HOW TO BE POOR. LESSON 3: START BIG
9/10 people in their 20s don’t invest because ‘why invest such small amounts, what good will it do?’ ‘I will start investing when I have more money’.
While this may seem a fair point; one couldn’t be further from the truth. Why do we say so? There are two reasons. Let’s start with the issue of compounding itself.
Small Amounts can make a Huge Impact
Even small amounts if invested for a long time can snowball into a large number. A 25 year old is able to invest for approximately 35 years (till the age of 60). The following calculation shows the impact of investing just Rs. 1 every month
What if this individual could invest Rs. 10 per month? He would have Rs. 1,21,600 at the end of 35 years. What about Rs. 1,000 per month? The answer is 1,21,60,000. This is the magic of compounding! Just 1000 rupees a month can make a 25 year old, a crorepati by the time he retires.
Don’t wait for your salary to increase
“I can at best save 4000 rupees. What good will that do? Why don’t I wait till I can save say, 10,000 rupees, that’s when I’ll start investing!”
This is the well reasoned excuse most people in their 20s & 30s give when asked why they’re not investing. The numbers are different for all, but the underlying thought is the same.
Numbers prove otherwise.
Let’s assume the following:
- You are 25 years old and you can save 4,000 rupees per month
- Your salary and consequently your savings increase by 12% every year. So next year you’ll save Rs. 4,800 and so on
- Your investments grow at 15% per annum
- You invest till the age of 60
Now let’s compare two scenarios.
Scenario 1: You start investing at 25 at the rate of Rs. 4000 per month
Scenario 2: You wait till you can save Rs. 10,000 every month and then start investing. With the above assumptions, you will start investing at the age of 33.
This is where the two approaches would take you.
The small amounts that you set aside for investments at an early age increased your wealth by almost 50%.
You can also try out our calculator on the price of delay.
However little you may have, start investing. It all adds up in the end.
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Or read Lesson 4