Invest, invest, invest, Retire early…How many times have you all heard Sharan say this?
I think in my head (Obviously) “Kya phook ke aya hai be” every time he says retire early by starting early.
I had two questions for Sharan –
- When am I supposed to enjoy life if all I do is save up and invest?
- What do I even do after I retire early?
For today, I’ll just take up the first question, and if I still have my job, I’ll take up the other.
Sharan simply answered, “The power of Compounding,” and left the room while I scratched my head and wondered looking at the false ceiling in the office.
What does saving up early have to do with compounding?
The power of compounding works in your favor when you start early. Compounding allows your investments to generate additional returns over time, leading to exponential growth. The goal is to accumulate enough savings and investments.
Let’s go through a simple example to understand the concept of compounding.
Suppose you have Rs. 1,000 that you decide to invest in a fixed deposit with an annual interest rate of 5%. The interest is compounded annually.
Year 1:
Initial Investment: Rs. 1,000
Interest (5% of Rs 1,000): Rs 50
Total Amount at the end of Year 1: Rs. 1,000 (initial) + Rs. 50 (interest) = Rs. 1,050
Year 2:
Initial Investment: Rs 1,050 (previous year’s total)
Interest (5% of Rs. 1,050): Rs. 52.50
Total Amount at the end of Year 2: Rs. 1,050 (initial) + Rs. 52.50 (interest) = Rs. 1,102.50
Year 3:
Initial Investment: Rs. 1,102.50 (previous year’s total)
Interest (5% of Rs. 1,102.50): Rs. 55.13
Total Amount at the end of Year 3: Rs. 1,102.50 (initial) + Rs. 55.13 (interest) = Rs. 1,157.63
And so on…
By starting early, you give your investments more time to grow, potentially allowing you to achieve financial independence and retire on your own terms.
The earlier you begin saving for retirement, the more time your money has to grow and benefit from compounding.
The earlier you invest, the more time your money has to earn returns on both the principal amount and the accumulated returns.
All these doubts were before Sharan and I started working together but post some interactions with him, I realized that I should have started when I turned 18 to sustain the kinda life I wanna live.
So, does this mean I’m late or you are late?
Well, NO! A BIG NO! YOU AREN’T LATE!!!
A note to you all: “Starting early” doesn’t mean it’s ever too late to begin saving for retirement. Regardless of your age, taking steps to save and invest for the future is crucial. But, the principle has its advantages that come with an early start in the journey toward financial independence and early retirement.
To answer the other part of the question i.e. how do I enjoy life if I only save? Well, the answer is Goal-Based Financial Planning! Yes, that’s what has funded all my desires to date.
You may also like reading: Is it too late to invest in your 40s?
