I assume that most of us are familiar with the saying the early bird catches the worm. This proverb tells us to act early or right now to be successful. The same principle holds true when it comes to investing because investing early gives us certain advantages that will multiply our money over time and create more wealth.
For people like me who earns a living either through employment or by having their own business, we try to look for other means of growing our hard-earned money. However, there is this widespread misconception among Filipinos that investing and saving money in the bank are one and the same. According to the Merriam-Webster dictionary, investing is committing money in order to earn a financial return. Investing makes one an investor of a particular company where he puts his money into and by becoming so, that individual can expect a part of the company’s profit as his return of investment. Saving money in the bank, on the other hand, is different. A bank depositor basically does not have to commit a particular amount that must be put in the bank, although banking institutions require a minimum deposit before anybody can open an account with them. The main purpose of saving money in the bank is basically just for safekeeping or to preserve it without much regard for growth. It is the bank that utilizes the money from all their depositors to fund their own investments with other companies. This way, they earn profits which they use to pay for the interest rates of their depositors. This whole scenario gives us an idea that people who fail to invest or are not into investing are losing a lot more than what they thought they would by doing so.
Now with these in mind, let me give you important reasons why it is wise to invest early:
1.) The Extraordinary Power of Compound Interest
A lot of financial gurus and authors have defined compound interest as a “miracle’. Some even called it the “greatest invention the world has ever produced.” But what exactly is compound interest? The Merriam-Webster dictionary defines it as interest paid both on the original amount of money and on the interest it has already earned. This is the formula that has made billionaires out of famous personalities such as Warren Buffett in the international scene and Manuel V. Pangilinan, the Ayalas, and Henry Sy to name a few, here on the local front. Just to give you an idea on how amazing this thing works, let us look at this example. Let us say Investor-A at age 25 invested ₱12,ooo every year for 15 consecutive years and let us assume that compounding interest is at 10% annually, his projected total money by the time he reaches age 60 is a staggering ₱3,103,641! Now, compare this with Investor-B who at age 35 invested ₱24,000 every year for 25 consecutive years and assuming that compounding interest is the same at 10% annually, his projected total money by the time he reaches age 60 is just ₱2,855,998. From this illustration, we can see that even though Investor-B invested the bigger amount of money and relatively saved 1o years longer, it is still Investor-A who will have the bigger gain by the time they opt to retire at age 60.
2.) Less Financial Responsibility
This one here may vary from household to household but in general young people of the working class have less financial obligations, and thus are in a great position to invest early on in life. This is especially true in situation when they only have their own needs to look after because their parents are still working, earning and capable to sustain the family’s financial needs. Millennials of this generation should take advantage of this opportunity in order to gain a good head start in achieving their life goals.
3.) Develops Good Saving and Spending Habits
Investing at an early age can also form the good habit of saving. Saving money is all about having the right discipline and it entails avoiding the temptation of spending mindlessly. By having the investor’s mindset, we learn to sacrifice today’s enjoyment for tomorrow’s comfort.
4.) Better Preparation During Times of Financial Crisis
Life is full of uncertainties and we do not know exactly when a major financial crisis would strike. These financial crises can be in the form of job loss, business loss, natural calamities, illnesses, disabilities, health emergencies, accidents or death. Investing and saving ahead of this events will make us better prepared to handle these situations. It will also give us and our loved ones enough time to recover and move on in life.
5.) Improved Quality of Life During the Twilight Years
Our golden years is meant to be an enjoyable experience where we can spend time and create awesome memories with our loved ones. This is also the perfect time for some relaxation and travels here and there with family and friends. Investing early and setting aside enough funds to cover for these life goals will ensure that we spend our twilight years the best way possible.