(Illustration: Sudhir Shetty)
(Illustration: Sudhir Shetty)

Adulting cannot wait for savings and investment

  • Whether it is buying an iPhone or going for a trip overseas, the best way to pay is to first save and then spend. 
  • Not saving and not investing is not cool for your money life

If you are living in a metro city like Mumbai, it is unlikely to miss all the dating app advertisements splashed across the city. The ad campaign that caught my eye was the one which had a meme telling its users that adulting can wait when it comes to money. Targeting those born in the 1990s and 2000s, one of these ads sends out a message that savings and investing can wait, but a Euro trip can’t.

Every time I see these ads on billboards, I want to stop and tell the fellow ad consumers, that don’t believe them.

Adulting can’t wait when it comes to savings and investing. Why you may ask? If you delay your investments, how will you see the magic of compounding? When it comes to investing, you need to start early. In fact, you should start saving and investing as soon as you start earning. Compounding allows you to build a bigger corpus with a smaller amount.

To get a perspective, let’s turn to some numbers. Say you started investing 3,000 a month when you were 25, and go on till you are 60. At an average annual rate of 7% returns, your corpus will grow to 53.24 lakh. If you decide to start investing at the age of 35 years, even if you put aside double the amount— 6,000 per month — till the age of 60, the value of your corpus will be only 48.72 lakh. The example shows that you would need half the amount to get more in returns if you start investing early.

The power of compounding works the way it does because you are reinvesting the interest that you earn back into the instrument, besides giving it time to grow. Let’s simplify it further. Say in the first year you invest 100 and you get 10% annual return of 10. Next year, along with 110 (the first year principal amount and the interest amount), you will put another 100. The 10 you earned as interest gets reinvested, helping you grow your money faster.

The magic of compounding can help you build a kitty for your long-term financial goals such as retirement, child’s education or starting your own venture. There are multiple financial instruments that can allow you to use the power of compounding. Starting from your employee provident fund to mutual funds, you can reinvest your returns to let it grow in the long term.

Another ad from the same dating app company says equated monthly instalment (EMI) for a housing loan can wait, but opting for EMI to buy a phone can’t wait. When you take a loan to buy a phone, you will have to pay a higher price for the phone. If the duration of the loan is longer, the money you have to pay as interest will also be higher.

Also you are most likely to buy a product that you can’t afford at a price that you need not pay.

Whether it is buying an iPhone or going for a trip overseas, the best way to pay for it is to first save and then spend. It is advisable to not take a loan for your expenses. Not saving and not investing your money is not cool for your money life.