Investing should be a very important part of your life. Unfortunately, many people don’t understand the importance of this and simply ignore investing saying many excuses. The common excuse most people say is they don’t have enough money to invest.
How You Can Save Money to Invest
If you think you don’t have enough money to save, first you should record your all monthly expenses and take a closer look at it. You may find many unnecessary expenses you have incurred during a single month. You can cut those unnecessary expenses down. One of the famous personal finance quotes by Warren Buffett is “Do not save what is left after spending, but spend what is left after saving”.
Why You Should Invest?
Broadly, there are two ways you can make money. They are, working for someone and invest in your assets so that they increase in value over time. But there is a point where you can no longer work for someone when you reach your retirement age. By that time you should have invested in your assets to be financially secured.
How Much Money You Should Invest
You don’t need to invest hundreds or thousands of dollars per month to make it worthwhile. But you must ensure that you invest at least 20% of your annual income consistently.
How Your Investments Grow With the Time
Let’s see what you will have after 20 years if you invest $ 50 a month for 20 years. Before factoring interest component, $ 50 a month adds up to $ 600 a year. over 20 years, it is $ 12,000. If you were to invest this $ 600 at the end of every year for 20 years at a return of 10% p.a you would have $34,365 at the end of the 20th year, this is the magic of compounding. I believe you will understand the importance of investing better if you think this way, “how much money I will lose if I don’t invest $ 50 a month”.
You lose roughly $ 22,000 if you don’t invest this $ 50 a month.
Some might ask how much this $34,365 worth in another 20 years. Assuming an inflation rate of 2% this $ 34,365 still worth $ 23,126 after 20 years from now.
Where You Should Invest to Earn a 10% Return
In the USA you will earn only around 1.5% p.a by investing in a savings account, But there are lots of alternative investment opportunities that will earn you a 10% return per year. For example, the S & P 500 index has an average return rate of 10%.
Don’t Lose by Ignoring the Importance of Investing
Investing some money is better than wait without investing any money. So, start investing today itself. The longer you wait, the more you lose.