Starting big vs. starting early
It is always the early bird that catches the bird. One might argue that a huge investment can gain the same returns as a small investment over years. But investment is not just about figures, but mainly time. To be a successful and wealthy investor, you need to give yourself time to learn about the market and gain wisdom. That being said let me give you a few reasons why starting early is better than starting big:
- The power of compounding: Compounding is when you earn money on the interest you make on the original investments. Initially, the earnings might seem little, but as time passes by it will increase significantly. A one lakh investment at 10% will give only 3 lakh after 10 years through simple interest, whereas a compound interest would yield ₹6.7 lakhs. Thus, the longer the investment stays the better.
- Higher risk capacity: The younger you are, the more risks you can sustain. A married man who has a child's college education or marriage coming up in few years cannot afford to take too much risk. Besides, his living costs and family responsibilities will stretch out the finances far enough that he cannot afford risky choices. This will cause him to lose out opportunities as ventures that give more returns are usually more volatile. Starting late means that you may be forced to play safe as you will not be able to recover if hit by the volatility of the market. On the contrary, a younger person in their 20s can easily recover from volatility as they have more time to recover from, if needed and fewer bills to deal with.
- Stay ahead of inflation: The longer your money stays invested, the higher purchasing power it will get during inflation. Despite the daily dips, equity backed investments can beat volatility, inflation and always create wealth for its investors over a long term.
- Save your taxes: One of the major advantages in investing is that there are schemes that can help you save on the taxes (Section 80C, for instance). Many people are ignorant on how much money they can save by investing early and save the taxes that they pay to the government.
- Build a bigger retirement amount: An ideal retirement amount should be large enough to sustain your regular expenses as well as unexpected medical expenses that might pop up anytime. Let us assume you retire at 60 years. You will need enough money to support you after that. When you start to invest late, you will not be able to save enough money without affecting other parts of your finances. If you have started investing ₹12000 every month at 10% interest from the time you have been 25 years old, you would have about ₹2 crores when you turn 60. But to achieve the same goal when you start at 35, you will have to invest about ₹25000 every month. This could affect your other goals, your lifestyle and even your regular needs.
- Save interest on your loans or go debt free: When you plan a big purchase, the first thing you look up to is, are you eligible for a loan? And after getting a loan, you incur interest cost that increases your expenditure cost. With a planned investment, you can make a big purchase without getting a loan and thus avoid the extra expenditure. Or if you do take a loan, you can save the interest money by investing in a SIP and using a part of the returns to pay off the interest. An example of how to do so can be found in this article: (insert link to "An SIP can help you save entire interest amount on your home loan")
- Improve you financial discipline: In a financial plan, a person must always prioritize investments over expenses. Starting early would inoculate disciplined spending habits in you. In future, when you have more capital to handle, the restraint and wisdom you have gained earlier will certainly help you to make better decisions.
When it comes to investment, time is your best friend. An early start would always ensure a safe and productive future. Investing when you are young will be one of the best decisions of your life. Start early (Better Start Now), no matter how little you have.