Why starting to save early makes sense

You are probably among the many young people who have left their parents' home in pursuit of a career, a better pay cheque, power, fame or simply to find yourself. As easy as it may sound, living alone has a lot more responsibilities than you can think of. Tasks like house hunting, paying rent on time, managing daily expenses, watching movies, traveling to work, spending on food and after all this sending some money back home, can take a toll on your finances. But with the higher disposable income this has become increasingly rampant. Saving or Investing is a thing that is far-fetched. When we’re young, we just want to spend the money, but think how much you are taking away from your future self. So start saving for your goals and plan up early

Seeing is believing, here’s an example –

Starting Age of investment	25 years	30 years
Monthly Contribution	10,000	10,000
No of years for investment	35	30
Total Contribution	4,200,000	3,600,000
Rate of Returns	12%	12%
Value at maturity	64,309,595	34,949,641

If we look at the above calculation, we can easily make out that the contribution of Rs. 6 lakh done in first five years actually gives boost to your overall wealth. The difference of wealth creation is close to 46%.  

How to save without compromising on luxuries?

As a new investor, you should start a contribution of atleast 10%- 20% of your salary towards savings. You can start with investment in mutual funds through Systematic Investment Plan (SIP) which allow you to invest into market with moderate amount of risk. SIP also helps you to invest on regular basis. Systematic and disciplined approach to investment can lead to wealth creation.

In the early stages of your career, you can also take high risk as there is no financial or social responsibility on you. You can take aggressive investment approach and start investing into some mid cap funds or equity shares also. However, indulge in them only if you have the required expertise.

During the first few years of your career you should also start accumulating some money for your immediate need or emergency needs. You should at least have 3 to 6 month salary as an emergency fund. Ideally you should park this money into liquid funds which offer better returns than a saving bank account and you can also get the money immediately (i.e. within 1 or 2 days).

Tax planning is also one crucial aspect for wealth creation exercise. In order to save tax, you can start with Equity Linked Saving Schemes (ELSS). ELSS gives you tax benefit under section 80C. This option has lock in of 3 years which makes you a long term investor.

Key Takeaway

Little drops of water fill the ocean. Your small monthly savings can help you to achieve your goal of wealth creation in big way. Consider the big picture. The decisions you make today about your career, education, debt and retirement will stick with you and shape your future. So, invest in yourself.