Why should you make invest? A very basic understanding
Before we start with any explanation lets simply answer a few investments questions, these questions are very important to understand why you should make investments.
Question: If you have a trip of a day planned as you have to leave your family and go somewhere for a day how much money do you think you will leave with your family?
Answer: For a single day I believe Rs 5000 should suffice as you know you will be back the next day and you can then take over the expenses.
Question: Similarly of you are leaving your family alone for a week how much money will leave behind for your family?
Answer: May be you leave behind 50000, less or more depending on your family requirement.
If you plan a trip for a month you might want to leave behind a lacs of rupees. Similarly a trip at the cost leaving your family behind for the entire year, you would want to leave behind even more money.
You are working for your family and you would want to make sure that your family gets enough money to suffice their basic necessities and also cover for their emergency needs.
However have you ever thought, what if you have to leave your family forever (in case of any unforeseen event) how much money would you want to leave back for your family for them to make sure they get their basic necessities and also save for their emergencies. How much money would be sufficient for your family to live a comfortable life if you have to leave them forever? The answer to this question for most people living anywhere on this planet is a, NO; no you defiantly do not know how much money your family will need in case they do not have an earning member in the family.
Why don’t we think about the future?
Oh yes the basic thinking of every generation is “think about the present and live in the present also includes let the past go and thinking about the future is a waste”. Well it is right to some extent if explained correctly “Think about the present”: means work hard enough in your present as you have only today in hand and you never know what your future is going to be, working today will also improve your future. “Let the past go”: no point clinging on to your past as it has no value, the time has gone and will never return, do not regret but learn from your past; make sure you learn from your past. “Thinking about the future is a waste”: waste here means waste of time, do not waste time thinking about the future, instead work today so that along with today even your tomorrow is secured, also work and save to make sure that your investments future is safe.
The emphasis here is on today for tomorrow. To explain this further, you definitely have a today to spend on and the expenses to cover, these expenses may include house exp (miscellaneous ones) expenses for your child’s education also other activities, your own expenses, your spouse’s expenses, etc. These expenses actually never end. But then, you are earning today tomorrow you will not be earning, what about your tomorrow? What about your child’s higher studies? What about an emergency, an unforeseen event? There are so many questions unanswered, so much that you need to answer, yet you have not investments for your future.
The thought of investments needs to come to your mind since the day you have your first salary in hand. The reason for investments may vary, but they need to be investments, not saving money and keeping the same in your pocket or in some hidden wallet in your wardrobe. Keeping money hidden is simply dead money that has no value. Investments of money in may be a stock market, or insurances or mutual funds is much better as your money fetches you returns and it rotates in the market instead of being stagnant in your pockets.
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Lets sum down everything and give you not one but many reasons to make investments
Reasons to make investments
Everything you do in life has a reason for example you get married to settle yourself in life with a soul mate and lead yourself towards a family life, you work to make sure that your family does not fall short of basic necessities, you save money for various reasons like vacations, unforeseen events, etc. now you need to know why should you make investments.
Hit the inflation hard
You know keeping money in your wardrobe or under your mattress is very dangerous rite? You never know when your house will be broken in by burglars and when will you be robbed. You wouldn’t want to risk your families or your life. Keeping you money in a bank, is it really sensible? Does it give you enough returns, the answer is NO. Keeping the money with you is not rotating the money in the market is keeping it dead. Remember it’s not just you it’s a number of other people with the same thinking of keeping their money at home.
This creates shortage of money in the market. A simple law of scarcity explains, “the scarce the product the more is its value”, which means that the price for goods and services you pay will shoot up and will continue to shoot up for the money in the market is scarce. This increases inflation, inflation to some extent is ok; however it should not increase a lot. By making investments you keep your money rotating in the market and this keep inflation constant.
