When you decide to invest your money, you are choosing to put it into a vehicle with the goal of receiving a return down the line. At some point, you hope that the money to put into an investment will grow. In most cases, you plan for little involvement on your part once you’ve invested the money.
Although most people associate investing in the stock market, there are many other ways to invest. For example, you could invest in real estate or your own business. No matter what you choose to invest in, you hope to earn money on that investment in the future.
Why is investing important?
Investing is the way that you can grow your money for the future.
Saving money is an important place to start building a better financial future. However, your savings are diminished each day by the powers of inflation. Although your savings account might have the same balance ten years from now, that money will not have the same purchasing power that it has today.
With investing, you are able to grow your money over time and keep the powers of inflation at bay. Historically, the stock market has provided returns between 6% and 7% with inflation factored in. Those returns can grow your savings dramatically over time.
Plus, the power of compounding can add to your nest egg. If you choose to reinvest your earnings over the course of many years, you’ll benefit from the compounding effect. Compounding is a process that grows your money over time by reinvesting your investment earning.
If you are just starting your journey of building wealth, then investing can help you reach those long-term goals faster. Instead of trading your time for money in order to build wealth, you can have your money work for you. When your money starts to earn money through your investments, you won’t be completely dependent on your day job or your savings.
When should you start investing?
Investing strategies typically involve a long-term timeline. With that, the best time to start investing is as soon as possible. The sooner you are able to start investing, the more time you’ll have to allow your investments to grow.
Generally, you will use these investments to fund your retirement. So it is a good idea to start as soon as you can. You’ll want to give your investments plenty of time to build your wealth.
Investing is an extremely important part of your financial journey. However, there are a few things that you should tackle before you start investing. Let’s take a closer look.
Pay down debt. If you have any debt that is draining your resources each month, then you should focus on paying that down first. Once you’ve paid down your debt, you’ll be able to invest more comfortably.
Build an emergency fund. Living one paycheck from the edge is not a good feeling. An emergency fund can allow you to enjoy more financial breathing room in your life. Before you start investing, consider building an emergency fund.
Once you’ve paid down your debt and built an emergency fund, then it is time to invest. If you start young, then the power of compounding can work in your favor. Even if you only have a few dollars to start investing, you should take action today.