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If you are young, passionate and driven, you are probably thinking about giving yourself and maybe the family you want to build a pleasant future. On the other hand, if you are on a fence or have difficulty imagining your future, there is still enough reason to consider the here and now a resource for your future selves. Investing at a young age is a decision that will only benefit you later. In this article, Daniel Calugar discusses all the reasons why you should invest right away instead of waiting.
Enjoy your return when costs are high
Time is your friend if you invest while you are still young for several reasons. For starters, as a young person you probably have less expense and more time to invest.
When you are independent and rely entirely on yourself, you will need to set aside money for rent, utilities, food, health insurance, car insurance, car payments, and so on. Until then, a lot of your finances will be tied to supplies and you are not guaranteed to bring in enough income to make up the difference.
If you have invested wisely while you are young and better equipped for free spending, you will see a much higher return on investment than if you started later.
Take advantage of complex interest
You may have heard of compound interest already. This term refers to the extra money that would be generated during your investment. The sum of that extra money depends on the interest rate and longevity of your investment. By reinvesting the amount of money you originally invested plus the interest generated, your next return will be even greater. Basically, compound interest is “interest on interest”.
This strategy is crucial because as a young person you have enough time to build towards higher and higher yields from compound interest. A relatively small amount invested can be invested in life later to generate significant amounts of wealth with each reinvestment.
Open a Roth IRA that will allow your savings to accumulate tax-free. When you finally get the distribution from the IRA, they will not be taxed. Although you do not receive a deduction for contributing to the Roth IRA, as a young person, your maximum marginal tax rate is likely to be lower than it will be later in life. The ability to accumulate wealth on a tax-friendly basis is one of the best ways to improve your return on net investment over your lifetime.
If you invest wisely, you could retire earlier and with great wealth at your command.
Be sure to take bigger risks
Every investment comes with a certain amount of risk. A more volatile investment risks losing that investment, while promising a much higher return if the investment proves successful. As a younger person, you are better prepared to recover from a financial loss than later in life. For this reason, it is much safer to take risks in the market. You can use this time to potentially make a great start-up capital, learn more about investing and better understand what risk means when it comes to investing.
Improve spending habits
Investing does something interesting for the mind once you dare. As you start investing, you will become more focused on your finances. You will begin to categorize your spending, allowing you to separate wasteful spending from your required expenses.
You will naturally develop a budget for yourself, which is one of the most valued financial skills to learn early.
Improve your quality of life
When you enter adulthood and various expenses take away your monthly income, you can look for a buffer for your investments. Successful investments can provide you with a place of other sources of income, giving you not only much greater comfort in life but also greater mobility.
Once your investment starts to pay off, you won’t have to rely so much on a job you don’t like or maybe a job that is no longer available. Losing a source of income will not intimidate you as much as most because your return on investment will be a support for your job or business.
Financial security
Life does not always go as planned. It often happens in the ways we least expect. Usually, when something happens that negatively affects you, it affects your finances. If something unfortunate happens in your life that would turn into a financial burden or an unfortunate expense, you can rely on a comeback that will keep you afloat.
Financial freedom
Where others who didn’t invest early can struggle with volatile incomes or are attached to a paid lifestyle, you’ll enjoy the opportunity to spend more freely. With good investment comes stability as well as wealth. With excess wealth, you can invest in creative projects or business ventures that interest you or even lend to others.
About Daniel Calugar
Daniel Calugar is an experienced investor with prior knowledge of business, law and informatics. Technically, he developed a strong interest in computer science early on, pursuing it shortly before earning a degree in business and law. Dan Calugar developed a passion for finance while working as a pension lawyer. He used his technical skills to build computer programs that would analyze huge amounts of data and research trading strategies to identify more profitable investments, enabling him to succeed as an investor. Dan travels with his life partner and family in his spare time or finds new ways to support the Angel Flight Organization.
