People often say, “I have time to invest,” or “I’ll invest when I have the money.”
It’s tempting to think that if you live frugally and skip a few vacations, you’ll be able to save for retirement. Unfortunately, this is the wrong way of thinking about investing, and it doesn’t work that way. The real problem is not how much you spend but how much you earn. If your income is increasing faster than inflation, then it’s easy to save money. That only happens when you’re in the workforce. When you’re retired, inflation starts eating into your savings.
If you don’t invest on time, you will always end up playing the catch-up game.
The most important factor, commonly ignored in successful long-term investing, is compounding returns. Compounding returns refer to gains made on gains. When you’re younger, you have more time for your investments to grow and compound. This means that as long as you make smart investments, your future self will thank your younger self for starting early because you won’t need to save as much each month when you’re older. The earlier you start investing, the better off you’ll be during retirement.
If you save less early on and don’t adjust by saving more near retirement, you might also experience a lower standard of living once you leave your job than if you’d saved more from the get-go and invested it properly.
This happens because people who’ve been investing for decades will probably have enough money in their accounts to live off dividends or monthly payouts from investments without touching the capital itself.
But that doesn’t mean you should be discouraged from saving now. It just means you’ll have to make up for the lost time by putting away more each month and taking on some risks than when you were younger (since you have fewer years to make up for any losses).
If you start your investment journey early, your future self will thank your younger self for making the right decision at the right time.
Note to the next generation
The advantage of being the next generation is that you have the benefit of learning from your previous generation. Do you want to take a quick leaf from your parents’ book, or would you want to play the catch-up game just like they did? The investment mindset will help you not just in savings, but in your holistic development in your life journey, such as designing life goals, setting growth trajectories, being patient, managing change, and making the right decisions in your future endeavors.