The earlier in life that you start investing, the more likely it is that you will enjoy your retirement or generally achieve financial security in life. In other words, you will be in control of your professional and personal lives because you can choose to take a job or not take a job based on factors other than money. That is why it is essential for you to start learning about investing now. Here are some reasons to start looking into investing as soon as possible.
Get Into the Habit of Contributing to Your Portfolio
The earlier that you start investing, the easier it will be to get into the habit of saving for the future. Even if you just put a few dollars a week away for retirement or into a personal investment account, it will be enough to get you into better financial habits. As you see your account balance grow each day, week and month, you will be more motivated to continue saving for future needs no matter how long it is until you need that money.
Contributions May Grow Tax-Free
Contributions made to a 401k or IRA generally grow tax-free until you start making withdrawals. With a Roth account, you don't pay taxes while the cash is in your account or when you take it out because it is taxed when you earn it. Either way, there is a potential to earn hundreds of thousands of dollars without paying capital gains taxes on that money.
Lower Your Current Tax Burden
A contribution made with pre-tax dollars lowers your taxable income for the year. Therefore, you could find yourself saving hundreds or thousands of dollars in addition to whatever returns you earn on the money that you put into the market. You may also be eligible for a separate tax credit just because you saved for retirement in the past tax year.
Take Advantage of Compounding
Each year that your money is in an investment account, it will grow an average of 7 percent. However, your portfolio will grow faster than that because of compounding. Let's say that you had $100 that you invested into an account that earned 7 percent in its first year. After that first year, you would have $107, and in year two, you would earn another 7 percent on that $107 balance, which would translate to $7.07. This exponential growth will continue each year that you keep your money in that account.
You Don't Need to Save as Much Each Pay Period
Thanks to the magic of compounding, you don't need to contribute as much each pay period if you start when you are younger. Ideally, you will start to save when you get your first job as a teenager. Those who start investing at age 16 may only need to contribute $100 per month to have the same ending balance as a 56-year-old who contributed over $2,500 by the time each were 66.
Learn How to Become a Better Investor
Over time, you will learn how to become a better investor as well as better at managing your money in general. This is because managing your money at a younger age forces you to learn about interest rates, rates of return and other relevant industry lingo. It also forces you to find objective and reliable sources who can help or guide you along the way. Doing so can be helpful for yourself as well as others in your social circle who may need helping with their finances.
No matter how much you can contribute, it is in your best interest to start investing as soon as possible. This gives you more time for your money to compound, which can increase your portfolio as well as helping you save on taxes along the way.
About the author: Kara Masterson is a freelance writer from West Jordan, Utah. She graduated from the University of Utah and enjoys writing and spending time with her dog, Max. She strongly recommends you read books on investing if you're looking for more information.