Among the best feelings in this world is often when you start earning. With this, the shopping checklist expands, search for dream vacation sites is crammed on your phone, and many more such very “important” additions. And last, accidentally, the idea of savings hits your mind. So, if you have earned, it is equally important to invest and utilize the same properly.
We all also come across random bits of advice for personal finance and some, we may have been following blindly. But not all advice is practical. Here are some personal finance myths that need to be busted.
1. Myth: Savings = Money to be Kept in Savings Account
I have started saving – just see my savings balance and fixed deposits (FDs). It’s the safest place.
Let’s face it. We keep dipping into our bank account for different things – including “important” ones like the new mobile phone. Expenses have a habit of eating up all that is readily available – and your savings account is the first one.
Even if we are the rare person who keeps money in FDs, and doesn’t “break” them, is it actually a saving? With inflation being higher than the returns, effectively we are exchanging any real returns for “safety”. To take an example, the FD rate being around 5% at present and consumer inflation being around 6%, we are eroding our purchasing power.
Thus, it is vital to go beyond the savings account and invest money as a portfolio – of different asset classes, that align with your goals and needs.
2. Myth: A Retirement Plan Before 40 is Too Early
What is retirement? Is it no work or doing work because you want to, not need to? And saving is not only about making sure you have things that you would need at retirement, but everything to enable your dreams to come true – be it a dream house, the best education for your children, or that coveted car. Let time work in your favour – and let your money work as hard as you do.
We often hear that “money begets money” – simply put, savings in turn help you to save less. Over different lengths of investment time, this means exponentially different results. For instance, if you decided to invest just INR 5,000 a month at a six percent rate of return from the age of 20, it will have turned into INR 5 crore at 60. On the other hand, even if you saved INR 10,000 per month from the age of 40, you’d only have INR 4 crore on hand at the same age.
What does this mean for your personal finances? The earlier you start investing, the …….