fbpx

Why it pays to start investing before you turn 25

For the average 18-25 year old, saving and investing is pretty low on their priority list.

But if you asked them how important money is in their future, most would say that being able to afford a home, travel and fun is something they aspire to.

The best way to be financially comfortable in your 30s and beyond is to start early. The younger you start, the better your potential earnings.

How compound growth works

If you put £1000 in a bank account with an interest rate of 3% a year, in a year you’ll have £1030. At the end of year two, you’ve earned another £30 interest, plus another 90p on last year’s £30 interest, taking the total to £1060.90.

Clearly, you won’t be booking a round-the-world plane ticket on that kind of growth. But say the interest rate doubles to 6 per cent. If you leave your £1000 in the bank for 50 years, it would grow to £18,420 - more than 18 times what you put in. If the rate became 9 per cent (as was common in the 1990s) your £1000 would be £74,358 after 50 years. And that would fund a lot more than a world tour.

This is a pretty appealing way to make money – it involves no effort other than saving up the initial £1000. And the key thing is that the longer the money stays there, the bigger the total will grow, so starting young is really important.

Faster ways to earn more money

So that’s a good way of making a nice pot of money for your 70s, but do you want to wait that long?

People seeking to make more money, more quickly, often turn to the property market to drive faster growth.

The sooner you buy your first property, the longer you can own it, and make the biggest profits as house prices rise over time. If you rent that property out, you will also generate monthly income – which can also be invested.

The savviest property entrepreneurs invest their rental income to create a deposit for more properties – and of course the more you have, the more money you can make.

A foot in the door

The hardest part of investing is the start. How do you generate the £1000 to put in the bank – or get a property deposit together?

A lot of young people turn to the ‘Bank of Mum and Dad’ – and your parents may well be happy to help, as your ability to repay them will grow pretty fast.

Others club together with friends to create a deposit and buy the first property jointly. But this does require trust and commitment. It’s always best to get a legal agreement drawn up in case someone changes their mind.

If you’re determined to go it alone, the key is to stay focused. It might take a little time, but if you’re under 25, you’re way ahead of most of your peers. You’ll start to see the pounds adding up before you know it.