The Importance of Investments and Why You Should Start Early

Not many people realised the importance of investing. Not many people understand why they should do it, and how to go about doing it. I believe that investing is one of the most important thing in life a person should do. So, this post will discuss about why investing is important and why you should begin early.

In life, there are so much more important things than money. Point taken. However, you need to remember that money plays a big part in nearly every aspect of our life. The computer you are using right now, well, that requires money. The clothes that you’re wearing right now, requires money. Your tertiary education, also requires money. That’s why it is so important to understand about money itself and how to go about managing it.

“Succeed conquering money and you shall live a gratified life”

The main idea of this post is to project the importance of beginning early. A lot of people that I met or knew, don’t even bother about investments. People of my age or people older than me, a lot of them are the similar when it comes to investments. They have the mindset that, oh well, I still have a lot of time to deal with this matter. Now, I’m not generalising or anything. Plus I’m not saying everybody is like this. I’m just saying that a big proportion of people in our society has this mindset. I would like to, however, focus on people around my age. The youths.. They have so much time in their hands that if they use it properly, my God, Malaysia would have been one of the greatest and wealthiest nation of the world.

Let’s think about this for a moment. Assume there’s two persons. Person A is 20 years old, person B is 25 years old. Assume that both intend to invest a sum of money until they’re 50. So, by right, Person A has 30 years and person B has 25 years. Assume also both has $10,000 to invest and the investment earns at 15% per year. Look at the scenario and let us see who will end up with a larger sum of money:

Person A puts away $10,000 as an investment for 30 years and earns 15% per year on that investment with all the profits reinvested:

At the end of the 30th year, person A’s investment of $10,000 would have become $875,409.95

Person B puts away $10,000 as an investment for 25 years and earns 15% per year on that investment with all the profits reinvested:

At the end of the 25th year, person B’s investment of $10,000 would have become $415,441.20

As you can see here, all the variables are the same except the timeframe each has. The difference of their investment at the end of the day is an astounding $459,968.75!!! Just an extra 5 years would have landed you 100% more money! Now you see why it is important to start early?

Still not convinced? Well, read on…

Most people dreamed of getting married and raise a family. Having kids of your own is a dream for most people. Well, I’m talking about myself anyway! Also, I’m sure you want your kids to get the best education available and graduate from the best tertiary institution. Bear in mind that cost of sending your children to university increases all the time. In Malaysia, a degree would set you back around RM50,000. If you plan to send your kids overseas, it’ll be around RM200,000 to RM300,000. That’s a helluva lot of money I tell ya! Remember, in the future, it’ll cost more than this. You need to also take into account the effects of inflation (I’ll talk about this in another article). So, how do you plan to get the money? A lot of parents have the mindset that, ahh, it doesn’t matter, my kid is smart enough to land himself/herself a scholarship. Hmm…. Hundreds of kids fighting for one scholarship… If you want to gamble with your children’s future, then it’s your choice. Personally, I wouldn’t rely on scholarships. What are your other options beside scholarships? Well, there are study loans. The downside of this, after the end of the study, you have to pay back the money and remember, most study loans have interests attached to them. Some even as high as 9%! Now you do not want to burden your kid in the future do you? Imagine them starting a job earning $2,000.00 per month and then they have to use a quarter of their paycheque to pay off their study loan. Well, there goes the desire of buying a house or a car.

What is the next best option to find money for your kids education then? Well, here’s how investing early could help you!

In fact, you should start way before your kids were ever born. If you’re 20 now and you plan to get married and have babies at 25, then you have 5 years to kick-start your investing effort.

Within these 5 years, try to find some capital to invest. Assume at 25, you managed to save $10,000, set this aside as an investment towards your kids education. Invest this money until your kid is 18 and you’ll have $146,327.81 (Assume the investment earns 15% per year with profits reinvested). More than enough to fund his/her degree locally isn’t it?

As illustrated in these scenarios, I hope the persuasion power is strong enough to get you to start investing early.

Just imagine how satisfying it would be if you could pass down your legacy to your kids, grandkids, and so on.

In a Friday prayer’s khutbah I attended recently, I was told that even giving money to your own family is categorised as Sadaqah.

Another thing, as a muslim, we have always been reminded that we shouldn’t delay committing good deeds because we just do not know when will we be taken away by God. Well, put that in the context of investing as well..

About nadlique

This blog is about the journey of a 28-year-old Malaysian towards financial freedom. This blog was started back when the blogger was 21 years old. However, his journey towards financial freedom had begun way before that. Materials such as investing, business, entrepreneurship, equities, and real estate are presented. The author also posts his thoughts and observations on life in general.

Comments

  1. Dashawn Claiborne says:

    I agree with this comment 100%, but to add to this… i think the banks should let the younger people know more about this whole system.

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