When you’re young, it’s hard to get excited about investing. I mean there’s not much short-term satisfaction when the results of your efforts won’t be realized for another thirty or forty years. But, investing at a young age is the smartest, and easiest way to build massive wealth.
So, if you’re a young investor looking for some motivation, or just considering whether or not it’s a good idea, here are my top ten reasons to start investing early.
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#1 – Your Expenses Are Low
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, 5 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 $400. I was spending $200 per month on food, around $60 on gas, oh, and $11 per month on renter’s insurance. 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 (which I’m told will add a few more expenses), and though our renter’s insurance is still cheap, we have added term life insurance to the mix.
Ok, that was my long-winded way of telling you to take advantage of your financial youth, and invest your money.
“If ever, in life, your expenses are low,
Take to investing and watch your wealth grow” –me
Poetry about personal finance? Bet you didn’t see that coming.
#2 – The Power Of Compound Interest
Have you ever heard somebody say, “make your money work for you”?
Well, they were referring to the power of compound interest. And while you might understand the basic concept of earning interest on interest, the more important side of that coin, is why it matters to your life.
You see, as you start your professional career, your life will rely on your paycheck. And for non-investors, this is how life will remain.
But, for investors, and particularly the investors that started early, over time, your annual salary will be outpaced by your investment earnings.
Let me give you an example, if you invest $1,000 per month in a mutual fund that earns a 10% annual return from the time you are 20, until you are 45, (and reinvest your earnings) you will have over 1 million dollars in investments. Which means, at a 10% return, you will be making an extra $100,000 per year, just because you let the power of compound interest work its magic.
The even better news is that if you keep investing $1,000 per month until you’re 65, you will have approximately 9 million dollars. And 10% of 9,000,000? 900K.
I’d say that’s a pretty good annual income.
This is why people can live off of the interest of their investments, and stop relying on a paycheck.
“Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” –Albert Einstein
#3 – Valuable Experience
You can’t become a world-class painter without spending tons of time painting. Likewise, if you want to be an experienced, wealthy investor, you need to spend years — you guessed it — investing.
There is no substitute for experience. So, why not start gaining that experience at a young age?
That way, down the road, when all your friends are learning how to invest, and lamenting the years they should have been investing, you will have the experience and wisdom of a seasoned pro.
Plus — and this is a majorly important point — your investing experience will help you see through the lies and shysters out there.
I guarantee you’ve seen these crooks at some point. They’re the people that claim they’ve developed an algorithm to beat the stock market. Or, my personal favorite, the ones that will supposedly ‘reveal their secret to quick wealth’ if you just spend $250 to go to their conference. (Umm… your secret to wealth is scamming people out of their money.)
Experienced investors know that time and consistency are the keys to wealth, because they’ve seen the combination of those two things work in their own lives. And your experience will help you see through any lies that claim something different.
#4 – You’ll Form Better Financial Habits
The beginning of your financial life can be either the most dangerous time, or the most beneficial.
This is the time when you start forming financial habits. And while the majority of people use this time to form bad habits like, spending more than they make, taking out loans to purchase things they can’t afford, and opening more credit cards because they’ve been led to believe their credit score is more important than their net worth (I know, because I was one of them), you will be forming good, prosperous, wealth-building habits.
Seriously, good investors avoid debt, because they like to earn interest, not pay it. Good investors spend less than they make, because they like having money to save and invest. And, good investors learn patience, because without it, compound interest won’t have enough time to build momentum.
#5 – The Investing Bug
When you first start investing, you are planting a little seed that can bloom into a full blown passion. And once you start to see the power of consistent investing, you’re never going to want to stop.
This is what I call the investing bug. And the earlier you start investing, the more likely you are to catch it.
The investing bug will make you want to stay up late reading about index funds. It will interfere with impulse purchases, in favor of more investing. And it will make you want to go out and earn more money just so you can invest it.
It’s like catching a cold. Only, instead of feeling like crap, it gives you energy, and makes you wealthy. Ok, so it’s the total opposite of a cold.
#6 – Higher Risk Tolerance
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 your 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 5 years.
Remember, compound interest needs plenty of time to work its magic, and higher risk investments are no exception.
#7 – 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.
#8 – Investing Early Provides Financial Security
If you start investing at a young age, you will be securing your financial future. And let me tell you something, this life is hard enough without the added troubles that come from being financially unprepared.
In other words, early wealth provides you with a safety net in the event of an emergency.
Now, I realize that might not be the most motivating of all the reasons to start investing early. However, if the day comes that you need to rely on your wealth to get you through, you will be extremely glad it’s there.
Life is hard. Invest early, and be prepared.
#9 – Early Retirement
Despite what many pessimistic people will tell you, early retirement is an option if you start investing early in life. So, if you have dreams of retiring while you still have some spring in your step, you need to start now.
Don’t be one of those people that waits until their friends start retiring, to start investing. You have plenty of time, but it will slip away quickly. The sooner you start investing, the earlier retirement will become an option for you.
#10 – You’ll Regret It If You Don’t
It might seem a little cliche for me to say this, but the next ten years of your life are going to fly by. And if you don’t start investing now, before you know it, you’ll be looking back on years of financial opportunity, wasted.
Trust me, I’ve been there, and it’s an unpleasant taste.
When you choose to invest at a young age, you are making one of the wisest, and smartest decisions of your life. Not only will you be providing yourself with the means to retire, but you will be creating a life of security and freedom. At the very least, you will be forming the kind of financial habits that lead to wealth.
So, take a step toward wealth, and start investing early. Who knows, you might just catch the investing bug!