Learn the best ways that you, as an early investor, can invest your money to maximise compounding as a powerful tool.
Money isn’t everything, but everything needs money!
We all know how this adage never gets old. And that’s because money holds so much value in our life - be it purchasing things, saving for the future, or investing to meet certain financial goals in life.
However, while we all know the importance of savings, many of us either have difficulty keeping this habit or don’t know where to begin.
If like most of us, you too are looking for ways how you can start saving money without feeling overwhelmed then this 52-week money challenge is where you should begin.
By the end of this exercise, you can experience two things:
- A handsome amount by the end of January 2023 that might be challenging to save over a year, otherwise
- Inculcate a healthy habit to save daily that can help you practise this good financial tip in life
To get started, all you have to do is save Rs.2/day. We know what you’re thinking, wasn’t savings supposed to be hard? Sorry to burst that bubble, but savings is super easy!
Start with Rs. 2 on day 1, Rs. 4 on day 2, and so on. By the time you’re on Day 365, you would’ve reached a savings amount of Rs. 1,32,860, thus allowing you to save more money by the onset of next year!
This entire exercise is best suited for individuals whose take-away income per month is Rs.50,000 or more. But, the beauty of this method is that you can adjust your target aT your convenience.
We found this to be one of the great ways you can start saving daily with the right discipline and see your money multiply. By the time you know it, you’re left with a small fortune at the end of 2022!
Now that you know the secret to build wealth, here’s how you can smartly incorporate compounding to help you increase it further!
What is compound interest?
Also dubbed as the ‘8th Wonder of the World’ compounding is this wonderful little process that can help your money multiply, as long as you consistently keep adding it to your bank.
The interest earned on a deposit is known as compound interest because it is predicated on both the initial principal and the interest accrued over time.
Compounding interest can be done on a daily, monthly, or annual basis.
Why is knowing about compound interest important?
When the number of compounding periods is increased, so too does the compounding interest. Think of it as a snowball rolling down a hill.
The larger your snowball will become if you begin saving as soon as possible and keep adding money to it over time.
Now, imagine if you rolled the snowball along a snow-covered slope. You'll be able to keep the snow you've already accumulated, and you'll be able to collect even more.
As it nears the end of its journey, your snowball is likely to include all of the snow you began with, as well as any more snow it has picked up.
For example, the interest-on-interest effect has the potential to provide profits that keep on growing over time.
As a result, saving more frequently and for a larger sum will earn you a higher interest rate. The "wonder of compound interest" is another name for this phenomenon.
What can it do for you?
Compound interest accelerates the growth of your financial assets. When you employ a compounding strategy, you earn interest on the money over a period.
This interest is on the amount you put into the account as well as those returns at the end of each compounding period.
Because of this, you won't have to save up as much money to achieve your goals by saving 365 days a year practically.
When it comes to growing wealth, compounding may be a powerful tool. To maximise your savings potential, open a time-sensitive interest-bearing account as soon as possible.
Increases in living costs, inflation, and a decrease in the purchasing power of money can all be mitigated with this strategy as well.
What are the best ways early investors can park their cash to maximise the power of compounding?
To reap the benefits of compound interest, we have discussed the importance of investing a predetermined amount each month.
But, here are other factors that are equally important to keep your money growing further:
Keep a tight rein on your spending
Investing a hundred rupees or a thousand rupees follows the same rules of compounding. Investing a large sum, on the other hand, can result in a huge rise in interest earnings.
Increase your investments to take advantage of compounding. You can, however, improve your savings by limiting your spending.
You can do this by creating a monthly budget and identifying places where you can save money.
You can improve your savings and invest more if you spend carefully. You'll have a better chance of making money this way.
The sooner you begin, the better
When it comes to investing, nothing beats getting a head start. You should begin investing as soon as you start making money.
However, if you've already reached that point, the time to begin investing is now.
Start investing in digital gold or mutual funds that align with your financial goals. With the help of compounding, you can build a firm foundation for your money to develop and flourish in the future.
If you're not sure how to figure out your return on investment, an internet calculator can help you out.
It is easy to find online investment calculators that can estimate what you'll need to start saving now to reach your long-term goals.
Investing discipline is essential if you want to build a healthy portfolio and reach your financial goals on time.
Developing a routine for investing early on can help you maintain focus. Your SIP payments should not be skipped.
As a result of consistently investing each month, your money will grow as well as your level of investment discipline.
If you want to be financially successful, you must cultivate this behaviour.
Learn to be patient
Many-a-times, young investors are eager to look for ways of investments that can result in fast profits.
However, in this rush to make a quick buck, they may end up making costly blunders. As we have seen, the force of compounding multiplies over time.
Taking a long-term view on investment can therefore be beneficial. Investing slowly can pay off handsomely in the long run.
Compounding's benefits do not necessitate that you be a financial expert. Every investor can take advantage of this principle and put it to good use.
To ensure a bright future, begin investing now.
With disciplined regular savings, you’ll be able to invest into assets that provide compound interest, giving you a huge fortune by the time you’re planning to retire!