When you land your first job in your mid-20s, a world of expenses unfolds before you: rent, groceries, and daily travel costs, and more. Alongside th
When you land your first job in your mid-20s, a world of expenses unfolds before you: rent, groceries, and daily travel costs, and more. Alongside these new expenses, you’ll feel a strong temptation to spend your hard-earned money—perhaps on the latest gadgets or trendy clothes. However, amidst this whirlwind of financial responsibilities and desires, it’s crucial to consider the future. Just like an early riser has the best chance to catch the worm, beginning to invest early sets you on a path to greater financial success.
Listed below are 5 reasons why investing early can lead to a more secure future:
1. Helping to Shape Up Your Budget at an Early Stage
When you start investing early, say with a portion of your first salary of AED 5,000, you’re prompted to set aside money regularly. This could mean putting away AED 500 each month into an investment. This habit forces you to prioritise your spending and save before you spend, rather than spending first and saving what’s left. Over time, you’ll find that this disciplined approach not only grows your savings but also streamlines your spending on essentials.
2. The Power of Longer Investment Horizon
Imagine you want to save AED 100,000 by the time you’re 40. If you start at 25 rather than 35, you can invest a smaller amount each month because you have more time. For example, starting at 25, you might only need to invest AED 833 per month for 15 years, while starting at 35 could require you to double that amount. The longer investment period reduces the financial pressure, making it easier to commit to your investment plan.
3. Unlock the Magic of Compounding
Compounding is like a financial snowball effect. The earlier you roll it down the hill, the bigger it gets. If you invest AED 1,000 at an annual interest rate of 5%, in one year, you’ll earn AED 50. If you reinvest your total amount, the next year you will earn interest on AED 1,050. Over 20 or 30 years, this effect significantly multiplies your earnings, turning a modest initial sum into a significant amount.
4. Earn Higher Gains
When you are in your mid-20s, you can afford to take more risks with your investments because you have more time to recover from any losses. For example, you could invest AED 2,000 in a high-risk, high-return investment. If it doesn’t perform well, you have years to recover the losses through your salary or better investment strategies. As you get older, you’ll likely shift to safer investments to protect your wealth, so starting young gives you a chance to potentially increase your returns.
5. Take Advantage of the Wealth Accumulation Formula
Staying invested for a long time can significantly increase your investment’s value. For example, if you invest AED 1,000 every month from age 25 to 65 in a fund that averages a 6% annual return. By the time you retire, you’d have contributed AED 480,000, but thanks to compounding, the actual value of your investment could be over AED 1.5 million. Starting early not only gives your money more time to grow but also allows you to accumulate a larger total sum, or corpus, by retirement.
Early Investment: A Shortcut to Savvy Spending
Starting to put money into investments early is a smart move. Think of your money like seeds. Invest them early, and you give it plenty of time to grow into a big corpus. If you begin now, even with a little bit from your first job’s pay, you’ll be on your way to having more money later. This is because your money gets more time to grow bigger, just like magic. And, if things don’t go as planned, you’ve got lots of time to fix it. So why wait? Start investing today, and your future self will thank you for the extra money you’ll have when you need it most.