Why do we need to INVEST? - A blog for beginners to create Financial literacy

In my previous blog post had explained the requirement and importance of Hygiene factors as a precursor to entering the markets . Thank you for all the feedback .Today, let us explore the reason behind wanting to INVEST . 
Why would anyone want to save and invest ?

Let us understand the reasoning behind this with a small example!

Meet the dreamer Mr. Happy ! 

      Happy Singh and Chintamani are best friends residing in rental properties in nearby neighbourhoods .They both earn 24 lakhs p.a by working in an MNC . However their approach to life & investment is totally different ! Happy Singh enjoys life , true to his name .He SPENDS first and whatever is left in the end of the month he invests . He believes he is young and youth is the time to explore, enjoy and travel often.
His philosophy : YOLO  😎😎

The result : He is left with around 15,000 by the month end after paying all his EMI 's for loans ( Mobile , Laptop , Personal  , 4 Wheeler ) and splurging on food and travel. He happily invests this amount in by creating a Fixed Deposit annually . Life's sorted !! 👌👌

Meet the planner Mr Mani ! 

    Mani saar worries about his future and old age. So he SAVES first by keeping aside a lump some amount each month and runs his house with the remainder . Mani saar plans out his life goals every 5 years and reviews his financial investments and is financially literate. He enjoys without spending much and learns to be content.
His philosophy : Simple living , high thinking. 📓📜💪

The result : He is left with a disposal surplus of 1,00,000 each month with no EMI's  and invests this sensibly by following proper asset allocation* 
( Will explain this in a different blog )  
Both invest the mandatory 1,50,000 under 80C as well.

Net result ?
Happy Singh invests a total of 3,30,000  [ 1,50,000+ (15,000*12)] p.a and Mani invests a total of 13,50,000  [ 1,50,000 + ( 1,00,000*12) ] p.a - A difference of more than 10lakhs ! 

         This is the reason why we need to save more and invest it after careful planning. It makes more sense to save a higher percentage of one's salary in the initial years (provided one earns considerably ) as the base for compounding gets bigger.

GREATER THE BASE LARGER THE COMPOUNDING ! 
To elucidate let us take a small example with very basic calculations and assumptions .
Year 1 :             Happy :      10% return on 3,30,000 is 33,000
                                                                   vs
                          Mani :       10% return on 13,50,000 is 1,35,000 .

Year 2 :             H :             10% return on  3,63,000 is 36,300
                                                                   vs
                          M :            10% return on 14,85,000 is 1,48,500  and so on .
                               

                   After 5 years the total amount compounds to 5,31,468 vs 21,74,189 .
Who do you think will attain Financial Independence sooner ? 
 But naturally , the person who SAVES MORE and INVESTS WISELY. 

Few pointers  : 

1) A minuscule percentage of people are financially literate . We may be experts in I.T or a manager in a Media firm but that doesn't mean we have knowledge and understanding of Finance. Being educated is different from being financially literate . Hence we must take some pains to understand the basics of how things work. IGNORANCE IS BLISS doesn't work here.

2) Learn ( read books , listen to podcasts )  , ask for help ( Use the internet wisely! ) , understand  the basics thoroughly and only then INVEST. Borrowed conviction kills. 

3) Decide if you are okay with having to endure a little pain NOW by cutting down on unnecessary expenditure or you are okay with having to endure more pain later on during old age. ( Joint pain is free along with liquidity pain ! ) 😝😝 We have many apps which help us manage our monthly expenses and provide us a breakup in detail to reflect upon.
I recommend Money Manager app on Google playstore.

4) Not all of us are lucky enough to get high paying packages . Few of us are and yet we splurge on unwanted things in our youth . Let us try to embrace Minimalism. Avoid the trap of DEBT . Credit cards and EMI's may seem convenient but mostly we end up spending on unwanted things.
As for the others who earn on the lesser side,  we have no option other than saving each month , investing sensibly and waiting patiently ! 😅😅

5) Asset allocation is encouraged with a view to diversify our investments . However a lot of it depends on our risk taking ability and our age. As we age more and more it isn't advisable to aggressively invest all in Equity.

6) One can be happy by not being materialistic. We should inculcate hobbies and derive happiness .Meet different people and learn from our experiences . Encourage charity. We can travel on a sensible budget .Just because we need to save up for retirement doesn't mean we should sacrifice all pleasures and be miserable currently ! A healthy balance of saving and spending is needed for overall happiness .  

To sum it up ---
1) SAVE FIRST , SPEND LATER.  NOT VICE VERSA!
2) DEBT INITIALLY THRILLS , LATER KILLS!
3) PICK UP A GOOD BOOK & START BECOMING FINANCIALLY LITERATE !
4) ADOPT P-D-C-A CYCLE APPROACH .
( PLAN - DO - CHECK - ACT )
5) LEARN TO KEEP GREED & FEAR IN CHECK . AUTOMATICALLY WE DEVELOP PATIENCE THEN!
6) INVEST SENSIBLY & HAVE A SANE ,RATIONAL EXPECTATION OF RETURNS .EASY MONEY IS A MYTH .😈😈
7) THE SEEDS OF INVESTMENT TAKE TIME TO BEAR FRUITS . SO BE PATIENT!

                                       So how do wish to spend the latter years of your life ? 

Always tensed ,dependent on others financially ? 

                                                                          OR      

Financially independent and stress free ! 


Hope you liked reading it . Feedback would be highly appreciated as it would help me draft my next blog post !
Thank you. 😊