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Why is investing important?


The importance of investing.

Why does investing acquire so much of importance? That’s because –

  • Your chances of beating inflation and creating real wealth in tilted in your favor.
  • You can achieve your financial goals.
  • You can dream of creating a retirement fund and maintain your present life status even after retirement.
  • Money created by investing gives you confidence to move ahead in life.
  • Finally, you can also think of keeping something for the next generation.

We have explained the core benefits in one of our previous posts. Here, we’ll talk about the importance of investing in detail.

Beating inflation

We have already talked about inflation and its effects in one of our previous post. The value of money with you would keep coming down as the inflation rate increases. So what your father achieved with Rs 10 lakh 30 years ago would take more than 70.70 lakhs now. The only way to keep up with this fall in the value of money is to keep generating income which is higher than the inflation rate. The above example was calculated assuming an average inflation rate of 8% from 1983 to 2013.

 Jobs are not secure like the past.

Recall the scenario when your parents were working. They had secured jobs. In those times, it was common for people to stay in the same job till they retire. Most of them had government jobs where job security was ensured. Opportunities were limited. With whatever financial assistance and savings they got, they managed to raise children, educate them and buy a home. Medical field wasn’t so technology driven and expensive. When they retired, they got the benefit of pension that has dearness allowance built in so that, their pension pay grows with inflation.

But now, the scenario has changed a lot. No jobs are secure. Even the government jobs are stressful and at the same time not highly beneficial compared to many private sectors. Expenses for education and medicine are high and almost beyond the reach of common man. Hence, it becomes important to invest your money and create wealth.

 Maintaining Status.

 Today your nice job might help you maintain a flashy life. You may have high roller friends and may lead a life style that’s quite splendid. But, after you retire, how are you going to maintain this picture? Once your monthly income halts, you should have alternative sources to depend on. Investing your money in various assets is the only solution to this.

You’re going to have a smaller family.

 If you look back, you’ll find that your grandparents probably lived in a joint family where all the family members would contribute and live together. Living in such a large family had its own advantages. There was more security and you were not alone. Such social environments have given way to nuclear family system where each one of the member has to survive on their own. Insecurity is more and there not much people around to support in times of difficulty. Hence a financial back up becomes absolutely necessary.

Too many financial goals.

Unlike the last generation, financial goals of this generation are too many. It’s difficult to see a person who is content with what he has. All of us keep aiming for a higher standard of living, better gadgets, high-end cars and what not. To achieve all this, wealth creation is the first step.

Explicit expenses.

 Certain expenses like children’s education, daughter’s wedding etc cannot be postponed and you will have to meet these expenses whatever be your financial stage. Hence accumulating your small savings and investing it prudently is important.

You are going to live longer.

 Advancements in medical research have given a lot of hope for us. We have access to treatments that our grandparents didn’t have. For example, cancer is no longer a difficult thing to treat. Medical facilities are available that would detect even a marginal chance of cancer in your body. So of your grandparents lived 10-15 years post retirement, your parents would live 20 -25 years’ post-retirement. The next generation is going to live even longer. Good news isn’t it? The bad news is that, as your life span increases, you need more money to live. Towards the end of your life span, medical expenses etc would be more than what you can imagine. Therefore, to be ready to live long, you’ve to start by investing early.

 Building wealth for the next generation.

 Since we also realize that the next generation is going to live in a world that’s even fast and stressful, it would be better if we can preserve some wealth for the next generation. To do that, you have to spend a life time investing and accumulating wealth. Hence, investing is very important.

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