Ben Nash said starting investing early, regardless of the amount, is the key to building wealth. (Source: LinkedIn/Getty)
Most people think building wealth is about how much you save or how smart you are with your investing. But what makes the real difference isn’t your income, your investment knowledge, or even your budget — it’s how early you start.
Consider an example of two people with the same goal of growing their money through investing. One starts investing just a few dollars a day from the age of 20. The other waits until they get to age 40, when their financial position is more settled, they’re earning more, and they’re able to invest a more ‘meaningful’ amount of $500 monthly.
But when we look at the numbers, you can see that by waiting, the damage is done. Even though the late starter is investing more than triple the amount of money, they end up with less than half the amount of money at the end.
This is the power of time — it works silently in the background, and if you ignore it, the cost is huge — even if you’re doing everything else right.
Going back to our example, we’ve got two people, Emma and James.
Emma starts investing $5 daily from the age of 20, and James is our late starter who invests $500 monthly from the age of 40.
Because Emma starts early, her money has more time to grow — and that’s where the magic of compounding comes in.
Do you have a story to tell? Contact yahoo.finance.au@yahooinc.com
Because even though she’s investing less money overall, her money starts growing sooner. And through compounding, Emma benefits from growth on her growth, which cranks up her investment balance over time.
Based on the Australian long-term (30-year) average sharemarket return of 9.8 per cent, Emma’s $5 daily investment would grow to be worth more than $1.48 million by the time she’s 65.
For James, even though he’s putting away $500 monthly, or more than triple what Emma is investing, he starts 20 years later.
By the time he reaches age 65, his money has grown to just under $650,000.
This is a solid result, but is $830,000 less — or less than half of the final amount Emma has from her much smaller investment.
For James to ‘catch up’ to Emma given his delayed start, he’d need to invest around $1,250 monthly — or almost 10 times the daily investment amount Emma is putting in — all because he starts later.
It’s not about earning more. It’s not about investing huge amounts of money.
It’s about giving your money time to work for you. When you start early, you don’t need to be perfect. You don’t need to pick some hot stock that takes off. You just need to get started.
Small amounts of money, invested regularly and consistently, are how regular people can build a life-changing amount of money.
It isn’t ‘sexy’, and doesn’t need to be ‘risky’ — but it is effective.
Waiting even a year to get started with investing can cost you a lot more than you think. Delaying by 12 months might not seem like much, but following our example above, waiting just one year to start your $5 daily investment (starting at age 21 vs 20), your final balance drops by $140,000.
But it gets worse. If you delay to age 25, that’s over $580,000 you’ll miss out on. And if you wait until age 30, you’re giving up a whopping $940,000 in investment growth.
That’s the opportunity cost of inaction — it’s not just about not investing now, it’s about future options you’re missing. The earlier you start, the less effort it takes — and every year you wait, the cost of your inaction grows.
Finance expert Ben Nash has explained how much people could be missing out on by not looking at investing their money. (Source: Getty) · Andrzej Rostek via Getty Images
This is the hidden danger of inertia. Most people don’t realise the real cost of waiting, because it doesn’t really feel like you’re losing money. But you are, because you’re giving up future wealth that only time can create for you.
That’s why time is your greatest asset. The longer you wait, the more effort it will take to catch up, and for most people that gap simply becomes too much — and they end up settling for an outcome well below where they really want to be.
And the best part of all of this is that investing $5 daily is something that’s possible for almost anyone.
It doesn’t require a huge income, lots of time, or heaps of experience in investment markets.
Instead of stressing about trying to save hundreds or even thousands of dollars, simply automate a small daily investment and let it grow.
Thankfully today, technology is making this easier, with dozens of investment accounts that can help you easily automate a regular investment.
Follow this approach, and over time your investment growth will outpace how much money you’re putting in — and eventually it will do more of the work than you ever could on your own.
Most people spend too much time trying to predict the perfect time to invest, or waiting for their financial situation to get more comfortable so investing is ‘easier’.
But the real winners are the people that crack on and get started, and focus on being consistent over a longer period of time.
Investing doesn’t need to be some big, bold action you take once you have heaps of money. It just has to be consistent, and the sooner you start, the more you’ll be rewarded.
Don’t wait until you make more money, or saving is easier, or even until you’re more of an investing expert.
You just need to make the decision — $5 a day today, or thousands monthly later trying to catch up.
Because when it comes to getting ahead, how soon you start is the single thing that will make the biggest difference.
Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth. Ben’s new book, Virgin Millionaire; the step-by-step guide to your first million and beyond is out now on Amazon | Audiobook.
If you want some help with your money and investing, you can book a call with Pivot Wealth here.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.
Get the latest Yahoo Finance news – follow us on Facebook, LinkedIn and Instagram.