FINANCIAL EDUCATION

What is the need of Investing?

Everyone might be advising you to invest. But what is the need of investing? and why should you consider their advice? By the end of this article, you will get answers to these questions.

Before telling you the answer in a straightforward way. I want to explain to you the concept in the form of a story and math involved behind it. In our story the name of the Character is Ravi.

Ravi is 25 Years old and he wants to retire at the age of 55. Currently, he earns Rs.4,00,000/Annum. He gets a hike of 10% every year. Ravi spends 75% per cent of his earnings and keeps his remaining 25% in his saving account. Interests given on a saving bank account is quite low. So we can ignore that. Every year his expenses grow by 8% (Inflation)

Below I am attaching a table which provides his salary and its growth, expenses, savings till his retirement i.e., 55 years. Also in the last column, I am adding the amount he might have got by the time of retirement if he would have stayed invested for 30 Years @ 12 % interest rate. Observe the differences.

Excel sheet showing how money grows

Hope you got the difference. But I will take this opportunity to explain in a short way. After all the expenses if Ravi store 25% per cent of his earnings, when he reaches 55 years old, that amount will sum up to around RS.1.15 Crore. I have already done some rough math and came to a conclusion that with this Rs.1.15 Crore Ravi can survive for around 7 years. After that, his bank accounts will be empty.

On the other hand, if Ravi has invested that left out money i.e., 25% of savings then the amount which you get would be Rs.4 Crores, which is 4 times more.

Now I hope you understood the reason for starting investing from an early age.

You are at the end of the article and I am going to tell you the final answer for “What is the need of Investing?”

  1. To Beat Inflation
  2. To Create Wealth

After reading this article, you might be thinking that everything seems very comfortable on the excel sheet. But, “How to get 12% compounded interest rate every year? and Where should I have to Invest?” I will discuss this in my next article. In the meantime, consider reading this one – “Why Should You Invest Your Money?”

Thanks for reading the article.

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