1. How you’re losing out by not investing
Every journey starts with a “why”. Find your “why” to start investing here.
Has it been some time since you’ve started your first job?
Have you gone out and bought some seemingly stupid things, just because you can?
Now that you’ve gotten that out of your system, are you thinking of what do with the money you’re accumulating, month after month, in your salary account?
You know that you should start looking into investing it but it sounds too complicated and uninteresting, so you’ve been putting it off?
If you answered these questions with a stream of yesses, then, hopefully, this publication can help you decide the next course of action.
Let’s start with some basics.
What does investing mean?
Google would tell you something like: It is the process of allocating some money in the hopes of earning a profit in the future.
Simple, right?
Probably.
But, obviously, it’s not that simple. Because, if it were, you wouldn’t be here reading this right now.
Spoiler alert: Investing is not very difficult. All you need is a little bit of knowledge, a small dose of motivation, and a sprinkle of patience.
If you can get all these three together, you can easily ensure that your money doesn’t lose its value over time.
Wait, what?
Did you read that correctly?
Can money really be worth, well, less money?
Yes, it absolutely can. And it most probably will, that is, if you don’t do anything about it.
This gives us a great segue into the next topic.
Why you should probably invest
Have you heard the word “inflation” before? Surely you have, you’re over 20 after all. Chances are, you even have a rough idea about how it works. If you do, then great! If not, then no worries, it’s a boring concept anyways.
A quick google search of the word “inflation” will return you something like- Inflation is a general rise in the price level in an economy over a period of time.
Let’s understand this better with an example.
You’re a kid in college, who is a bit irresponsible and has butterfingers. And over the past year, you’ve been dropping your phone left, right, and centre and now its started to take a toll on it. It doesn’t work as well as it used to, the screen blacks out occasionally, the glass has shattered in places, and the frame has changed its mind about wanting to hold the phone together. In essence, you need a new phone.
The new one that you’re planning to buy costs 10,000₹ and you have to save up for it. So day after day, you stop spending on things you don’t need, and start creating money out of thin air. This process takes you about a year, but finally you have managed to save up 10,000₹. So you pull out your battered old phone, which, only God knows how, has managed to stay alive, to place an order for a new one. And when you eventually arrive at the product’s page, you’re devastated to find out that its price has increased to 10,400₹. Thank you, inflation.
So what really happened?
Because of the inflation which happens to stand at 4% for smartphones that year, the price of your phone has gone up by, you guessed it, 4%. So something that would’ve cost you 10,000₹, costs more now. In other words, your 10,000₹ is less powerful than it used to be.
This was a simple example which shows you how the power of money reduced over the span of a year. But think about the impact that inflation can have on your savings, over a period of 40–50 years.
Scary, right?
Thought so.
So you should be wondering about how you can prevent this from happening, you probably even know what the answer is going to be. Investments. Correct!
If the younger version of you had invested the 10,000₹ in assets that earned 10% annually. Not only would your 10,000₹ have beaten inflation, it would’ve also become stronger.
So that’s one reason why you should invest. The other would be to make your money work for you instead of just letting it sit idle.
The money sitting in your bank account fetches a certain rate of interest, and chances are, it’s lower than the rate of inflation or if it’s higher, the difference might not be that great. So instead of letting your money lose its value by sitting in your savings account, earning around a measly 2.7% or a more extravagant 4% to 6% by putting it in Fixed Deposits, you can invest it in a simple mutual fund and make over 10% a year.
For some spot of context, if you were to invest 1,00,000₹ in a mutual fund, earning 10%, you’d be getting 10,000₹ more at the end of the year, which is quite honestly, amazing when compared to the 2,700₹, due to the 2.7% rate of interest, you’d make from that same amount sitting in you savings account or the 4,000₹ from your fixed deposit.
This was just a simple example for a one-time investment. But if you invest small amounts, consistently, by way Systematic Investment Plans and reinvestment of profits for tens of years, your efforts will snowball into an avalanche of money and give you some truly absurd gains. And all this, just because you decided to put in a couple of hour’s worth of effort every month, that’s it.
But wait a minute, it cannot be all rosy and this easy right?
Absolutely, right.
Like every other thing in this world, there are risks. But nothing you cannot handle with a little bit of knowledge and patience, just like everything else.
And not to forget the other obvious advantages like, an extra source of revenue, planning for retirement, etc. It’s extra money, you are well aware of its advantages.
What next?
Did we manage to tip the scales in favour investing for you? And now do you find yourself wanting to take the plunge, but don’t know where to start from?
Follow the link below and read the next story in the series.
Why does Let’s Talk Money exist?
To empower you.
Because, we understand the impact that the knowledge of a new tool or skill can have on somebody’s life.
And, financial literacy is one of those tools. It holds the potential, if harnessed, to change the entire course of a person’s life. Which is why we are working towards making the conversation around it more fun and engaging so that we can empower as many people as we can.
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