Investing, as with anything in life, benefits from an early start. The earlier you begin planning for retirement, the greater your potential return on investment.
This holds true for both civilians and military members. By taking advantage of your youth, you can get a head start on saving for your future.
However, if you’re not sure about the benefits of early investing, here are five reasons why it’s best to start sooner than later.
1. Time allows you to take risks
Typically, when it comes to investing, ventures that are more volatile yield the highest return on investment. Investors, who have the time to recover if something were to go wrong, have the opportunity to make riskier moves.
Those who begin to invest late in life are often inherently more cautious with how they invest their money.
2. Compound interest really makes a difference
Essentially, compound interest is the interest earned on interest. By continuously reinvesting your earnings, you are exponentially increasing your return on investment.
Savvy investors understand the benefits of investing early and taking advantage of the potential gains from compound interest. To help you understand how time and compound interest are related, here’s an example:
Twenty-five year old Madison invests $2,000 annually over 10 years in her company’s 401(k), with an average growth of 10 percent. When she retires, at the age of 65, her investment would have grown to $556,197.
On the other hand consider Cooper, age 34, who invests $2,000 annually over 30 years into his 401(k). At age 65, Cooper who has invested three times as much as Madison, will have $328,988 in his retirement account.
In this example, Madison, who began investing early and gave her money time to earn compound interest has $225,000 more than Cooper to spend during her retirement.
3. Your spending habits will improve
Investing early allows you to develop disciplined spending habits by focusing on your budget and cutting expenses when needed. The goal here is to earn money by saving money.
This is impossible with poor spending habits and a life full of impulse buying. Through early investment, the lessons learned will pay off in the long run, especially, when you have even more capital to work with and restraint is needed.
4. Be a step ahead of everyone else
The early bird gets the worm is an idiom worth adhering to. The earlier you begin investing, the better your personal financial situation will be down the line.
Compared to your counterparts, who may have chosen to invest later in life, over time you will be able to afford things that others can’t.
Additionally, at some point your finances may become unstable, but by investing early you’ll be prepared to face such hardships.
5. Your quality of life will improve
Military members who invest in retirement plans such as a Thrift Savings Plan, 401(k) or Roth IRA are taking steps toward an improved quality of life. Early investment will reduce the risk that you’ll be forced to make reckless choices to secure a stable retirement.
Photo thanks to qmnonic under a creative commons license from Flickr.