Let's find out why should you invest and how you can create wealth through investing
Updated on: 11-Nov-2022 •Ravi Banagere
Raise your hands if you want to earn a second income by simply staying patient.
Sounds like a gimmick, right?
Let us present to you the world of investing. Just like you work hard to earn more in your job, investing can make your money work hard for you.
Living off a single income can be tough. Meeting various financial goals such as car purchase, child's education or retirement planning can be a pipe dream if one plans to rely on a single source of income. This is where investing can come in handy.
In addition to helping you meet your goals, it acts as a buffer for our emergency needs in case of any unforeseen events like losing a job, medical emergencies, etc. Therefore, it is important to not simply keep money in a savings bank account but also invest it so it helps you create wealth over a long period.
Why investing is better than saving
Let's understand why we need to invest with an example. Let's assume both Savita and Gunjan have young children and will attend college in 10 years. So, Savita starts keeping aside Rs 20,000 every month in her bank account which earns 3 per cent interest. Gunjan, on the other hand, starts investing Rs 20,000 every month in a mutual fund that earns 12 per cent on average.
At the end of 10 years, Savita will have Rs 28 lakh in her bank. However, Gunjan will end up with Rs 46.50 lakh. Both invested Rs 24 lakh for 10 years but Savita earned Rs 4 lakh extra and Gunjan, who invested the amount rather than keeping it idle in a savings account, earned Rs 22.46 lakhs on her investment. That's the power of investing.
Benefit of investing early
As the saying goes, "the best time to plant a tree was 25 years ago, and the next best time is right now." Time is an important factor when it comes to investing. Starting early helps us take advantage of compound interest. If one hasn't started early, it's time to start now.
Let's continue with our example of how the combination of time and compound interest works. Let's assume Savita understands that merely keeping aside money in the bank that earns just 3 per cent interest is not worthwhile and thinks about investing. Plus, she has learnt more about compounding and plans to start investing early. So she starts a monthly investment of Rs 5,000 for the next 20 years. Suppose she invests in a fund that earns 12 per cent, she would amass a corpus of Rs 50 lakh.
Meanwhile, Gunjan doubles her investment amount to Rs 10,000. However, she keeps the plan for 10 years and not 20 unlike Savita. If her fund also earns 12 per cent, in the end, she gains only Rs 23 lakh.
Even though Savita invested just half the amount as Gunjan did, she earned Rs 26.72 lakh more than her by starting early. Clearly, time is of the essence here. If you invest in a disciplined manner and give your investments plenty of time, you can achieve most of your goals without much pain.
Merely working hard on a day job and relying on a single income wouldn't have helped Savita or Gunjan to put their kids into a better university. And even if they did, they might have found it tough to meet other financial goals. So, start early. It's never too late to be an investor. Even if you start with a small amount, it can take you a long way - just like Savita did.
If you are new to investing and need to know where to begin, we have curated content just for people like you. Get your basics strong and start your investing journey now. Get started with confidence.
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