Why Should You Invest?
Let's assume you’re earning ₹ 50,000/- per month and you spend almost ₹ 30,000/- for your cost of living, which includes housing, food, transport, shopping, medical, etc. The rest of the ₹ 20,000/- is your monthly surplus. To make it easier for us, we shall ignore the effect of income tax in this discussion.
To make it more lively, let us make a few simple assumptions like -
- You get a 10% salary hike every year.
- The cost of living is going up by 8% year by year.
- You are 30 years old and plan to retire at 50. This leaves you with 20 more years to earn.
- Most of your expenses are fixed and you don’t foresee any other expenses.
- The balance cash of Rs.25,000/- per month is saved in the form of hard cash.
Let’s see how the cash balance will look in 20 years -
If you look at these numbers, you would understand that the balance was tipping. Few things are quite startling from the above calculations -
- You have accumulated ₹ 1.7 Crores after 20 years of hard work.
- As there is no surge in your expenses, sacrifices like a better home, a better car, vacations are made.
- Keeping that the expenses will continue to grow at 8%, after your retirement, ₹ 1.7 Crores is good enough to keep afloat for about 8 years of post-retirement life. But things will soon get ugly because you'll have no savings left to back you up.
After 8 years, what will you do when you run out of money?
How do you plan to support yourself?
Now let’s take a look at another scenario, where instead of stacking the cash you choose to invest the cash in an investment option that grows you about 12% per annum. Like in the first year you retained ₹ 2,40,000/-,instead of stacking you invested it at 12% per annum for 20 years which yielded ₹ 2,067,063/- at the end of 20th year.
Letting money make money for us, this is what happened with your decision to invest the surplus cash, your cash balance has increased significantly. The cash balance has grown from ₹ 1.7 Crores to ₹ 4.26 Crores. This is an insane 2.4x times the regular amount. This translates to you being in a much better situation to deal with your post retirement life.
So this answers the question,
Why should you invest?
There are a few more other compelling reasons for one to invest like -
- By investing one can deal with the ever growing cost of living, i.e Inflation.
- By investing, one can aim to have better financial stability by the end of the defined time period. Like the above example.
- To meet life’s financial aspiration.