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Importance of Saving Money for the Future – Research & Ranking

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Money is a powerful tool that is necessary not just to take care of our basic needs but also our lifestyle needs and various financial goals.

Time and again money gives us some subtle but important messages. Have you ever noticed these messages?

In this article, let’s try to decode the messages that money would give and the importance of saving money for the future.

If money could speak it would make the below statements:

I hate lying idle”

\"Importance

Whether you are keeping your money locked away safely in your cupboard or simply in your savings account, your money is actually losing its value. Most common savings accounts offer interest rates in the range of 3-4%. If you factor in the rate of inflation which is currently around 4.5% the real rate of return that your investment generates is -.50% (4.5%-4%).

A monthly investment of Rs. 1000 invested at a 5% rate of interest for a period of 10 years would become Rs. 1,55,756 on maturity. At a 10% interest rate, the maturity amount for the same investment would amount to Rs. 2,05,573. Just imagine the kind of return your investment would generate at a 15 or 20% rate of return. Equity investments have actually generated such returns and even higher returns over the long term.

So instead of keeping your money idle invest your money. Depending on your age you can allocate a portion of your investments to equity using the thumb rule of 100 minus your age. For example, if you are 25 years old, the ideal proportion of equity investments in your overall investment portfolio should be 75%.

The rationale behind this thumbnail is that when a person is young he can take more risks. Equity investments are subject to market risks due to the high volatility associated with them. However in the long run they tend to be stable. 

Spend me wisely”

\"Importance

There are three aspects of money. The first is earning money while the second is spending money. Most people often overlook the third and important aspect of spending money wisely.

Spending money wisely means spending on things you really need and not because a sale is going on at your favorite store. In today\’s world of easy access to online shopping at your fingertips, easy access to credit and discount sales throughout the year it can be very challenging to cut down on impulse buying.

There is a popular joke doing rounds on social media “The best way to save money during an online sale………. is to uninstall the apps of shopping portals”.

Spending wisely involves controlling your emotions, planning your purchases well in advance, and preparing a monthly budget. A monthly budget will not only help you in tracking your unnecessary expenses but also help you to avoid them in the future.

Let me work for you”

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The majority of us have to work for money. It is necessary as money is the key to achieving our financial goals. However, when you invest your money, you are putting your money to work for you. It\’s great, right?

When you invest your money for the long term, every rupee that you invest multiplies due to the magic of compounding. Compounding is a process in which the money that you invest earns interest and the interest also earns additional interest.

For example, if you invest Rs. 10,000 for a term of 5 years at 10% return, you will have Rs. 11000 by the end of the first year.

In the second year, you will earn 10% on Rs. 11,000, making it Rs. 12100. In the third year, you will earn 10% on Rs. 12,100 making it Rs. 13,310. By the end of the 5th year, you will have Rs. 16,105.

That’s the power of compounding!

I stay with those who are patient”

\"Importance

Patience is an important virtue in investing as no investment can multiply your wealth overnight. Even equity which has beaten the returns of all other asset classes consistently over the past few decades requires patience.

A nominal investment of Rs. 10,000 in stocks like TCS, Wipro, HUL, RIL, HDFC Bank, Maruti, have turned into crores in the past two decades. However, only patient investors who remained invested in these stocks through challenging times due to multiple market crashes were the ones who reaped the rewards.

Investors who invest with a short-term mindset, often lose patience and exit their investments at the first signs of correction. When you invest in good stocks, there is absolutely no reason to panic during a market correction as such stocks will also recover when the tide changes. Click here to invest in a portfolio of 20-25 multibagger stocks chose after detailed research.

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