There are several reasons why you should start investing and also get insurance at a young age. But, at the time when we start our career, with a little income and too many expenses, the dilemma that we often face is should we invest or insure first?
This article discusses the following info :
At the time when we start earning, our income is quite low. And if we want to save from that little amount of salary that we get, then we have to put restrictions on our spending by creating a budget. Over the years this simple practice becomes a habit, eventually improving our spending habits.
To adopt the simple habit of saving/investing, put away the part of the salary at the start of the month. And, then make a monthly budget with the rest of the money you have in hand. Say you earn Rs 30,000 monthly and out of that you want to save Rs 10,000 every month. So as soon as you get your salary, put Rs 10,000 away, and then create a monthly budget with the rest Rs 20,000.
For starting your investments early, you stay invested for longer, which automatically increases the benefit of compounding. Let’s understand this with 2 simple examples.
Say you want to save Rs 5 crore for your retirement. Now, with that goal in mind, you start investing in an equity mutual fund from the age of 22. For this, you will have to keep investing Rs 5,500 for the next 38 years, and your total investments would be Rs 25 lakh.
In the second case, the goal remains the same but you start investing in the goal much later, let’s say at 45. For this, you would need to invest Rs 1 lakh every month for the next 15 years and your total investment amount would be Rs 1.8 crore.
Taking the cue from the last point we would like to point out that due to the benefit of compounding you need to invest a much smaller amount if you remain invested for longer.
In the earlier point, we have taken two examples where the target amount remains the same, but the investor starts the investment at two different points in time. In the first case, he starts investing at the age of 22 and continues the investment for 38 years. For this, his monthly investments over the years were only Rs 5,500 while the total investment amount is Rs 25 lakh.
Now, for delaying the investment process and starting the goal at 45, his monthly investment amount would be Rs 1 lakh and the total investment amount in 15 years would be Rs 1.8 crore.
Speaking about health insurance, no matter what your age is you should always have health insurance. Sickness or some health emergencies can come at any time and if you do not have health insurance, medical expenses can burn a huge hole in your pocket. So you should never delay the process of getting health insurance.
However, we often delay the process of buying a term life reason for very simple but foolish reasons. The common notions are since we are young and healthy or since at this stage, as the responsibilities are less, we do not need term life insurance. However, contrary to the popular belief, buying term insurance early on is always favorable.
The biggest advantage of buying term life insurance early on is the premium amount that you pay is much less as compared to what you would pay if you buy it at a later stage in life.
For example, say you want to buy a policy of Rs 1 crore that would give you coverage till 75 years. If you buy it at 25, the premium amount would be Rs 8,000 annually. At 30, it would be Rs 10,000. And at 45, the premium for the same policy would be Rs 30,000.
The premium for a term insurance policy remains the same all through. Hence, if you buy it at an early age, the premium will remain low all through. Also, in total, you would pay much less
Say you have bought a Rs 1 crore term insurance policy at 25 which will provide you cover till the age of 75, and for this, you pay a premium of Rs 8,000 per year. So in total, you would pay Rs 4 lakh. But, if you buy the same policy at the age of 35, then the premium amount would be Rs 15,000 yearly. So the total amount that you are required to pay over the years would Rs 6 lakh.
The sooner you buy the term insurance, the sooner your family gets covered. Even if you are not married, your parents might be dependent on you or you might have a loan (vehicle loan, student loan), in case you die early then your family will have to bear that burden. Having term insurance ensures your family will not have to go through financial hardship in case something happens to you