Why starting to plan today is your best financial move
Written by Will Lucas
For most of us, planning for the future is never at the top of the priority list. Between juggling work, family, house jobs, and trying to find a spare minute to take a breath, it’s far easier to just focus on the day-to-day. The present demands our attention, and the future? Well, it can wait, right?
What most people don’t realise is how much of an impact this can have on your life, and how much harder you’re making it for your future self. This was best-explained by English playwright, John Heywood.
“Rome wasn’t built in a day, but they were laying bricks every hour”
It’s perfectly sound to view your life and wealth as a long-term project, but this cannot be combined with the naivety that it will happen without consistent long-term efforts. This philosophy can be applied to all aspects of life and success; sport, career, relationships, upskilling, and personal growth.
How does all of this apply to my financial goals?
Heywood’s wisdom may apply to many areas of life, but none more so than financial planning. Building an effective and carefully considered financial plan is incredibly powerful and can transform your future. Whether you’re a recent graduate, a seasoned professional, or ready to kick back and enjoy retirement, the decision to start investing isn’t just about numbers; it’s about securing your dreams, building wealth, and creating a legacy. So, why is it so much better to start today than to procrastinate until tomorrow? Let’s dive into the reasons that will have you feeling motivated and ready.
The Magic of Compounding
Imagine planting a tiny seed in your garden. For the first few years, the seed might grow into a small, unimpressive shrub. However, before you know it, the growth of the tree has picked up and when you come back to look at it it’s a mighty oak tree. Most of the hard work of growing this tree takes place when it’s just a small shrub, building strong foundations for the oak tree. Investing works similarly. When you start early, you harness the power of compounding. Here’s how it works:
You invest your hard-earned money.
Your investment earns returns (interest, dividends, or capital gains).
Instead of pocketing those returns, you reinvest them.
The cycle repeats, and your money starts growing exponentially.
The earlier you plant that financial seed, the more time it has to flourish. Compounding turns small contributions into substantial wealth over the long haul. Let’s put this into perspective with some examples; Bill and Landon.
Landon (35) is, like many of us, busy with life and not sure what to do with his cashflow. By the time he turns 45 he decides he needs to start investing for retirement and starts investing $200 each week into an investment account that earns an average of 8%. By the time he retires at 65, he has over $510,000 in his account… pretty impressive.
On the other hand, Bill (35) decides that he might not be able to afford investing that much, but he’d like to start today, and begins investing $133 each week into the same investment. When he turns 65, his investment account has nearly $860,000 inside. Landon and Bill invested the exact same amount over the 30 year period but since Bill spread his efforts out and started laying foundations earlier in life, he’s reaping the rewards of this strategy.
Time Is Your Ally
Tick-tock—the clock is your best friend in the investing game. Starting early gives you the luxury of time, and not just for compounding. Here’s why it matters:
Risk Mitigation: When you have a long timeframe for investing, you can afford to take calculated risks. Market fluctuations become mere speedbumps on the journey.
Recovery Buffer: Even if you face setbacks (and you will), time allows you to recover. Remember the 2008 financial crisis? Those who stayed invested eventually bounced back, but if you leave it too late to start, a market downturn could throw a spanner in the works.
Patience Pays: Warren Buffett didn’t build his empire overnight. He patiently let his investments compound over decades. You can too.
Lessons Learned Early
Investing isn’t just about numbers; it’s about knowledge. Starting young means you learn the ropes sooner:
Risk Tolerance: You discover your risk appetite. Are you a thrill-seeker or a cautious investor? Early experiences shape your financial personality.
Market Dynamics: Bull markets, bear markets, and everything in between—you witness them firsthand. These lessons are invaluable.
Financial Literacy: Investing introduces you to terms like P/E ratios, diversification, and dollar-cost averaging. The earlier you learn, the more confident you become.
Some financial advisers will view their role as taking these lessons out of your hands. While it’s great to reduce jobs for you, a great financial adviser will also ensure that you learn these financial skills and strategies early through collaboration and education. If you understand the investment plan that’s in place for you, you’re far more likely to stick to it.
Where to from here?
So, why wait? It’s always difficult to prioritise the future but the sooner you start planning and building the best path forward, the easier it will be in the long run. Once you have a plan in place, you can rest easy knowing that your future has some certainty. The tricky part then becomes remaining accountable to the plan and adjusting course along the way. Remember, the best time to plant a tree was twenty years ago. The second-best time? Right now.
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The information in this article is general information and does not take into account any person’s individual situation. You should always do your own research, or seek professional advice to assist you in making an informed decision about what suits your needs.