coinsYou might think you’re too young to start investing. You couldn’t be more wrong. Now, while you’re young and just starting out in your career is exactly when you should be investing. To understand the importance of investing, you need to ask yourself one question. How much interest have you earned on your savings in the past year? Probably not much. That’s because savings accounts only offer minimal interest rates. They’re not meant to be places where you keep your money for the long term. That is the job of an investment. Think about this If you saved R10 000 in a high interest savings account with a 1% interest rate, you would have earned R100. That doesn’t sound too bad unless you calculate what you could have earned if you had invested the money. If you had invested the money in an investment with an interest rate of 7%, you would have earned R700. Saving versus investing So, which would you rather have? R100 or R700? It’s true that saving and investing can’t be simplified this much. And, of course, it depends if you have short term savings needs. Do you have an emergency fund which covers a few months’ worth of living expenses? Do you want to buy a car or even a home in the near future? If so, depending on your time lines, you probably shouldn’t put your money in an investment other than a short term investment. That money is better off in a savings account. However, saving without investing can prove to be problematic in the long term. With investing your money grows at a rate which saving just can’t match. Compound interest, when interest is earned on top of interest, is incredibly powerful. Over time compounding shows its value and that’s when the power of investing really comes to the fore. Reality of putting money away The reality is that it is difficult to save and invest. Cost of living is high. Jobs are difficult to come by. Starting salaries for recent graduates are low. But while saving might seem impossible, it’s not. It can be done. With a few sacrifices, you can easily find a few hundred rand to save each month when you first start working. And the reality is that you can’t afford not to save. Putting off saving when you’re young will mean you either have to work for longer in your old age or put away far more money each month when you do eventually start saving. Young people Recent research has found that just 25% of millennials are investing. That means just one in four people aged between 16- and 36-years-old is putting money aside for the long term. This is problematic because if you haven’t set money aside for your future, you likely won’t have the luxury of enjoying a comfortable retirement. That’s why, as difficult as it may seem, investing while you’re young is incredibly important. Image: Pexels