Why Investing is Important
Budgeting and saving are important. Saving more than you spend and having money set aside for a rainy day is a great habit to build. It’s how you save up for a holiday, a new car, or eventually a house.
But here’s the problem: saving alone is sometimes not enough.
The Silent Killer: Inflation
While your money sits in a regular bank account doing nothing, its buying power is quietly shrinking. This is called inflation, and it’s the silent killer of long term wealth. For a deeper dive into how this actually works, check out my full breakdown on Understanding Inflation.
Leaving your money to just sit there and decline in real value is a big negative over time. And it’s not the only thing working against you.
Missing Out on Compounding
The other big cost of not investing is missing out on compounding. When you invest your money, you allow it to grow on itself, year after year. Some call it the eighth wonder of the world, because it lets your money grow exponentially over time.
Because of that exponential growth, the longer you invest for (which usually means the earlier you start), the bigger the payoff at the end. This is the single biggest lever you have as an investor, and it costs you nothing to pull it. You just need time.
Case Example #1: The Cost of Waiting
Let’s say your goal is to have a million dollars by age 65, and you’re investing monthly into a fund that returns 7 to 8% a year.
- Start at age 25: you have 40 years for your investments to grow, and you’d need to invest $325 per month.
- Start at age 35: you have 30 years for your investments to grow, and you’d need to invest $655 per month.
- Start at age 45: you have 20 years for your investments to grow, and you’d need to invest $1,554 per month.
Look closely at those numbers. Waiting just 10 years, from 25 to 35, means you’d need to more than double your monthly contribution just to land in the same place. The 25 year old doesn’t just contribute less each month, they contribute less overall, and still end up with the same $1 million. That’s the magic of compound interest, and it rewards time more than it rewards how much you put in.
Case Example #2: Kristine vs Steven
Kristine is 25 and reads auspersonalfinancebuddy on the weekends. She starts investing $500 a month until she retires at 65, earning a modest average return of 7%. By 65, she has $1,160,000.
Steven is also 25, but he doesn’t read auspersonalfinancebuddy. He puts away the same $500 a month, but into a regular high interest savings account instead. After 40 years, he has $466,000.
Same amount saved every single month. Same 40 years. A difference of $934,000.
That gap isn’t down to luck, timing the market, or picking a winning stock. It’s purely the result of one person letting their money work through investing, and the other leaving it to sit.
Summary
Your future self will thank you for starting today, even if it’s a small amount. The question isn’t really “should I invest,” it’s “why haven’t I started yet.” Is it fear? Not knowing where to begin? Thinking you need a lot of money to get going? Working through those questions is the real barrier to breaking into investing, and it’s usually smaller than people think.