Investing is an art of creating and building wealth. The earlier you start, the more wealth you will be able to generate. And in the present situation, when the finances of people are troubled by Covid-19, the need for investing is clearly visible. Anyways, recessions may come and go but an individual should have his/her finances sort out so that even an event like a pandemic would not cause too much pain.
These are the 4 main reasons why you should start investing right away -
1. Building emergency funds and reserves – Sometimes there can be situations that you would not have planned for, which may cause a huge financial burden on the whole family. Infact the present Covid-19 situation is one of them, many people are losing their jobs, businesses are suffering losses and no one knows when the conditions will get better. So, financial planning will help you to accumulate enough wealth to be able to pass smoothly through times like these.
2. To beat inflation – Inflation means a rise in the value of goods and services. For ex.- If the value of a good is 100 and inflation is 5%, then the value of the same good will be 105 the next year. It also means that the value of money that we keep with us or in saving A/c keeps decreasing. So, over the long term if one doesn’t invest his/her money, then the value of that money decreases or we can say that our purchasing power declines. For ex- If the inflation rate is 5%, then over 5 years the inflation totals at 25%(by simple interest). That means if we have 10 lakhs with us uninvested, then the purchasing power of that money will just be 7.5 lakh after 5 years. This means a straight loss of 2.5lakhs.
3. Power of compounding - Compounding means reinvestment of earnings to constantly grow the principal amount. For ex- If we had 100 as principal amount earning a 10% rate of interest. After 1 year it will be 110. Now, the 10% interest will be calculated on the year-end amount ie. 110, so the amount will become 121. This is known as the power of compounding. Starting early can give a lot of advantage as the earlier you start, the longer you can stay invested, and the longer you stay invested, the more the time available for compounding investments. For Ex - Suppose you start with 5 lakhs initially and then keep investing 1 lakh per year for the next 20 years. Assuming a 10% rate of return, the total amount at the end of the 20th year will be 96.64 Lakhs!
4. Fulfilling your dreams- Many people who want to buy their dream car or house, can’t gather enough wealth to be able to do it. Sometimes, they just rely on their incomes and savings to live up their dreams, which is not enough. Investing can really help people to generate enough wealth to be able to fulfill their wishes. As we saw above how the power of compounding can help us in building wealth that we would not have even thought of. But many people don’t have enough time or financial knowledge to be able to start investing or to be able to create enough wealth. So, that is where we can help you. We provide financial advisory services to help people with their investment and financial goals. You can reach out to us here for getting any information you want.