Let’s understand the difference between Saving & Investing.
It is imperative that you save a portion of your income every month. Most people use the formula,
That means after they have spent the major chunk of their earnings, the left over is considered to be the monthly saving. Ideally, you should first determine how much you want save (a minimum 20% of your income), and then create a budget for expenses.
You need to identify these expenses and set an estimate on the basis of the cost and time when the purchase will be made. We are all aware of the fact that as time passes products becomes expensive on account of inflation (for example, house rent go up by 10% every year in most metropolitan cites), however, the value of money (your savings) goes down every year on account of inflation.
So, we can make this consideration, if inflation is 8% and you have saved Rs.100 this year, it will be worth Rs.92 next year. However, if you had invested it in an asset at 12% return, then your money would have grown from Rs.100 to Rs.104 (112 – 8). Despite this well-known fact people leave their savings in bank accounts where it earns a paltry interest of about 3.4% or Fixed Deposit where interest is about 6.3%.
If you invest Rs 10000 per month at 15% return, you can have almost Rs 9 lakhs after 5 years or Rs 28 lakhs after 10 years. Instead if you save it in the bank, you will have just Rs 7 and Rs 17 lakhs respectively.
People do not venture into the world of investing mainly because of 2 reasons: