If you’re young, passionate, and driven, you’re likely thinking about securing a comfortable future for yourself and perhaps the family you want to build. On the other hand, if you’re on the fence or have difficulty imagining your future, there’s still plenty of reason to consider the here and now as a resource for your future self. Investing at a young age is a decision that will only benefit you later on. In this article, Daniel Calugar discusses all the reasons you should invest right now instead of waiting.
Enjoy Your Return When Expenses Are High
Time is your friend if you’re investing while you’re still young for several reasons. For starters, as a young person, you likely have lower expenses and more time to invest.
When you’re independent and relying entirely on yourself, you’ll have to set aside money for rent, utilities, food, health insurance, car insurance, car payments, etc. By then, a lot of your finances will be tied up in necessities, and you’re not guaranteed to bring in enough income to make up for the difference.
If you’ve made wise investments while you’re young and better equipped to spend freely, you’ll see a much grander return on your investment than if you started later.
Take Advantage of Compound Interest
You may have heard of compound interest already. This term refers to the extra money that would be generated over the time of your investment. The sum of that extra money depends on your investment’s interest rate and longevity. By reinvesting the amount of money you initially invested plus the generated interest, your next return will be even greater. Essentially, compound interest is “interest on interest.”
This strategy is essential because, as a young person, you have ample time to build toward larger and larger returns from compound interest. A relatively small sum invested now can be reinvested later on in life to generate more considerable sums of wealth with each reinvestment.
Open a Roth IRA which will allow your savings to accumulate tax-free. When you ultimately receive distributions from the IRA they will not be subject to tax. Although you don’t get a deduction for contributing to a Roth IRA, as a young person, your top marginal tax rate is likely to be lower than it will be later in life. The ability to accumulate wealth on a tax-advantaged basis is one of the best ways to improve your lifetime net investment returns.
With wise reinvestment, you could retire earlier and with sizeable wealth at your command.
Take Higher Risks Safely
Every investment comes with a certain amount of risk. A more volatile investment runs the risk of losing that investment while promising a much larger return should the investment prove successful. As a young person, you’re better prepared to recover from a financial loss than you will later in life. For that reason, it’s much safer for you to take chances on the market. You can use this time to potentially make some excellent starting capital, learn more about investing, and better understand what risk means when it comes to an investment.
Improve Spending Habits
Investing does something interesting to the mind once you’ve taken the plunge. As you begin to invest, you’ll become more focused on your finances. You’ll start to categorize your spending, allowing you to separate wasteful spending from necessary expenditures.
You’ll naturally develop a budget for yourself, which is one of the most valuable pieces of financial knowledge to learn early on.
Enhance Quality of Life
Once you’re well into adulthood and various expenses are chipping away at your monthly income, you can look to your investments for a buffer. Successful investments can provide for you in place of other sources of income, giving you not only much greater comfort in life but greater mobility, as well.
Once your investments start to pay off, you won’t have to rely as much on a job you dislike or perhaps a job that’s no longer available. Losing a source of income won’t be as frightening to you as it is to most because the returns on your investment will be there to support you between jobs or projects.
Life doesn’t always go as planned. More often than not, it unfolds in ways we least expect. Usually, when something happens that affects you negatively, it impacts your finances. If something unfortunate happens in your life that would translate into a financial burden or unfortunate expense, you can rely on your returns to keep you afloat.
Where others who hadn’t invested early on might be struggling with unstable income or locked to a paycheck-to-paycheck lifestyle, you’ll enjoy the ability to spend more freely. With good investments comes stability as well as wealth. With an excess of wealth, you can invest in creative projects or business ventures that interest you or even lend to others.