Introduction
When we are in our early to mid-20s and begin our first jobs, our salaries are not exceptionally high. From there, we have to handle all of our monthly expenses, such as rent, food, and transportation etc. and with the newfound freedom of having money in hand, the desire to spend grows stronger. Saving and investing are the last things on our minds at this point in our lives.
Although some people believe that they should start investing when they are older (in their 30s and 40s), this is not a smart idea and is never encouraged.
But, before it's too late, we as youth should begin the practice of saving and investing money. As it is widely believed, the sooner you begin, the better off you will be in the long run.
In this blog, you will learn several benefits of starting your investment journey as a youth, along with investment tips for beginners.
5 Best Reasons to Begin Investing Early as Youth
The following are five reasons why you should start investing early and follow essential investment strategies so you can live a relaxed life in the future.
1. Since the investment tenure is longer, the investment amount can be small.
We all have goals, such as purchasing our dream car or planning a destination wedding. For example, suppose you want to get married 7 years from now and need to save Rs 20 lakh. You opt to invest in stock mutual funds, and while there are no guaranteed returns, the long-term returns are in the 12% range. To save Rs 20 lakh in 7 years, you would have to invest Rs 15,000 per month, for a total investment of Rs 12 lakh. Another option is to invest in digital gold, which offers guaranteed returns and can be done for as little as Re1, but if you plan to invest 15K per month in this, it can result in enormous wealth in 7 years, as gold prices are always rising.
Meanwhile, if you start investing towards the goal 2 years later, then you would have to invest Rs 25,000 per month to achieve that goal in a timely manner. In addition, the total investment would be Rs 15 lakh.
Similarly, whether you are buying a house or saving for retirement, starting early reduces your monthly investments and total investment amount.
2. Investing early improves your spending habits.
Saving and investing at a young age will automatically improve your spending habits.
For example, if you want to save a set amount from your fixed paycheck, you must limit your spending by making a monthly budget for yourself. Having a budget is the ideal investing and saving approach to improving your spending habits because it allows you to track your monthly spending on food, utilities, rent, recreational activities, and so on. With years of practice, this basic task becomes part of your routine.
To make saving a habit, set aside the amount you want to save each month first. Then, use the remaining funds, and build a monthly budget. For instance, suppose you earn Rs 25,000 per month and you want to save Rs 5,000. Then, as soon as you receive your salary, put Rs 5,000 aside and then maintain your expenses with the rest of the amount.
3. You reap the advantages of compounding.
The earlier you begin investing, the greater the impact of compounding as you remain involved for a longer period of time.
Let's look at two examples to better understand this investment strategy. Assume you wish to put Rs 4 crore aside for retirement. In the first example, you begin investing in various options such as stocks, mutual funds, and digital gold at the age of 25. You would need to save Rs 6,000 per month until the age of 60, and then invest Rs 25.2 lakh over the next 35 years to achieve this.
In the second scenario, you postpone the goal by 15 years and begin saving for retirement at the age of 40. The target amount remains unchanged, at Rs 4 crore. Because of the delay, your monthly investments will now be Rs 40,000, for a total investment of Rs 96 lakh.
Thus, investing 15 years later results in a monthly investment increase of six times higher and a total investment increase of four times. This is how the process of compounding works over the years.
4. By staying involved for a longer period of time, you can accumulate a greater corpus.
Investing for a longer period of time will allow you to take advantage of compounding.
We can use the prior point to explain this. When discussing the benefits of compounding, we explained that even if you simply invest Rs 6,000 per month, you may build a corpus of Rs 4 crore by starting early, at age 25, and staying invested for as long as age 35.
However, if you start investing 15 years later and keep the investment amount constant at Rs 6,000, you will be able to save Rs 59 lakh in 20 years. (In both circumstances, you invest until you reach the age of 60.) And if you want to accumulate Rs 4 crore in these 20 years, you must continue to invest Rs 40,000 until the end of the period.
For this reason, it is usually more advantageous to start early and invest for a longer period of time in order to build a substantial corpus without feeling a pinch in your pocket.
5. You are more willing to take risks.
When you are young, you have the opportunity to take more risks than when you are older. Your financial responsibilities are lower at this age, so you don't have to think too hard before putting your money into risky stocks. Even if you make mistakes with your investments, you will have plenty of time to rectify them and recover from them in the future.
At the same time, you can assess your risk tolerance, prepare to diversify your investments, and begin investing in safer options such as digital gold, FDs, and so on that provide regular income.
Bottom Line:
So, if you haven't already begun your investment procedure, do so today by downloading the Spare8 app. Begin small, keep it basic, and learn as you go. Remember that money creation is a long-term process with no shortcuts. And as a young earner, your most valuable asset is time!