Updated: Jan 28
You know the excitement of online sales when Diwali or New Year is around the corner? The festivities are up in the air and it’s raining discounts on all your tech gadgets, smart watches to iPads, name it and you can now pocket even the most expensive items on the rack. You add the Apple smart watch to your cart and excitedly run to your parents with the good news only to discover that you’re still falling short of half the amount. This seems odd because for the past 1 year, you’ve been saving 40% of your monthly pocket money like you learnt in the management of personal finances.
How did savings not add up to buy your coveted tech gadget, even at a discount?
The reason is simple, your savings did not grow to meet the market price. For example, if you saved 1000 per month you should’ve had 12,000 by next year. The same amount if put in an investment scheme, would’ve grown to meet your goals and viola, the phone is yours.
Let’s first understand what investment is. Investing is a method to allocate your money such that you get higher returns from the initial amount. Investment is not just a buzz word, its benefits are multi-fold to ensure that while we’re working for money, money works for us too!
Irrespective of your age or amount you receive, it is never too late to level up your financial literacy by getting your basics right. Here’s 5 reasons that will encourage you to reap the benefits of investing.
Investing reaps long term benefits
If you imagine yourself rocking on a chair on the porch of your post retirement beach home, investing has you covered. Why just retirement? Whether it’s saving up for your dream college or even buying a car 20 years later, investment is the guaranteed pathway that will not only encourage the habit of saving but also build your money as the years pass by. Now, how cool is that?
Investing makes your money work for you
If you don’t want to work for money all your life, you can make the money work for you all your life. Confused? Let me explain. Let’s say that you save Rs 500 a month for the next 5 years, neither invested it nor earned any interest on it, you would have Rs 30,000 after 5 years. But if you invested that same Rs 500 a month for 5 years and earned 8 percent each year on your investment, you would have end up with more than Rs 2400 more. In simple words, your money grew! If saving is working hard, investing is working smart!
Investing helps you beat the market inflation
Let’s take the household example of one of the most essential daily commodities: milk. A liter of milk today, costs around Rs 50. The same quantity of the same brand would’ve cost Rs 45, 5 years ago. That’s an increase of Rs 5 in 5 years. In short, the value of your commodity increases but the purchasing power of your currency has decreased. This is a straightforward example of inflation. Prices of commodities and assets like land, petrol, gold inflate across the years and the Rs 100 rupee note in your wallet drops year after. While inflation is not directly in our control, planning for it is. No prizes for guessing, investment is the key! It helps us create a future plan to accommodate the inflated prices and in the best case, beat the inflation curve.
Investing early buys you the value of time
If investment sounds like what adults do, I’ll let you in on a secret. It’s not just about how much money you have to invest, it’s about how much time you have to invest it. Kids have the gift of time. Compound growth takes place. In simple words, it helps your money grow faster. You get a return not only on the initial amount, but also on the interest accumulated every year. More the time, more the potential to grow. So, what are you waiting for?
Investing becomes a secondary source of income
“Never depend on a single income. Make investment your second income.”
- Warren Buffet
The age-old adage of “never put all your eggs in one basket” applies best to investments. By diversifying our investments in different schemes, we can keep a constant flow of returns through these sources. While we’re working at our day jobs, simultaneously the money works for us. It is always wise to have a plan B and investment is a fool-proof plan.
Here were just 5 reasons to get started on investment. If you do not need 5, here’s one: Investment will only reap benefits of your hard-earned money. Investment might seem like a big deal but fortunately for us, Varsity by Zerodha, has simplified this concept with their easy to understand and free learning modules on all things investment and financial literacy.
Did you know the word Bank comes from the old Italian word Banca, which means benches, which were used as makeshift exchange counters by Florentine bankers?
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