Here’s How Early Investment Plans Can Lead To Financial Freedom
Investments may be defined as the purchases made today to reap significant benefits tomorrow. These purchases are termed as assets, which are bought to generate positive returns in the future. They can assume different tangible forms such as real estate and gold investments or intangible such as stocks, debentures, and derivatives. However, irrespective of the exact nature of the investments, they all have a shared desired outcome associated with them. By their very nature, investments are a provision made towards securing economic stability for the years to come. They are also the key to attaining financial freedom.
THE SIGNIFICANCE OF FINANCIAL FREEDOM
Financial freedom is a state of being wherein one has a dependable cash flow that allows for adequate resources to achieve a fulfilled and financially stable life. It is often referred to as a safety net as it quite literally cushions the effect of difficult and unpredictable circumstances. It, therefore, becomes the ambitious goal that everyone vies to achieve.
The attainment of financial freedom has significant impacts on our lives. The most prominent among them is the change in mindset that it brings. Financial stability allows individuals to place their comforts first. It changes decision-making into a more convenience-based outlook than a survival necessity. Financial freedom brings about a dynamic shift in perspective that paints a long-term picture of goals and dreams rather than the day-to-day hustle. In fact, there is a direct correlation between the sense of security that financial freedom offers and the period for which such an optimum condition is enjoyed. To maximize the benefits associated with it, one must begin investing early in life.
THE PERKS OF EARLY INVESTMENTS
It is never too early to start thinking about and saving for one’s future. Putting oneself into the investment market right from a young age has very substantial perks associated with it. These have been enumerated hereunder:
- Compounding
As opined by Albert Einstein, compounding is the ‘Eighth Wonder of the World’. Its foundation is based on the vital role played by time in enhancing one’s earnings. The phenomenon of compounding is a principle that can be ingeniously applied by a competent investment planner to produce the most financially viable results. The foundation of this principle is that the accumulation of generated interest can be reinvested along with the basic principal amount, thus allowing for a higher amount to be used while calculating the next term’s interest. If the investment process is started early, compounding has a longer time to be effective. When in operation for 20 years, the exact process will work in favour of the investor to increase the gains from it, as opposed to when it is in operation for one year. Thus, starting early with investments in combination with the principle of compounding can substantially increase the returns obtained.
- Time Value of Money
It is a common notion in finance that a rupee now is worth more than a rupee ten years from now. This notion has massive implications in discussions regarding the appropriate time to begin investing. If the monetary assets available at one’s disposal in their youth are left uninvested, time will lead to a depreciation of the asset value in case of inflation. As a result of this phenomenon, the value of money recedes over time. Hence, investing early will allow an individual to gain a head start in making more money from his original investment.
THE EFFECTS OF EARLY INVESTMENTS ON FINANCIAL FREEDOM
As elaborated through the above-stated reasons, time is an indispensable tool for novice investors. If optimised and used wisely, it can tilt the scales to generate significant economic benefits.
Investing early increases the probability of easy attainment of financial freedom. A young individual has the liberty and luxury of taking huge risks. This allows him/her to choose investment plans that are more volatile but can produce better gains. Early investments allow for a longer time distribution period over which the market volatility can be absorbed and will hence not stand to be detrimental. As opposed to this, if an investment is commenced at a later stage of life, the options become limited to low-risk investment plans.
Another benefit associated with it is that resources can be more freely directed towards learning through trial and error and navigating the market for oneself at an early age. If the resources set aside for investments are higher, there are chances that the returns will also be above average. Hence, without the burden of having too many financial responsibilities at a young age, investing as an activity can be undertaken with more zeal.
THE ROLE OF DISCIPLINE IN FINANCIAL FREEDOM
Like all other aspects of life, financial freedom is primarily determined and guided by discipline. In the context of investment plans, discipline entails periodic investments and respecting the market.
Apart from a theoretical point of view, such a practice can make you profitable in the long haul. Let’s take the example of Unit Cost Averaging. This particular process is associated with making regular and non-hasty investments. This type of practice averages out the fluctuating price of investments made over the long run. The resulting price using this methodology will be lower than the price of a lump-sum investment. Therefore, the risk of timing the market is reduced. This satisfies both the criteria of finance-related disciplinary tactics; investments are made periodically, and the market is respected because no attempt is made to control or tame it.
A disciplined outlook also enables an individual to opt for a sound investment plan. It must be such that it satisfies the investor’s personal requirements while keeping track of the market trends. Notably, an ideal investment plan must provide incentives to a first-time investor and help in attaining financial freedom.
When it comes to investment plans and achieving financial freedom, our investment advisory desk at Xanara can help you build a perfect personalised investment plan. Based on these plans, we build effective and resilient strategies, making wealth management convenient for you. For more insights get in touch with us today.
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