Investing culture in India is still at a very nascent stage in India even after the significant addition of investors over the last five years. Our elders or ancestors have always focused more on savings rather than investing or spending. A higher proportion of money into savings has resulted in erosion/stagnation of wealth because of high inflation in the last 1-2 decade. On the flip side, the younger generation is swayed more towards spending rather than saving or investing. In fact, the past trend suggests that over the years India’s household savings (as a % of GDP) has seen consistent decline whereas household debt continues to increase at a steady rate.
Save. Invest. Spend. Repeat – The Ideal Approach
The ideal approach should be to save first and create a corpus of at least 12-18 months of your monthly salary which can be used to cover any unforeseen/emergency circumstances. Post the savings target is accomplished; one should set aside a fixed portion of at least 30% (higher the better) of your monthly post-tax salary towards investing. The remaining 70% can be used to cover your expenses including household, recreational, travel, etc. If your current expenses exceed 70% of your income, it would be wise to look to cut down on your unnecessary expenses or find another source of income. Based on your risk profile one can invest the 30% into a combination of assets like Equity, Debt and Gold. One can read our article on how to create an ideal portfolio?
Here are the 5 reasons why you should start investing today!
Grow your money
Everybody loves more money. Don’t we? Money sitting in your bank account or at home will not grow by itself. Therefore, it is extremely important to put your hard-earned money to great use. An investment made in asset classes like equity, gold, debt (fixed income), and real estate has the potential to build and create wealth over time.
Just like we mentioned above, saving money at home or at banks alone is not sufficient to beat inflation. If you are not beating inflation, then basically the corpus which you have created has been losing its value making you poorer. Investments made in certain assets have proven to beat inflation thereby protecting the erosion of your wealth.
Well, whether we like it or not, we do have to pay taxes on our incomes. However, the government has made provisions that if you make certain investments, it can help reduce your taxable income. Some of the instruments include Tax-free bonds, ELSS funds, Public Provident Fund (PPF), National Savings Certificate (NSC). However, most of these instruments do have a lock-in period typically three years or more.
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As much as one is thinking of securing their present by earning, it is also important to plan for your retirement. Private employers do not support you with pensions as is the case with government employees. Further, the cost of living will only increase from hereon. Therefore, with no running income when you retire, it is essential to invest a certain portion of your income for retirement planning to make your future secure.
Fulfil your goals
Everyone has dreams (House, Car, Vacation, etc.) or certain key responsibilities like child’s education, marriage, etc. It is important to convert these into goals and start putting your money in the right manner to achieve them. The goals could either be short term or long term. Either way, there are various investment avenues available which would be suitable to fulfil them.
This is just the first step. We hope to have convinced you to start investing. So join our journey towards better financial well-being.
Do leave a comment below and tell us what you think.