It can be difficult to decide to make the decision to start investing, especially if you feel like you don’t have a lot of money to set aside. However, the truth is that now is always a good time to start investing. Don’t miss out on what you can accomplish with your money when you combine time and consistency.
The Power of Compound Interest Over Time
The biggest reason to start investing now is compound interest. The idea behind compound interest is that your money makes money. When you are in debt, this is the principle that makes it feel so difficult to get out of the hole. Each time interest is earned, it is added to the balance, and then you pay interest on last month’s interest, addition to paying interest on the original amount that you borrowed.
When you invest, the same principle is at work on your behalf. Each time you earn money from investing, that money is put back to work for you, and you receive interest on your earnings. That compounding interest can be powerful over time. The longer you let it grow, the better off you are. On top of that, you can benefit when you consistently add money to your investment account. Your money keeps growing, you earn more interest, and your earnings continue to yield interest as well.
Don’t worry about how little you have to start. The important thing is to start now and get that much further ahead. You’ll be glad you did.
Start Small to Get in the Habit
One of the best things you can do is to start small in order to get in the habit of investing. Even if you only invest $50 a month, you can get in the habit. Make it a point to invest as much as you can each month. A good habit of investing carries over, and puts you in the mindset of growing your wealth.
A good way to start is with an employer-sponsored retirement plan. Not only do you receive a tax advantage for your contributions, but you also don’t have to worry about remembering to invest. If your employer offers a matching contribution, that’s free money that you can use to build your future. Even a small amount to start can be a good move, because you’ll get a match (up to a certain amount) for your efforts, and that can help you build your nest egg that much faster.
If you don’t use a plan from work, consider opening your own IRA. You can usually set up an automatic investment plan to ensure that money is transferred from your checking account into your investment account regularly. Building the habit, and making investing a priority is a good way to set up your future finances for success, and the earlier you start, the more money you’ll have — and the less “catch up” you’ll have to do.
If you do start small, though, it’s important for you to increase what you invest over time. Unless you’re 16, investing $150 per month isn’t going to cut it if you want to build your nest egg. Compound interest is powerful, but not that powerful. You will need to increase your contributions as your financial situation improves.
Each time you get a raise, or if you see a windfall, put more money toward your investing efforts. Starting small to get in the habit and start building works well at the beginning, but you will need to step up your efforts eventually if you want to build long-term wealth.