Don't just save money. Invest It.
Yes. You read the title right.
Why?
Having cash reduces the value of your money over a period of time
In fact, Escobar would every year LOSE $1 billion of his Cash because rats would eat it or would be damaged by wear and tear!
Having cash can easily induce into spending it.
Keeping money in SB Account is no good either.
At the current rate (4%pa), it will take 18 long years to just DOUBLE !!
Let's dig deep and understand
INVEST, DONT SAVE
When I say Invest and don't just save, it obviously means that there is a definite difference between SAVING AND INVESTING.
Yes. Indeed there is.
Depending on where you are putting that money decides where you are SAVING or INVESTING.
1.
SAVING is a process of accumulating money. With Saving, you are safeguarding your money, and is risk-free.
INVESTING is the process of CREATING WEALTH and could involve some form of Risk.
2.
SAVING does NOT grow your money in REAL Terms
Inflation tends to eat the return.
For example, an SB account may give you a 4% return but if the inflation is 5%, your money becomes LESS VALUABLE month after month.
You will be able to purchase LESS of the same item next year even with increased money you have
INVESTING ensures that your money DOES GROW IN REAL TERMS
3.
SAVING is for SHORT TERM
INVESTING is for MEDIUM TERM AND LONG TERM
4.
SAVING gives INSTANT access to your money
INVESTING may not be accessible instantly
5.
SAVING makes your money LAZY
INVESTING makes your money WORK HARD and gets your MORE MONEY
6.
SAVING is very easy to UNDERSTAND
Keeping money in Savings Bank,
Keeping money under your Pillow,
Keeping money in your cupboard is called SAVING.
INVESTING is relatively DIFFICULT to understand.
Keeping money in Stock Markets
Keeping money in Mutual Funds
Keeping money in Real Estate
7.
Under SAVINGs your lifestyle could remain more or less the SAME throughout your life.
Under INVESTING your lifestyle has a SURESHOT chance of having a BETTER LIFESTYLE continuously.
Your income and savings could see a continuous uptick but your lifestyle will remain at a standstill, resulting in a vicious cycle of you trying to increase INCOME with little to show in terms of BETTER LIFESTYLE.
8.
Under SAVINGS, invariably you will have a specific idea of how much you are getting at the end of your saving period.
Under INVESTING, the returns are variable, volatile and hence the end corpus is vague and not possible to predict/calculate accurately.
9.
SAVINGS doesn't need much expertise
INVESTING is complex and expert hand-holding is a MUST at least in the initial stages and in some products, inevitable.
So...What should I do?
But Srikanth, SAVING means YOUR MONEY IS SAFE... isn't it?
No...NOT AT ALL
Saving actually not only erodes your value of money but also since it's easily and instantly accessible could be at the risk of BEING SPENT on the spur of moment.
So, is INVESTING done only by BRAVE people?
Once you UNDERSTAND Risk, there is nothing to be feared.
Anything you do with money involves RISK.
Even keeping money in your cupboard involves RISK as this depletes the VALUE OF YOUR MONEY.
Hence, it is better to interact with a Knowledgeable person and understand the RISKs involved with INVESTING and make sure your MONEY GROWS and you do become WEALTHY.
You need to come out of FEAR of INVESTING which is possible when you read more, interact more, and most importantly have a MENTOR who can guide and HAND-HOLD you through your Wealth Creation Journey.
Without Saving, Investing is not possible.
So Saving is the BASE and not to be ignored.
Both help you accumulate money for future expenses.
Both SAVING & INVESTING have their places under the SUN but you need to understand HOW MUCH TO SAVE AND HOW MUCH TO INVEST and most importantly WHERE TO INVEST
In INVESTING there could be SHORT TERM pains and periodic bouts of VOLATILITY, you should DIGEST these and STAY INVESTED which will ensure that you just DONT RETIRE RICH but actually F.I.R.E. AND RETIRE WEALTHY !!!
FINALLY,
HOW MUCH TO SAVE?
HOW MUCH TO INVEST?
SAVING IS MONEY KEPT ASIDE FOR AN FORESEEABLE EXPENSE (NEED)
INVESTING IS MONEY KEPT ASIDE FOR A FUTURE EXPENSE (WANT/COMFORT)
Saving or Investing depends on
a) Your Risk Profile
b) Financial Status
c) Financial Goals
d) Your Passion to become Rich
So, firstly make sure that your 1 year of expenses is SAVED.
Also keep aside money for annual expenses like Tuition Fees, Insurance Premiums, Taxes, etc
and most importantly, keep at least 3 months (minimum) as EMERGENCY money.
All of these should be SAVED.
Whatever is left is what should be mandatorily INVESTED.
Anything less than 3 years should be in SAVINGS instruments
Between 3 to 5 years should go to a mix of Saving + Investment products
Above 5 years can and must go to INVESTMENT products
Again here, under-investment comes various asset classes and products which should be invested under the expert HAND-HOLDING so that you actually CREATE WEALTH.
Remember,
Cash is NOT KING but CASH FLOW is !!
All the best to a Healthy, Wealthy Future.
Regards,
Srikanth Matrubai
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