While it might be tempting to wait until you've paid off debt, earned a higher income and "know that you know more" you should know that starting early - even with small amounts--can make a dramatic difference because of the effect of compounding. James Rothschild In this post, we'll go over how investing early helps build wealth over time. We'll use real-world examples, data, and strategies that can enable you to start investing today.

It is the principle of Compounding
 

At the core of early investing lies a simple but powerful mathematical concept: compound interest. The compounding effect means that your investments don't only earn returns, but those returns also start to earn returns themselves. Over time this snowball effect will transform modest investment into significant wealth.

Let's show this by the following simple example:

Imagine that you make a deposit of $200 each month beginning at age 25 in an account that earns an average annual interest of 8%.

After age 65, your investment could increase to more than $622,000 in total, while your contribution would be $966,000.

Imagine that you waited until age 35 to start making the same investment of $200 per month.

When you reach the age of 65 your investment could grow to only $274,000--less than half what you'd have earned 10 years earlier.

Takeaway: Time multiplies money. The earlier you start your compounding, the more effective it is.

Timing in the Market vs. Timing the Market
 

A lot of people worry concerning "timing market timing" market"--trying to buy low and then sell high. Studies have consistently shown that the duration you are with the market is much more important than an exact timing. Beginning early means you have more years of market experience which allows your investments to survive short-term volatility, and gain from long-term growth trends.

Remember this: even if you invest right before the market goes down, your earlier starting gives you an benefit of time to recover and growth. In the event of putting off investing due to fear of market conditions just puts you further in the sand.

Cost-of-living averaging for beginners: The Beginner's Best Friend
When you make a commitment to invest a specific amount of money in regular intervals, regardless of market conditions, it's a strategy called  the dollar cost averaging (DCA). This lowers the risk of investing a large sum too soon and develops a habit for consistently investing.

Early investors can benefit of DCA by making small contributions every month, such as from the monthly pay. Over decades, those small contribution amounts can be significant.

The Opportunity Cost of Waiting
Each year that you put off investing in the first place, you're missing out on the money that you could have put in, but also an opportunity to benefit from the compounding effects of that money.

As an example, a $5,000 investment at the age of 20 with an annual returns of 8% turns into over $117,000 by age 65.

As long as you do not wait to age 30 to invest the same $5,000, the amount will increase to $54,000 by age 65.

Your delay for 10 years was more than $60,000.

This is why investing in the early years is not simply a smart move, it's the most important decision in building wealth.

A young investor is one who takes on more (Calculated) Risikens
 

Younger individuals get more time recover from market declines. This allows you to take on more risky investments like stocks, which provide better returns over time compared to savings or bonds.

As you age and move closer to retirement, you'll have the opportunity to gradually change your portfolio to safer investments. However, early on is your chance to grow your wealth by investing in higher risk strategy, which is also higher return.

Being early allows you an opportunity to build your portfolio with flexibility. It's okay to make a mistake, or two and learn from it yet still win.

The psychological benefits of starting Early
Starting early builds more than financial capital--it builds an attitude of confidence as well as discipline.

As you become accustomed to the practice and habit of investing into your 20s or 30s, you will:

Learn about the swings and valleys from the marketplace.

Develop a better understanding of finances.

Enjoy peace of mind watching your wealth grow.

Don't be anxious about trying to catch up later in life.

Also, you can free up your retirement years to spend time enjoying life instead of scrambling to save.

Real-Life Example: Sarah vs. Mike
Let's consider comparing two fictional investors in order to make the issue.

Sarah starts investing $300 a month when she was 22. She ends her investment at 32, just 10 years into investing. She never invests another penny.

Mike will wait until he turns 32 before investing $300 per month up to age 65. That's a total of 33.

At 8% average return:

Sarah's investment: $36,000 grows into $579,000 before age 65.

Mike's investment: $118,800 is increased in value to $533,000 at age 65.

Sarah has contributed just a third more money, yet was able to accumulate more wealth simply due to her early start.

How to Start Investing Early: Step-by-Step
 

If you're sure it's the right time to get started, read this beginners' guide to starting by investing early:

1. Start With A Budget
Determine how much you can comfortably put aside each month. The range of $50 to $100 is a great starting point.

2. Set Financial Goals
Are you investing for retirement? A home? Financial freedom? Set goals that are clear will guide your plan.

3. Open an Investment Account
Start with the basics of an IRA, Roth IRA, or a brokerage account that is tax-deductible. There are many platforms that do not require requirements for minimums and also offer automated investing.

4. Select Low-Cost Index Funds or ETFs
Instead of choosing individual stocks, go with diversified funds that are a reflection of the market. They're free of charge and provide solid long-term returns.

5. Automate Your Investments
Make recurring monthly contributions to ensure you're always consistent. Automation helps you avoid the temptation to be a market watcher or avoid investing.

6. Beware of High Fees
Select accounts and money with low expense ratios. Charges for high fees reduce your profits significantly over time.

7. Stay the Course
The investment game is long. Be aware of market volatility and focus on your long-term objectives.

Common Excuses: Why they're costly
 

Here are some reasons to avoid investing, and why those delays can be expensive:

"I'll start as soon as I earn more money."
Even tiny amounts add up over time. Waiting just means less time for growth.

"I have debt."
If the interest rate you pay on debt is less than your expected investment return typically, it makes sense to make both payments: pay down debt and invest.

"I do not know enough."
You don't need for a degree to become an expert. Start with index funds and learn as you progress.

"The market is dangerous."
The longer the timeframe for your investment is, the more time you'll have to ride out the ups and downs.

The Long-Term Perspective The Long-Term View: Generational Wealth
 

Early investment doesn't just help yourself. It can also affect the family you have for generations.

Building a strong financial foundation earlier can give you the chance to:

Purchase a house.

Fund your children's education.

Retire comfortably.

Leave a financial legacy.

The earlier you get started, the more you can give--and the more financially free you'll become.

Final Thoughts
 

The early investment stage is probably the nearest to a superpower in finance that the majority of people have access to. It doesn't require a six-figure income, a finance degree, or perfect timing to build wealth. All you need is time, consistency, and discipline.

Beginning early, even if it's with low amounts--you give your money the time it needs for it to develop into something powerful. The biggest mistake isn't choosing an unsuitable fund or missing out on a promising stock; it's being too slow to begin.

So, get started today. You'll be rewarded in the future. thank you.