Investing might not top your priorities when fresh out of college and into your first job. You’re probably planning for big purchases, a vacation, or even starting a family.
But whatever your goal is, they all have something in common — a need for money. The surest way to achieve these goals is through saving and investing early. Although it may seem daunting, you’re never too young to invest.
Warren Buffet started investing when he was 10. By age 30, he had a net worth of $1 million (Ksh120.4 million as per the current exchange rates). Although not everyone can start investing at such an early age, your 20s and 30s are the best time to invest.
If you’re still in doubt, here are five reasons why it's better to start now.
“Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” –Albert Einstein.
As you start your professional career, you rely on your paycheck. And if you don’t invest, you’ll rely on it forever. However, your annual investment earnings will outpace your salary if you start investing now.
Read Also: The Life-changing Magic of Compound Interest
Compound interest, aka compounding, is when the interest you earn on your savings or investment account is reinvested, earning you more interest. This is unlike simple interest, where you only earn interest on your principal or initial investment.
Compound interest is often compared to a snowball. When you roll a snowball down a mountain, it picks up more snow with each revolution and increases in size. The bigger it gets, the more snow it can pick up and the faster it grows.
Similarly, you can start investing small, but as your investment earn interest, your principal investment amount and added interest earn more interest. As such, the earlier you start investing, the more your money will grow, even if you start small.
For example, let's say you have Ksh5,000 to invest each month. If you start investing at age 25 and earn an average return of 8%, you'll have Ksh16.7 million by the time you're 65.
But if you wait until you're 35 to start investing, you'll only have Ksh7.34 million by age 65.
Read Also: Investing in Your 20s - A Beginners Guide
Investing is not just about growing your money. It can also teach you good spending habits. When you invest, you are forced to think about your money differently. You have to think about how your money can grow over time rather than how you can spend it right now.
This can be a great way to learn how to control your spending. When you are investing, you cannot just impulsively buy things you want. You’re budgeting and diverting your savings into investment. As such, you’ll also learn how to live below your means and avoid debt. The most important thing is to start.
The good spending habits you develop will serve you well throughout your life. So don't wait. Start investing today and see how it can help you build a bright future.
Life is not always rosy. There will be times when you’ll need urgent money to meet unavoidable expenses. But if you have investments, you can get through such tough times without borrowing money from others or applying for an emergency loan.
So, start investing early so that way, when an emergency does come up, you'll have the resources to cover it. If you wait until later in life to start investing, you may not have the same luxury. That's because you'll likely have other financial obligations, such as your kid's education or mortgage, that will take up a larger portion of your income.
Read Also: What’s an Emergency Fund and Why You Need One.
Age has a great influence on the amount of investment risk you can take. When young, you can take more risks. You have a lot of earning years ahead. So don’t be afraid of investing in a risky venture because if the investment doesn’t work out, you have time to recover and fix your mistakes. Even so, high-risk investments such as equities provide higher returns.
When you’re older, you have little room to make mistakes and should only invest in low risks assets such as bank deposits and money market funds. A single financial error can ruin your entire retirement savings.
But when young, you can make mistakes and fix them without damaging your nest egg. For example, if you start investing at 25 and make a big loss when you’re 30, you still have 30 years ahead of you before your retire. This gives you time to recover your losses.
Investing early in your career also allows you to experiment with different investment ventures. This will improve your financial decisions in the future. All in all, it's okay to make mistakes. The biggest risk is not taking any risk. So, experiment with your investments while you still have time.
In your 20s and 30s, it’s easy to think of retirement as a far-off possibility. But age has a way of creeping on us. Just the other day, you were in primary school, today you’re working. Very soon, you’ll have grandchildren. As such, if you think postponing investing in your retirement is a good idea, you should probably think twice.
Besides, by starting to invest early, you can also retire early. So if you dream of retiring while still energetic, start investing now. Remember the power of compounding we talked about? Investing early in your career initiates the process of compounding early. This will allow you to reach your financial freedom early.
Read Also: 7 Reasons Why Retirement Planning is Important.
If you want a comfortable future, you must start investing early. The sooner you start, the more time your money has to grow. Even if you can only invest a small amount each month, you'll be glad you did when you're older.
So start saving and investing today!