Most of us have come across the phrase, ‘the sooner the better’ at least once in our lives. The phrase holds quite true though. But as a human being, we have developed a tendency to put things off for tomorrow, the very tomorrow that never arrives. The same is the case for investment. We abide by the time waiting for the right moment to arrive often overlooking the importance of investing early in life.
When we are young and have time to the fullest, we indulge in enjoying life and often overlook the aspect of saving and investing for the future. This is why plenty of us look back at the past wish we had made some wise investment decisions. Starting early can give you the opportunity to make the most of the investment and seek a long-lasting positive impact on your financial status.
We here look at some of the points why investing early in life is much important. Read along.
Benefits of Investing Early in Life
- Helps to build a better risk appetite: The thing about investing early is that it allows you the opportunity to build up risk appetite. When we are young, we have time on our hands allowing us to take different risks without much obligation and consequences. During this phase even if something goes wrong, we can still find opportunities to recover from those periods. If we are to start the investment late in our life for say after 30, there are plenty of responsibilities already on our shoulders and thus we cannot take the same level of risks in life. People who start investment late in their life are often cautious about their investment.
- The magic of compounding makes a real difference: It often said that the magic of compounding is one of the most powerful things in the world. In fact, the great Albert Einstein quote, ‘Compound interest is the eighth wonder of the world. He who understands it earns it… he who doesn’t… pays it.’ That speaks volumes regarding it. Compound interest works in a simple way, it offers your interest on the earned interest. This way by continuously putting in your earning into an investment, you grow the chances of getting an increased return on your investment. Those who often understand the concept of compound interest venture into early investment in life. Let’s have a look at the following table illustrating two different investment cases. In the first case, Ashok starts an investment journey at the age of 20 by investing Rs 2000 on a monthly basis at the interest of 15% compounded monthly. Since the retirement age is 60 years, he has 40 years with him to see his wealth grow. His total outlay constitutes Rs 960000 and the corpus at the end of the interest is Rs 6.35 crores. While Sunil who started investment at the age of 30 years invests in a similar approach of Rs 2000 every month for a period of 30 years. His total outlay is Rs 720000 while his end corpus is of Rs 1.41 crores. The stark difference between starting your investment journey can be seen here as Ashok can call upon a larger pool of money at the end of his retirement.
|Amount Invested Initially||Rs 2000||Rs 2000|
|Amount Invested every month||Rs 2000||Rs 2000|
|Age at the start of the investment||20 years||30 years|
|Age at the end of the investment||60 years||60 years|
|Tenure of Investment||40 years||30 years|
|Total outlay||Rs 9,60,000||Rs 7,20,000|
|Rate of Interest||15%||15%|
|Corpus at the end of Interest||Rs 6,35,84,912||Rs 1,41,94,723|
- Your spending habits will improve: Investing early in life will help you to know better about your personal finance. It helps you to experience different fields of finance and how to manage money. This will also help you to command your spending habits better. One who starts investing early in life will be more inclined towards budgeting and cutting down on expenses. This also helps you to build a goal towards earning money. In the long run, this curtails your impulse spending and buying. This gives you more capital to invest allowing you to build substantial wealth over time. People who start investment late in their life learn these trades late in life which puts them at a slow pace in comparison to those who have started the investment early in life.
- Allows you to be a step ahead of everyone else: The idiom early bird gets the worm is truly relating to the nature of the investment. As we talked about how early investment in life allows you to curtail your spending spree and build capital for investment, the same way, the early investment put you in the pole position to other people who start late. Investment is a field where the early you start your journey the likelier the chances of improving your financial situation. With the early investment, you also enjoy the privilege of seeing your wealth go through the magic of compounding. In the long run, this will put you into a stable financial situation where you can afford things that may merely be a dream for your counterparts. And even if the market dynamics change and you go through a hard time when it comes to your investment, you are still placed better to handle the risks and manage your profile better.
- Tax benefits: Investment has an intriguing aspect of our lives. It helps to grow wealth with time and increases our threshold of income in the long run. But still, there are certain misconceptions around investment that they tend to be liable to taxation and the net growth will be much lower than the one perceived by us initially. But if you were to look around, there are investment options that also provide taxation benefits apart from growth in wealth. The investment options like Public Provident Fund (PPFs), Unit Linked Insurance Plan (ULIPs), Equity Linked Savings Scheme (ELSS) are subject to tax deductions under Section 80 C of the Indian Income Tax Act. The early investment allows you an option to avail of these benefits and makes sure that you enjoy both the taxation benefits and also see your wealth grow with time. Starting investment into these investment schemes may seem hard but you can start with small amounts and let it grow over time.
Investing early in life opens door to plentiful opportunities allowing you to build wealth in a better way and manage your finances right. It also helps to build a better risk appetite where you can take chances and still have time to recover from them. It is certainly a better choice than opting to invest late in life where you are more cautioned and burdened with responsibilities. Start your investment journey today and enjoy the ride.