Early investing can make you rich!
When individuals embark on their working journey, they tend to splurge more towards fulfilling their desires of buying a new cell phone, car, or bike. During the initial years of their working life, the earning is less, which makes one believe that they have their whole life in front of them to invest and in this process, they often tend to procrastinate investing for later stages of life. However, the real benefit of investing is to start early. Even a small amount can work for you to achieve your required corpus due to power of compounding. Compounding means interest-on-interest. In this case, interest is reinvested rather than paying it off, which helps your investment to grow at a faster pace. The power of compounding works like magic if you are invested for a longer period of time.
Benefits of early investing:
Save more: Investing early helps individuals in saving more as compared to those who start investing in the later stages of their life. Even if you invest small amounts, it will help you generate a sound amount of corpus to fulfill any life goals. This helps individual to develop the habit of saving more and spending less.
Safeguarding future: Life is all about ups & downs. Every individual faces an emergency at some point in time, which can cause financial as well as mental stress. At such times, individuals can use their investment, which they had invested earlier as this won’t cause any financial tension.
Risk capacity: Young individuals have higher risk capacity as compared to those individuals, who are in mature stages of their life or nearing retirement. Young investors have the capacity to bear losses as they have more time to recover those losses whereas, investors, who are nearing retirement or at a mature stage cannot bear losses as they don’t have time to recover the same. Investors with higher risk capacity can invest in high-risk instruments in order to receive optimum returns.
Retirement planning: One of the biggest pitfalls for retirement planning is starting investment late. When people start working, they think that retirement is too far and why should they invest in it now. This mentality makes people commit mistakes; hence, in order to achieve the expected retirement corpus, one should invest right from the time they start earning as this won’t create a burden in later stages of life.
Let’s look at an example:
Ramya begins her working life journey at the age of 23. She earns Rs 23,000 every month. She is well informed about the fact of early investing; so, she starts investing Rs 5,000 every month at the rate of 9 per cent till her retirement. On the contrary, Pranali, who also started her working career at the age of 23 and earns the same amount as Ramya every month, started investing Rs 5,000 every month from the age of 33 at the rate of 9 per cent as she wasn’t aware of early investing benefits. Then, what will be the retirement corpus of both Ramya and Pranali at the age of 60?
As we can see from the above calculation, 10 years difference can make a huge difference of Rs 1.09 crore. Ramya was able to make a great corpus because of early investing while Pranali could not meet the same corpus amount as Ramya due to late investing.