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Do you want to learn the importance of investing?
Here are our tips on why investing is important no matter your age.
The biggest thing to remember with investing is to just get started. It’s not all about choosing the perfect investments. Above all, you want to invest consistently and never stop.
Take a minute to imagine reaching retirement age and having no money. This is not the dream most people have so it’s important to start a retirement plan now.
It’s never too late to start investing. Whether you’ve been investing for years or just getting started, the importance of investing is still the same.
In fact, we’ve been told that retirement is when you reach a certain age but in reality, it’s about the amount of money you have saved.
Since most people won’t inherit millions of dollars or have a pension plan, it’s your responsibility to take control of your investing today.
Not investing is not an option. You will set yourself back years by not investing as early as possible.
However, it’s important to know how to properly investing and understand the purpose. When you take investing seriously, it will improve your chances of building wealth in the future.
Let’s talk about the 5 best reasons to start investing now.
What is investing?
Investing is the process of buying assets that increase in value over time and provide returns in the form of income payments or capital gains.
Ultimately, investing is about focusing on setting long-term financial goals. Investing is important because it allows your money to work for you.
You will continue to work until the day you die if you don’t find ways to make your money work for you.
Your money will just sit in your bank account not earning interest unless you focus on the importance of investing.
Above all, the best approach to investing is to buy an asset at a low price and sell it at a higher price. This is called a capital gain.
The ultimate goal with investing is to make money.
5 Best Reasons – The Importance of Investing
1. Planning for retirement
If you want to retire one day, the importance of investing should be at the top of your financial priorities. Retirement requires being consistent and strategic with your money.
Planning for retirement starts with having a financial plan that works for you. You should live below your means and save to invest the rest of your income.
This strategy will lead you down the right path to building wealth so you can enjoy retirement.
The most important thing about investing is starting early. Retirement will be here sooner than you can imagine and you must be prepared so you are not working well into the later stages of your life.
Above all, the sooner you start investing, the earlier you can retire.
A great way to start investing on a small scale is by using micro-investing. You may want to look into Acorns, which is a mobile app that rounds up your card purchases to the next dollar and invests the spare change.
Acorns is an automated process that takes under 5 minutes to start. This app is very helpful!
2. The Importance of Investing Helps You Reach Financial Goals
Investing at a young age will help you reach your financial goals faster. Building financial security will reduce the amount of financial stress and frustration you will experience.
Important to remember, building wealth early in your life will give you a safety net in case an unexpected life event happens.
Unexpected life events are going to happen and that’s why you need an emergency fund so those events don’t hurt your other financial goals.
There’s nothing worse than having an emergency that causes you to have to stop investing because you need money.
Most importantly, you should pay off debt and live on a budget so your income is spent on things that help you build wealth such as investing.
You may not have the most motivation to start investing if you are not close to retirement age. But, it will be a lot easier in the future to retire whenever you are ready.
Managing your money can be difficult but focusing on the importance of investing can make it a lot easier.
A lot of people rely on their annual income to meet their needs and it may become difficult when you reach retirement and no longer have that income.
This is the biggest reason why allocating part of your income today to your retirement plan is so important.
Related reading: The Secrets to Generational Wealth
3. Tax Advantages
It’s a benefit to invest because you can receive tax advantages. Investing helps you save money on taxes with accounts such as a Roth IRA, 401(k), and others.
This reduces your tax liability by investing in a retirement account or plan. It allows you to fund your retirement and receive a tax break for doing so.
Some ways to grow your financial assets and reduce taxes include:
- Real estate investments
- A 529 plan for education expenses
- Maxing out your IRA each year
- Open and contribute to an HSA if eligible
Investing in assets provides a consistent cash flow and helps your financial portfolio in the long run.
4. Compound Interest
The term “make your money work for you” is taking advantage of compound interest. The basic explanation of compound interest is earning interest on top of interest.
Compound interest is a big deal because the earlier you start investing the longer you can take advantage of compound interest.
By not investing, you are taking a riskier approach. You are relying 100% on your salary with the hopes your income never decreases.
On the other hand, your investments will outpace your annual salary if invested correctly.
For example, if you invest $1,000 per month in an index fund that earns a 10% annual return from age 20 until you are 50, you will have over 2 million dollars in investments.
The great news is you can live off the interest of your investments and never touch the principal. You will be making an extra $100,000 per year by earning a 10% return.
Some people don’t make $100,000 per year. So, this shows the importance of investing as early as possible. We think this is a pretty good annual income to live off in retirement.
Ultimately, this is how you live off your investments and can retire with financial freedom.
5. Create Good Investing Habits
Personal finance is all about creating good habits. And, that is even more important when it comes to investing.
The beginning of your financial journey and the success you reach is determined by the foundational principles you put in place.
Most people spend their younger years creating bad habits and their older years trying to repair those mistakes. The mistakes range from taking out loans for school, buying a car they can’t afford or traveling on a credit card without paying it off before interest hits.
It’s key to understand how to manage money before you start investing. Money management skills show you the right things to do with your hard-earned money.
When it comes to investing, it’s about avoiding consumer debt and using your income to build wealth. You want to earn interest, not pay it.
You have to make good decisions by investing in your 401(k) plan at work to take advantage of the employer match and invest in a Roth IRA if you are eligible.
These are good investing approaches that can lead to wealth. You must have the patience or you won’t have enough time to let your investments grow.
It’s very common for people to pull their investments out of the market when the market goes down but they are only hurting themselves.
You don’t lose money in the market until you sell your holdings.
The market will go up and down all the time but it’s about playing the long game when it comes to investing.
Final Words- The Importance of Investing
Learning how to invest is the first step and that comes with understanding the importance of investing. You have to continue investing consistently and it will get easier over time.
Starting at a young age is one of the best financial decisions you can make. You will allow yourself to retire early and create the life you always wanted to have.
It’s about creating generational wealth and investing your income is the fastest path to wealth!
What questions do you have when it comes to investing? Do you have any tips you want to share?
About the Author
Neiko & Alexis Johnson
Neiko & Alexis are personal finance experts and founders of Secret to Finance. They learned how to get out of debt and pay off $240,000 in 27 months. Read more.