When should One start investing?

Mr Ajay, a young software engineer, aged 25 Just got his first salary.
He may be willing to go out and buy recently launched I Phone 11 Pro along with Apple watch 2020 edition that he has been looking at for a while.
But Ajay wait !! Think again, maybe you should save some of this amount for your future.

But why he asks?
Shouldn’t I be able to enjoy my life a bit before start thinking of these future responsibilities?

You definitely should. However, spending too much money, enjoying life at a young age may severely hamper how much you can enjoy life at an older age.

Warren Buffett once said that “I started investing at the age of 11 but regrets getting late”. If a guy like a warren buffet states this, I am so sure that there are numerous benefits of early investing but people, particularly in India, are not that financially literate. Hence, don’t understand the benefits of it. In the upcoming paragraphs, we are going to discuss the benefits of early investing. Sit tight!!

The Mathematical Reason – Power of Compounding

We all know the seven wonders of the world, but Albert Einstein said that “The Power of Compounding” is the 8th wonder. Longer the money compounds, the higher its value becomes. Compounding is a polynomial function, with the number of years being the degree of the polynomial. As you can tell from this, the higher number of years would lead to exponential growth. And starting to invest early is the best way to give your money more time to compound. If you start at the age of 25 and invest till retirement (let’s say 60 years), you would have invested for 35 years. But if you start at the age of 30, you would have supported only for 30 years. So how much difference can this make? Let’s take a look.

Two friends, Ajay & Vijay, start working at the age of 25. Ajay starts investing ₹5000 immediately, while Satish spends most of his money in initial years and starts investing only after getting married at the age of 30. How much difference do you think this would make to their corpus when they’re 60? If we assume a uniform rate of return of 12% per year, at the age of 60, Ajay would have accumulated ₹2.76 crores whereas Vijay would have ₹1.54 crores.

That’s right, just a small difference of 5 years allowed Ajay to accumulate almost 1.8 times the corpus of Vijay. That’s the power of compounding for you.

Your Expenses are lesser, When you are younger

Let’s be honest; when you’re young, life is inexpensive. And, as you get older, it’s only natural that your living expenses will go up. Seriously, when I look back on my life, five years ago, I’m amazed how cheap it was. I was splitting rent and utilities with three other people, which set my monthly housing costs at 15000. I was spending Rs. 5000 per month on food, around Rs. Three thousand on gasoline, oh, and Rs. 2000 per month on broadband/Mobile. Beyond that, my expenses were pretty limited.

Since then, my housing costs have nearly quadrupled, my wife and I pay much more for food, we have a baby on the way, and our broadband/telephone expenses are grown double due to subscriptions of Netflix, Amazon Prime, Hotstar etc.. Further, we have added term life & Medical insurance to the mix, leading to much increase in household expenses.
So it is much better to take advantage of your financial youth and invest your money.

Higher Risk Tolerance as you invest early

The more time you have, the more financial risk you can tolerate. Why? Because you have more time to ride out financial storms and recessions.

Now, I’m not advocating that 20 years olds should take all their money and invest it in volatile, unwise ways. What I’m suggesting is that somebody with 40 years left until retirement stands a better chance of making money on higher risk investments than somebody investing for five years. Remember, compound interest needs plenty of time to work its magic, and higher-risk investments are no exception.

Investing Early Leads To Financial Freedom

Have you ever met somebody that was stuck in a job they hate, because they were too financially strapped to escape? Well, if you start investing at a young age, that will never be you. One of the many benefits of investing at a young age, is the freedom it will provide in your life. Simply put, wealthy people don’t have to rely on their next paycheck to survive, and therefore, have the freedom to pursue the things they’re passionate about.

Additionally, when you’ve built up some wealth, your financial decision making won’t come from a place of fear. Your investments will allow you to make confident, attack-minded decisions, which is a privilege most people (that didn’t start investing early on in life) rarely, or never, get to experience.
By investing early, you are giving yourself the freedom to pursue life confidently, and with a purpose.

Final Thoughts

We live in a tech-savvy world. You have many platforms to learn and know which investment is best. With the use of technology at a younger age, you can invest in avenues that can give high returns. An investment with self-research gives you confidence and helps you take more bold decisions in future life.

The earlier you start, the easier it is to build wealth. Yes, you will face some difficulties to invest early in life as you don’t have enough money. But you can’t wait for the time when things get convenient for you. Start investing in smaller amounts. Give time to your money to mature. Investing at a young age is the best decision one can take in his or her life. Don’t shy away from taking a financial advisor’s help or contact any Sebi Registered advisor for an unbiased view.