When the conversation turns to finances, it’s not uncommon for the topic of Investing to also be discussed. Whether it is investing for retirement or for another purpose, this is a conversation that is discussed frequently, and that frequency hints at the importance of this discussion. Before reading this blog, take a look at the blog, “5 Tips as You Consider Investing.” The previous blog will help set the foundation for healthy investing, while we will describe the importance of starting the investing process young in this blog.

The Advantages of Compound Interest

Compound interest is a component that can reign over the world of investing at times because of its importance and how impactful it can be. The way compound interest works in simple terms is the money that you invest can make money while being invested. If you invest $10,000 with a 10% annual return, your $10,000 investment would equal $11,000 after 1 year. Another benefit to compound interest is that even if you are unable to invest additional money at a certain time, compound interest will still be applied to the previously invested money. For example, if you did not invest any money in the second year, and still gained 10% interest annually, your total account would equal $12,100 at the end of year two. In other words, it is constantly growing at some capacity. But it is also important to understand that investments are not guaranteed to grow. It all depends on the market; therefore, you can lose money as well. But when starting young, you have the ability to “ride the roller coaster,” and stay in it for the long haul.

Placing Savings as a Priority

It can be easy to save money after you have covered all of your monthly expenses and lifestyle desires, but investing often requires you to make savings a priority and plan it into your monthly “expenses” prior to spending on those monthly expenses. While this does take away from money that you could be spending in the present, it allows for greater possibilities as you get older or get closer to the large goals for which you planned when you decided to invest. Investing at a younger age also teaches you to be more conservative with your money because if you invest the money, you won’t have the money to spend on yourself, family, or friends now; therefore, you will have less money to budget for present needs and wants, which is habit forming.

Allowing Time for Recovery

If you invest at a younger age and lose money, you have much more time to make up for that loss than you would have in your 40s or 50s. Being able to make up for this loss and work towards building a secured future is a positive element to investing early.

So….what’s my point…investing for your future may seem pointless in the moments of spontaneous spending, but you will thank yourself down the road when you have more available funds in times of need! If you have further questions as you consider your personal finances and financial goals, feel free to schedule an appointment with a NEXUS Coach: https://ronblueinstitute.com/schedule-an-appointment/.

References

“5 Reasons to Start Investing Early | Smart Military Money.” Veterans United Network, https://www.veteransunited.com/money/5-reasons-to-start-investing-early/. Accessed 29 Mar. 2022.

“6 Reasons Why You Should Start Investing Right Now | Earnest.” Earnest Blog – Money Advice for Young Professionals, 11 June 2018, https://www.earnest.com/blog/6-reasons-to-start-investing-now/.

Top Reasons to Start Investing at an Early Age – Axis Bank. https://www.axisbank.com/progress-with-us/invest/top-reasons-to-start-investing-at-an-early-age. Accessed 29 Mar. 2022.