As the working capabilities of people reduce in old age, it’s not possible for everyone to earn for living their whole life. Not only for the survival needs after retirement, but to keep ready for unforeseen eventualities in life – which is full of uncertainties – one needs to save money.
So, you need to ensure that you don’t spend the entire money you earn and try never to overspend by taking a personal loan, using a credit card beyond your paying capacity or any other mode of accessing credit.
For this you need to inculcate good financial habits and control your spendings on luxuries and non-essential items as much as possible.
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Giving emphasis on the importance of savings, renowned investor Warren Buffet advises – “Do not save what is left after spending, but spend what is left after saving.”
While saving money is essential, it’s not enough, as inflation reduces the purchasing power of money over time. For example, 7 per cent inflation for a decade will reduce the purchasing power of Rs 1 lakh to Rs 48,398 after 10 years.
So, to ensure that the money saved doesn’t lose its purchasing power, you need to invest the money smartly. And to ensure some gains surpassing the rate of inflation, you need to invest in an even smarter way.
Terming – Saving is being cautious while investing is being smart – Vineet Agrawal, Co-founder, Jiraaf, said, “The traditional wisdom has been to save for a rainy day. In a simpler world where things remained constant, and people spent their entire lives in equilibrium, this approach worked very well.”
“However, today’s world is full of fiscal challenges and the financial ecosystem is anything but constant. There is inflation, geopolitical scenarios, climate issues, and many other factors that can drastically alter the financial landscape. This is where you don’t just need to save money, but also invest it smartly in options that give incremental returns alongside the accumulation of your principal,” he added.
“Investors need to be smart and put the surplus cash in multiple channels that give a diversity of liquidity, security, and returns. For instance, alternative investment options such as corporate debt, asset leasing, REIT, or business funding offer superior returns, but with low liquidity. Investors should move away from “only saving” to “saving rightly, investing smartly” mindset with your goals and lifestyle in mind,” Agrawal further said.
