There is one famous Chinese story which would relate to this question of why it’s being repeated by experts that begin investing at an early age. Here’s go like this-
“The seed of a bamboo tree is planted, fertilized and watered. Nothing happens for the first year.There ́s no sign of growth. Not even a hint. The same thing happens – the second year. And then the third year. The tree is carefully watered and fertilized each year, but nothing shows. No growth. No anything. For eight years it can continue. Eight years! Then – after eight years of fertilizing and watering have passed, with nothing to show for it – the bamboo tree suddenly sprouts and grows thirty feet in three months!”
This same thing happens with the investment- when you start your money plant sowing at a younger age and then let it grow for a longer period; eventually, it will become the giant tree.
Let us give you an illustration on this;-
Let’s assume you are 20 years old and recently got a new job. Currently, you don’t have any liability, and hence you are free to do whatever you want with your monthly salary.
So, you don’t start saving not even a single penny and spend all of it at discretionary purchases for the next 10 years till the age of 31 years. Now, on your 31st Birthday, you heard about investing from your friend, and you realized “I need to save a bit of money for retirement,” And then you start investing Rs 10,000 per month for the next 29 years till retirement.
So, assuming a 10% annualized return on investment, you will invest a total of Rs 34.8 lakh
How much money you will accumulate until the retirement age of 60 years?
So, you will end up with an amount of Rs 2.03 crore. Not bad!
Now, just think what if-
You had started a monthly SIP of Rs 10,000 when you were 22 years old, but you start saving for the first 10 years then you stopped this sip because you wanted to switch this SIP amount for another financial goal. However, you kept invested this amount until the retirement age of 60 years.
Do you know how much corpus it would have been generated in this situation?
With Rs 10,000 Rs per month, you will invest a total of Rs 12 lakh. But at the age of 60 years, you will end up with an amount of Rs 3.2 crore.
Conclusion: In case 1, you invest 34.8 lakh and it resulted in 2.03 Cr. In the second scenario when you start investing at an early age of 22 years for the initial 10 years, you invested 12 lakhs only but it resulted in Rs 3.2 crore.
With almost ⅓ of the investment amount, you could earn almost 1 cr extra amount, this is because of the power of compounding which helps you to compound your money faster when you start investing at an early age
What lesson you learned: A small financial decision you take at a younger age could change your financial situation.