When people think of creating wealth and financial health, they’re often led to believe they can tackle a savings regimen later in life, when they’re earning better money. While that is plausible on the surface, it doesn’t play out in real life. The fact is, when it comes to savings, starting earlier is more beneficial than saving more money later on. For unexpected expenses along the way, a 10000 personal loan can provide quick financial support without derailing long-term savings goals.
Why? Because time is the most valuable resource within personal finances. Paired with the wonder of compounding, even small contributions at a young age can balloon into quite a sum later.
In this blog, we will analyse how saving early matters so much, how compounding increases your savings, and why contributing small amounts regularly is better than waiting for the “right time.”
The Influence of Time and Compounding
At the centre of the savings journey is compound interest- the idea where your money earns interest, and then the interest starts to earn interest. Over the years and decades, this creates exponential growth.
For example, let’s say you start saving ₹5,000 a month at age 25 and have an average annual return of 10% a year. By age 55, you will have contributed ₹18 lakh. However, your savings have grown into more than ₹1.15 crore due to compounding.
Now, let’s say you start saving at age 35. If you continue saving ₹5,000 per month until age 55, you will have contributed ₹12 lakh. Then again, your savings will have only grown to about ₹44 lakh. In terms of savings, that’s a massive difference of ₹6 lakh.
The point being made is simple: the sooner you start, the more time your money has to grow.
Why Larger Contributions Later Fail to Work
It is only natural to tell yourself, “I’ll save more when I earn more.” Unfortunately, starting late can make it extremely hard to catch up, regardless of how much you save later.
To explain the point, consider two friends:
At 25, Ravi starts saving ₹3,000 a month and stops saving by 35 after a total of ten years. In total, he contributes ₹3.6 lakh.
Suresh starts saving at 35, saving ₹5,000 a month until age 55. In total, he contributes ₹12 lakh.
By age 55, Ravi’s savings will amount to more than Suresh’s savings, and indeed, all Ravi did was save for ten years, and substantially less than Suresh did.
How is this possible? This is the beauty of compounding. Time wins over a better amount.
Fostering Good Financial Habits During Your Young Adult Years
The rewards of saving early extend far beyond figures. Saving early in your life is beneficial because it develops a habit of financial discipline that will last your life. Because you’ve built this habit of saving from your very first paycheck, you will be far more likely to live within your means and not succumb to lifestyle inflation.
You can think of saving money as paying yourself first. Instead of accumulating what remains after spending your entire paycheck, flip the amounts around: prioritise even a small amount to save first, and you will feel good about spending guilt-free on your bills and expenses. This mindset prioritises your long-term financial goals and wants over your short-term wants.
By the time responsibility grows (if you take a loan or have children), saving will become a habit that has been integrated into your financial life. Putting yourself first later only gets more difficult because expenses rise along with your income.
Protection Against Life’s Uncertainties
Life does not work out as planned. Unexpected events occur, from getting laid off to medical expenses to simply unexpected expenses. The lower the level you save, the more you can protect yourself from a hit to your financial well-being. In such situations, a personal loan in Bangalore can offer quick financial assistance to help you stay afloat without depleting your savings.
You may be left scrambling with EMIs, loans, and responsibilities, and no emergency fund to fall back on if you have put things off. When you start early, even small contributions have a significant effect over the years that can give you very solid protection. A protection that is not only reassuring but also offers you the opportunity to take risks, whether it is switching careers for a chance, venturing out on your own, or just tackling life in general.
How to Start Saving Right Away
It doesn’t have to be difficult to get started. Here are some pointers:
- Prioritise paying yourself: Consider savings as an unavoidable monthly expense.
- Automate it: To save without thinking, set up automatic transfers.
- Start small: Don’t wait for a large salary. Small contributions are important.
- Gradually increase: As your income rises, so should your savings rate.
- Consider long-term and work toward major objectives like financial independence, home ownership, or retirement.
Conclusion
The gap between saving early versus saving more later in life can accumulate into crores in your lifetime. While your cash savings are valuable, so too is the time it accrued over time- interest can be earned on savings, not just money. Starting early gives you a jumpstart on savings interest while inculcating financial discipline and creating a safety buffer for unexpected expenses.
Don’t wait until the next promotion or larger paycheck. The single best time to start saving was yesterday. The second-best time to start saving is today. Start small, be consistent, and let it ride.