Pension and retirement savings
Focusing on today and the requirements of the day is important, however these requirements will never end they will only increase with time and will also grow as you grow. Remember one thing you are able to fulfill your requirements today because you are earning enough and hence are able to spend. What will happen when you stop working? What will happen after you retire? Employers today do not support you with a pension as most of us work with private organizations.
Will you be able to pay for yourself and the other growing requirements of your family? A pension plan or a retirement plan can help you best in investments for your future, where you will never have to look up to your kids for your expenses. Trust me the feeling of depending on your children for your basic necessities is a very horrible feeling.
Let your money work
You work hard to earn each penny, weather it is to spend on basics, luxuries or to save. In the mean time what is your money doing in the locker or the safe or the bank account, nothing simply lazing around. Do you know your money can earn you money? The moment your money has the right direction the right path to follow it can earn you more that you expect. Yes the path needs to be the right path, either the market directly, or the mutual funds or the insurance to meet a goal. Focus on you future requirements and you will know where and how to invest. If you do not have the right knowledge of investments take the help of an advisor.
Meet your financial goals
Each one of us have financial goals in life, these goals may include your child’s higher education, your retirement, to build your wealth, etc. all of these goals can be met by putting your money in the right direction in the right manner, however if you do not, your money lies aimlessly in your bank account and your lockers. Neither your locker nor bank account will fetch you as much money you require to meet your financial goals. The reason behind this is that your money is either stagnant or as good as stagnant when not invest correctly.
To build your wealth correctly for your future requirements you need to study the market properly and work towards the same; in case you have no knowledge about investments you must seek advice. If you seek advice you will realize that the advisors take a lot of factors into consideration before suggesting you an investments.
Increase your wealth
Investments are saving and it is saving the right way. Do not forget when in the market under a fund manager or under an agent, a stock agent or an insurance company you money is put to work a little aggressively, it includes your capital money or your investments along with the interest, dividend, higher NAV, etc.
In short on top of your money you are receiving money from the market for taking the risk of investing money in the market. Remember the higher the risk the higher the returns. It adds value to your investments; this helps you in creating wealth for your financial goals. You can meet your financial goals faster, as your money will increase faster.
Secure your families future along with yours
You never know when will you need money and for what reason, the future is not seen to anyone. Hence all you can do is save money, yes savings are extremely important. In case anything goes wrong and you are in desperate need of money you can withdraw your money from the market and use it for the emergency. God forbid if anything happens to you your family members or legal heirs can use the money to meet their basic needs or continue the same investments. Money is money and money in the market will always grow. You can always count on your money for your families or your requirement. Remember if your investments are invested rightly it will always give you more than you expect.
Investments have risk —the higher the risk the higher the return
No one will give you money or returns on your money for free; there is some reason for paying you such high returns on your money. The reason is the risk involved in investing your money in the market. The risk is the fear of losing your money in the volatile market. Which means if the market is up the stock price is up you get better investments returns you get good returns, however in case of recession or when the market falls down the returns drop to an extent where you can lose even your capital money, which is the money invested by you.
In such situation you should never panic and remain calm as these situations do recover when the market recovers. Getting panicky and withdrawing your money from the market is going to get your into loss. Just stick around there and wait for the market to stabilize and then grow. In fact in the low market you can, you must invest and make most out of the situation to benefit from it.
Learn how to invest on timely basis and systematically
A number of companies and investments give you an option of investing systematically may be it annually or half yearly or quarterly or maybe even monthly. You have options of investing as low as Rs 500 monthly by companies. You can take anyone of the suitable plans and start investments ; this will get you in a habit of saving money investing it the right way.
It is extremely important to understand why you need to and why you should save; however saving needs to be done the right way that is by investing your money in the market via stocks, bonds, debentures, insurances and mutual funds. Investments in the stock market gives your money the right direction and much higher returns compared to the banks savings account. Investing in the market does expose your money to risk however does help you attain your financial goals faster by putting your money to work and not laze around in your lockers or your bank account. Investments will help not just you also the government and the nation to grow.
First Image source: pixabay.com
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