60. And over the next 35 years, you would put away a total of Rs 50.4 lakh. In the second scenario, you put the goal off for 15 years and start saving for retirement when you are 40. The goal amount, which is Rs 8 crore, hasn't changed. Now, because of this delay, the amount you invest each month will be Rs 80,000, and the total amount you invest will be Rs 1.92 crores. So, if you put off investing for 15 years, the amount you put away each month goes up by more than 6 times, and the total amount you put away goes up by 4 times. Over time, this is how compounding works. Number 4: If you stay invested for longer, you can build up a bigger nest egg If you keep your money invested for a long time, you can get the benefit of compounding for a longer time. This means that the amount you have saved over the years will be much higher. To explain this, we can look at the point we talked about before. When we talked about the benefits of compounding, we said that even if you only invest Rs 12,000 per month, you can build up Rs 8 crore if you start investing at age 25 and keep it up until age 35. But if you start investing 15 years later and your savings decrease but deployed capital increases. So, it's best to start early and keep investing for a long time if you want to build up a big nest egg without feeling the pinch in your pocket or lowering your standard of living. Number 5: You are more willing to take risks. When you are young, you have more opportunities to take risks than when you are older. At this age, you don't have as many financial responsibilities, so you don't have to think too hard before putting your money into something risky. Even if you make mistakes with your investments, you'll have plenty of time to fix them and get back on your feet. For instance, a good rule of thumb for investing in stocks is (100 - your age). That is, if you are 30 years old, you can put 70% of your money in stocks and the rest in bonds. The rule of thumb says that if you are 22 years old, you can put up to 80% of your money in stocks. But if you start investing when you're 45, you might not want to take that much of a risk. As a rule of thumb, you should only put 55 per cent of your money in stocks. Even though stocks are riskier than fixed-income investments, they may give you higher returns over time, allowing you to build a bigger nest egg with a smaller investment. Bottom Line So, if you haven't started investing yet, you should do so today. Start small, keep things simple, and continue to learn as you go. Remember that getting rich is a long-term process that can't be rushed. And as a young worker, the best thing you have going for you is time.