Many young investors are often confused if it is worth saving small amounts of money at the beginning of their career?
A lot of investors do not save enough at the beginning of their career and wonder whether they should start saving in future only when they can save a “respectable” amount such as Rs 10,000 or Rs 50,000 per month?
Today I want to tell you why small savings matter!
1 benefit of small savings
Does it matter in the long run if you save Rs 2,000 per month for a few years? Even if you do it for 3 years, you will only have 60,000-70,000 rupees. It is not a big amount.
Many people can put a large amount at a time to compensate for the pain of taking the effort to save a little money every month. On top of this, if you neglect to save a small amount for a few years, your final amount of money will not be much less.
What you have read above is what many investors think of small savings. This is a classic mathematical way of looking at it.
However, I often tell people that it is not about the amount, but about saving money.
Get used to saving
When you start your investment and start investing every month, the even greater benefit is that you are forcing yourself to take out a part of your monthly income and invest it somewhere.
You develop a habit of saving which is not an easy thing to get, regularly.
Today, many investors are earning a good amount of money and they also have a good surplus, but what is missing is the habit of saving. They have never done this before in life for many years, and now when suddenly they are having surpluses that could potentially be invested, they are finding it difficult to do so, because they can control themselves Are not This world distracts them.
Imagine two children, one of them always saves 5% of his pocket money and spends the rest. Another one spends all his pocket money. This continues for 15 years of his life. You can imagine what the psychology of both children will be and how it will affect their future.
The same is true for investors after beginning their careers and earning a living.
Small savings compound and increase your wealth in the future
Small savings may not seem big at first, but over time, they blend well and add to your wealth creation, sometimes large and sometimes small.
So let’s imagine that your future savings scenario looks like this
|year||The amount you will save per month|
|First 10 years||Rs 2,000 for 3 years, then Rs 3,000 for 3 years, then Rs 5,000 for 4 years|
|Next 25 years||Rs 20,000 per month (8% increase per year)|
Given the above scenario, imagine two cases.
- case 1: You invest in the first 10 years – small savings
- Case 2: You do not invest for the first 10 years – no small savings are made
If you add all the money that you have invested in CASE 1 and Case 2 out of your pocket, you will find that this difference is just 2.4%. Yes, like 1, you will invest 1.77 crores and 2, it will be 1.73 crores. Hardly any difference you say
But when you come to know the difference of money created in the end in both cases, it will be a difference of 16%. In case 1 you will earn 7.98 crores, while in case 2 you will have 16% fewer assets. This is a decent amount.
Below you will see the money difference in both the cases.
The above example tells us that if a person is not saving a small sum of money, because they think it will not be worth it, then it is not the right way to look at it, because in the long run, it will definitely make money. Will help to increase.
Small savings also help you in dealing with emergencies.
Another advantage of saving small amounts in the beginning and not waiting for the “right” time is that one will start getting some amount at least for emergencies. In our example above, if one invests a small amount even for the first 10 years of life, they will have a huge amount of at least Rs 7.2 lakh.
This is not a small amount. This can help the investor in dealing with any type of emergency. Even for things like buying a car, vacation or home appliance, you can avoid taking loans.
If nothing happens, it will give the investor a good feeling and boost his confidence that it is possible to generate wealth for him. Remember to make 1 crore, you need to make 10 lakhs first and to do this you first need 1 lakhs.
You have to start somewhere.
Do not delay your investment, otherwise, it will cost you later
The longer you delay investing, the more you will have to invest to cover small declines in the future. Here’s a small example I want to share with you
If you invest Rs 10,000 per month for the next 30 years (assuming a 12% return and 7% increase in SIP per year), you will be able to earn 5.36 crore in 30 years.
What do you do if you just delay 5 years? In that case, you will only make 2.78 crore rupees. Yes, only 2.78 crores as against 5.36 crores.
And now if you want to reach the same fund of 5.36 crores, then you have to start with a SIP of Rs 19,300.
Delay calculator cost
Below is a simple cost of delay calculator where you can try out different scenarios for yourself and see what the effect of delaying the investment will be.
Start small – it helps you make a habit of saving
I would like to say that starting small is its own benefit. This will develop your saving habits. If you cannot save Rs 2,000 on a salary of Rs 30,000, it will be equally difficult to save Rs. 20,000 at a salary of 1,00,000.
“Investing” is more about your own behavior and not about external factors.
Do you know what you feel about this article? Do you know anyone who is delaying their investment (are you one of them?)