The earlier you start saving and investing, the better. But how much difference does it really make?
Let’s get straight to the comparison.
There are 3 people – Amar, Akbar, Anthony. To keep the calculation simple, let’s assume all three people will invest a small sum of ₹ 2,000 every month (₹ 24,000 every year). All 3 will invest till they retire at the age of 60.
The yearly returns are calculated at 12% per annum – which is possible from mutual funds or direct equity investment.
The only difference – Amar starts investing at the age of 18. Akbar at 24 and Anthony at 30.
|60||2.48 crore||1.25 crore||62 lakhs|
Some points worth noting:
- Amar starts investing at 18, Akbar at 24 and Anthony at 30.
- Amar has invested just ₹ 1,44,000 (₹2,000 per month for 6 years) more than Akbar and ₹ 2,88,000 (₹2,000 per month for 12 years) more than Anthony.
- But in the end, Amar has earned ₹ 1.23 crore more than Akbar and ₹ 1.86 crore more than Anthony!
- Because Akbar started 6 years earlier than Anthony, he has invested ₹ 1,44,000 more, but at the retirement age of 60, Akbar has 62 lakhs more than Anthony!
- Also if you notice in the table above, Amar would have as much money as Anthony by the age of 48 itself.
The above calculation shows the true power of compounding.
Starting early means, you can enjoy the power of compounding at an early age. You can spend your own hard-earned money when you are healthy.
Those who start late after the age of 35, would either have to work extra hard to save a lot of money for retirement. Or they would have to wait till the age of 70-75, to get the true benefits of compounding.
If you start earning, saving and investing wisely between the age of 18-24, you can accumulate a lot of wealth by the age of 45. This is what a lot of young people today aspire – financial freedom.
Another point that’s often missed. It’s easier to save money between the age of 21 – 28, when you are single and do not have the responsibility of a family.
In short, it takes around 20-25 years for the magic of compounding to really come into effect. The more time you give, the better the results!
So start early, be patient and invest wisely.
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