Savings can be compared to a financial quilt/comforter. It protects and helps to recover your financial health in an unforeseen mishap. Without this quilt (savings), you might have to borrow, which may jeopardize your financial health.
‘Saving’ or ‘Investing’ as a concept is never really introduced or discussed in our early years, forcing most of us to understand it the hard way. Some of us get introduced to the concept of ‘Investing’ by reading while others from real-life experiences.
It is observed that, the motivation to start saving and investing is suppressed by the myth that you need a hefty amount of money to start. Truth to be told, the earlier you start as an investor with the minimum amount, the better off you will be in life.
Our short-term goals often take priority over our long-term goals and it is in fact very tempting to put off plans to invest while working hard towards paying off the house rents, online shopping and putting money for your kids’ education. Neithertheless, by delaying investment plans, you are missing out on a crucial element to experience financial success: Time.
There is a reason why compounding was referred to by Albert Einstein as "the eighth wonder of the world." Time is the only luxury you have in life. If you have time, you can really work wonders and achieve any financial goals. Time helps you to multiply your wealth by taking advantage of the power of compounding. As you invest at an early age, you generate wealth over time keeping two things in mind: the reinvestment of earnings and time.
For instance- Mr X and Mr Y, both are planning for their retirement at the age of 60. Both are of the same age i.e. 25 years. Mr X is serious about his retirement goals unlike Mr Y
Mr X starts to invest Rs. 1000 per month for 35 years at a return of 12% per annum. With the given rate of return,Mr X will be accumulate a corpus of Rs.64 Lakhs
Mr Y also begins to invest Rs. 1000 per month, 5 years later. As he started investing late in his career, he can invest this amount only for the next 30 years at 12% per annum.
The corpus left with Mr Y at the end of 30 years will be Rs. 35 lakhs.
This is the difference 5 years of investment has made to the final corpus value. If Y needs the same Rs. 64 lakhs for his retirement, he will need to shell out Rs.1830 per month instead of Rs. 1000
In short, never let your level of earnings discourage you from investing. As the above cited example depicts, even a small contribution made at an early age can add up to a lot over the period of time Also, young investors have the luxury of flexibility and time to study about investing and learn from their own successes and failures. Investing might have a lengthy learning curve, and young adults are at an advantage because they get time to study the markets and redefine their strategies. The Bottom Line- even if you have to start small, it's always in your advantage to start early.