Hello and Namaste Everyone,
We earn money and try to save some of the earnings because this can be used for future expenses. This is very good and highly recommended that we all save some money from our paychecks. It is also important that we invest this saved money on something to grow it. If we keep the money then it does not grow and it also loses its value with each passing year. This inflation rate varies in different countries and if I talk about India then it is somewhere around 6 to 7%. So if I take India as an example and here if you keep ₹1000 for 1 year sitting idle in your bank account then the value of this money will be reduced by approximately seven percent after one year.
There will be two types of losses if the money is not invested, first, it will not be grown so the value is not going to grow and second inflation will reduce it by 7%. So here we are losing the money both ways. If we follow the formula of investing then we will be able to avoid both situations where not just money will be reduced but it will also grow. there is a catch that if you invest on fixed deposits offered by the bank that pays about seven to eight percent per annum. If you choose to invest in such products then you are going to accommodate only the inflation rate. There is hardly any growth in the capital amount.
Investing in assets is always a good idea because it can be a profitable decision. we have a variety of assets to invest in and these can be some metals real estate land etc. In India, traditional investors are always more interested in investing money in land or gold. This is because they have been seeing the same done by their parents. My situation is also the same because I have always seen my mother invest money in gold and my father used to invest in land. my father invested almost all his savings in land and today the value is good but even now we do not want to sell it because it is generating rental income. With gold investment, it is mostly on the emotional side because my mother is still not willing to sell it off and make a profit. We Indians have this problem and even I do have the same because whatever I have invested in gold is still with me. I know that I can sell it anytime but because of some emotional connection I do not want to do this but the fact is the value is grown. In case of emergency, I always have the option to sell off and get the money a in few hours.
the other side of investment is a liability that sometimes we create out of necessity. for example, if we buy a car then it is not an asset because it depreciates its value. it is a kind of asset that we can call a physical asset but it is more of a liability since its value will keep on reducing every year. in India, the standard depreciation rate is ten percent which is calculated at the time of insurance renewal. This is the standard and this percentage is much higher I think because earning the same is difficult. Any expense that we do to buy an asset that loses its value every year is a liability. we should avoid such expenses unless it's really necessary because this way we will be losing money instead of earning anything. I am not saying that we should not buy a car or any other asset but we need to do a proper study before making such decisions and only do whatever is necessary.
My phone is an asset that also loses value and now its value is very low as it's 5 years old. I am planning to buy a new phone next year because this is creating some problems and now it is a necessity for me. I will not be buying a new phone unless this phone is usable and if this time can be a year or so then it is really good for me. I know that whatever I spend on my phone will not be coming back and it will also not generate any income. this is why it is a necessity but I can avoid buying a new one unless it's really necessary.
Thank you so much
Stay Safe
