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5 advantages of saving early

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Most of the young generation in India thinks planning finances is an old man's game. However, it is always in the best interest of an individual to start planning their income and expenditure from a young age. A rupee invested today is worth more than a rupee invested tomorrow. The sooner one starts, the greater the benefits.

Following are the underlying benefits of starting to plan your finances early: 
  1. Power of compounding: The most important reason why one should start planning at an early stage is the power of compounding, which allows you to earn extra money on the interest received from investments. So when you start saving early and continue this till a substantial amount of period you can earn more in the form of the interest. This also gives you the cushion to save in lesser amounts. 

    Details

    X

    Y

    Amount Invested

    Rs 4,000 per month

    Rs 8,000 per month

    Number of years saved for

    35

    25

    Total amount invested

    INR 16,80,000

    Rs.24,00,000

    Rate of return

    10 per cent

    10 per cent

    Amount at the age of 45

    Rs 1.15 crore

    Rs 1 crore

  2. Financial Discipline: The other underlying advantage you get by starting early is learning financial discipline. If you make sure that you invest some amount of your salary upfront, you know exactly how much you are left with. In the process of saving you develop the habit of spending less. You start differentiating between what you need and what you want. This automatically brings the much needed financial discipline in life.
  3. Manage your investment risk better: The only certainty about markets is their uncertainty. Time and again, the capital markets have favored investors with long investment horizons. A long time horizon ensures that the effect of the inevitable market volatility is minimized. So by starting early you give your money that extra time to mitigate the market risk and come out a winner. 
  4. Correct your past financial mistakes: Most of us have been prey to a bad financial decision. Often, at an early phase while defining our portfolio allocation, we generally make mistakes in choosing the best one that suits us. By starting early, you are giving yourself that extra time to correct any past financial mistakes. The other advantage is that since you save lesser amount at younger ages, the mistakes might not prove to be that costly.
  5. Mitigate risks of life better: When you begin saving early, you can make sure that you have enough financial support in the form of emergency fund to counter any emergencies of life. This also helps you feel more secure and puts you away from any financial distress.

Nitin Vyakaranam is the founder and chief executive officer, ArthaYantra, an integrated online personal finance company.

Disclaimer: The opinions expressed in this article are the personal opinions of the author. NDTV Profit is not responsible for the accuracy, completeness, suitability, or validity of any information on this article.

 

Story first published on: April 01, 2013 14:02 (IST)

Tags: Savings, Investment, Investment tips

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