Warren Buffett once said that “I started investing at the age of 11 but regrets getting late”. If a guy like a warren buffet gives a statement like 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, I am going to discuss the benefits of early investing. Sit tight!!
Power of Compounding
We all know the 7 wonders of the world but Albert Einstein said that “The Power of Compounding” is the 8th wonder. Let’s take an example- Warren Buffett became a billionaire at the age of 51 while currently at the age of 86 he has a net worth of $76.1 billion. There are various examples pertaining to compounding which proves that the early you start to invest the more you will experience the magic of compounding.
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Here is an example of the power of compounding
By starting early, you will have the most scarce resource in today’s world which even money can buy- TIME. You will be having time by your side which will help in accumulating enough wealth for the future. The Magic of Compounding can only be seen when you have time by your side, they both move hand in hand.
One of the added advantages of investing early is that you become a financial expert as you have made those early and mundane mistakes where people like you have lost a fortune but you, on the other hand, have learned from that mistakes at a minimum cost. You have learned the art of value investing and how to minimizing your risk and losses.
Finding the money
Putting aside a portion of your salary can be a challenge. Many people want to contribute the maximum permitted by their plans but find it takes too big of a bite out of their paychecks.
Strategies that may help
- Save First Spend Later: In India, people first spend than save, which is acceptable given you have a disciplinary spending habit so that you have a fixed amount every month. You should develop a financial discipline and make sure that you invest some amount of your salary upfront, then you know exactly how much you are left with. In the process of saving you develop the habit of spending less. You start differentiating between what you need and what you want. This automatically brings the much needed financial discipline in life.
- Increase SIP with Increment: Invest a portion of each raise- Each time you get a raise, give your retirement plan a raise as well. Allow at least 5% of your salary increase and give your retirement plan a raise as well. Increasing your contribution over time is easier said than done given such high standard of living in India. By increasing your contributions gradually, you may notice only a slight difference in your paycheck. But with compounding, each additional 5% could be worth far more in the long run. You’ll still take home a higher salary while your retirement nest egg benefits from increased contributions.