As students, we often invest a huge amount of time and effort into our education to achieve our dream careers. Yet, whilst focusing on our studies and career path is essential, did you know that it's also crucial to remember the importance of financial literacy?
In fact, once you enter the workforce and start earning, understanding how to effectively manage your finances will become a vital skill to have.
Thus, as students, we also need to dedicate time to learning about how to utilise and manage money effectively and in a way that is compatible with our religion. Doing this correctly can multiply how much wealth we generate over our lifetime, as well as supercharge the impact we have on the world.
To help you, this article will explore three reasons why students should invest whilst still in education.
1. You have time on your side
As a student, you have a significant advantage when it comes to investing - time. The earlier you start investing, the more time your investments have to grow and compound.
Compounding is a key financial concept to understand. It’s a process where the return from an investment begins to earn returns itself.
Let’s imagine you invest £100 into gold, which goes up by 10% in a year's time. After 12 months, your investment is worth the original £100, plus £10 in returns, which makes £110 in total.
If you stay invested and the value of gold goes up again by 10% the next year, your return would be £11 (10% of £110), giving you a total of £121. This extra £1 return arises because the £10 profit from year 1 is now also earning returns.
If you keep going, the amount you earn each year will keep growing, because each year you're earning returns on a bigger and bigger pile of money. This is the magic of compounding. The longer you stay invested, the more it can grow through compounding. Even small investments made now can grow into significant sums over time.
2. Investing has never been more accessible
Thanks to technology, it is easier than ever to invest. Investing is no longer for the wealthy and there are platforms available that allow you to invest with as little as £1.
This has opened the door for students who may not have much spare cash to dip their toes into investing. While your initial returns might be small, it’s a great opportunity to gain investing experience at a low risk. Once you start earning and have more money to invest, the knowledge you acquire will pay off in the long run.
Moreover, regularly investing small amounts can add up over time, especially when combined with the power of compounding returns.
3. Start building good financial habits early
At this stage in your life, where you’re not yet at your money-making peak, it’s important to start building good financial habits.
Investing early can help you develop a habit of regularly saving and investing, which is critical for long-term financial success. It can also help you understand the importance of patience and long-term planning over short-term gains.
These habits can serve you well now and throughout your life, helping you to manage your finances effectively and achieve your financial goals.
By starting to invest while still a student, you'll learn important financial concepts like risk management, asset allocation, and portfolio diversification. You'll also become more comfortable with financial jargon and the ups and downs of financial markets. This knowledge can help you build wealth quicker.
Lastly, beginning to learn about investing in a halal manner will equip you with more knowledge about your religion. This could inadvertently help you avoid career paths that would clash with your faith. Understanding which areas and products would be deemed impermissible wouldn’t just help you invest correctly, but it can also help guide your career.
As we have explored, there are compelling reasons for students to begin investing early while still in education. Doing so allows you to take advantage of time, as well as the power of compounding, and build healthy financial habits for life.
Of course, the priority at this stage for you will still be your education. However, dedicating even a small portion of your income to investing can pay off over time. The hands-on experience will provide invaluable knowledge to help you make informed decisions about money for the rest of your life.
Your future self will thank you for the head start.