Once the monthly expenses are paid off, the remaining money is set aside for Saving and Investing.
So do you exactly know what you are doing?
Saving or Investing?
People use the words Savings and investment to mean the same when money is the topic.
However you just forget to remember the basics of investment- invest means growth of money, savings means retaining the principle amount.
Saving and Investing – The Basics
Saving is the safely played game when it comes to retaining what you have earned. However what the problem here is that your money stays as and how t had been in the beginning. With such great inflation and rise in price of basic commodities, saving would lead to reduction in the value of money.
Suppose you have saved 1 lakh INR today, it says so after a year. May be, with a bank interest (that is quite meagre) and would be something about 110000, a 10 thousand INR increase if the bank interest is 10%.
However think of the inflation, the rise in price is in fact souring new high every moment. Today, if you can buy one 1 cent in a lakh (just imagining, never can get in such low prices in any city any more) in one year the price of the same piece of land would be 4 to 5 lakhs.
Similarly the price of one gram gold in the beginning of 2015 was 2851 INR however in 2016 it is 3222 INR. So for 1 lakh you could have purchased 35 grams of gold in 2015, in 2016 you would be able to buy only about 30 grams.
Thus investment is very important than sitting on a savings egg. Depending on your nature of work, income, liabilities and retirement period, it is necessary to prepare an Investment Portfolio.
Expenses apart from your monthly needs can be planned through Savings and long term investments can be done through buying a house, gold etc.,
The Risk Factor in Investment
Investment involves risk, and what in life doesn’t have risk. Your life from the moment you wake up till you retire for the day is filled with risks. Its how you deal with them that makes the difference.
Another point to remember not all kinds of investment are risky and the magnitude of risk differs from one investment to another.
If you are able to handle your investment rightly, you sure would be able to maintain a good return chart with time.
Savings and Investments have their pros and cons. While savings and investment are related, their structure, tools and time frames are different. You can save to pay college fees, go on a holiday or buy a car.
Tools for Saving and Investing
Savings is usually made with banks through savings account, recurring deposits, current accounts or securing money in safe vaults. The returns depend on the time period and the type of account chosen. There is no associated risk in Savings through banks.
Investments can be made through mutual funds, stock market, gold, equity trading and real estate. These provide good amount of returns in the long run however, the risks are higher too as investments are dependent on the performance of companies, market and socio-economic conditions.
Investments are made solely for the purpose of wealth building.
Time frame
Savings are usually short term and the principle can be withdrawn at any point in time. Banks provide various types of savings accounts: both short and long term. The rate of returns depends on the plan duration.
Investments are made to attain long term benefits as the appreciation of stocks, gold, land etc., provide greater returns. Conversely, depreciation of any of the above can lead to losing the entire invested amount.
Liquidity
In Savings, money is in the liquid form at all times and can be withdrawn whenever required. It is ideal in situations of emergency and meeting unexpected expenses.
Money in Investments are in the form of shares, gold, land etc., and can take up to a few days or even months to liquidate. While the liquidated amount can be larger than the invested amount, investments are not idyllic for emergency situations.
With more paying jobs and weekend life style, life has become a more spend more enjoy type; however we Indians have always been the investing types, especially in gold and real estate. The government has come up lots of gold investment plans which are fool proof and can be done in a click. Make sure to check them.
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