Invest:3 benefits of investing for your future

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Marketopedia / Stock Markets Basic / Invest:3 benefits of investing for your future

The short answer, Who doesn’t like to be rich?

Before we answer the aforementioned query, let’s first consider the consequences of not investing. Let’s assume you make Rs. 60,000 per month and spend Rs. 30,000 on living expenses like accommodation, food, transportation, shopping, and healthcare. 

Your monthly surplus is the remaining amount of Rs. 30,000. 

Let’s not consider the impact of personal income tax for this example. 

Here are a few assumptions: 

  1. You receive a 10% salary hike yearly.
  2. The cost of living is anticipated to increase by 8% annually.
  3. Let’s assume you’re 35 and you require a lump sum at the age of 50. You still have 15 years to earn.
  4. Your costs are predetermined, and no further costs are anticipated.
  5. The remaining amount of Rs. 30,000 per month is kept as hard cash.

If we apply these assumptions, here’s the cash balance in 15 years:

YearsYearly IncomeYearly ExpenseCash Remaining
  Total Cash After 15 Years

Here are the takeaways: 

  1. After 15 years of toiling away, you have earned Rs. 1.14 crores. 
  2. Your lifestyle hasn’t altered over the years due to fixed expenses, and you may have even suppressed long-term goals like a bigger home, a better car, holidays, etc. 
  3. If the cost of living grows at an average rate of 8% after the age of 50, you will have a corpus of Rs. 1.14 crores.

But is that enough? Lets see how you will fare if you decide to invest in an investment option that grows at 1% annually instead of keeping it idle. 

For instance, if you retained Rs. 360,000 in the first year and invested it. At Rs. 12% annually for 15 years, the result would be Rs. 1,759,360 at the end of the 15th year.

YearsYearly IncomeYearly ExpenseCash RemainingRetained Cash Invested 12% pa
  Total Cash After 15 Years55899247

Your cash balance has considerably increased as a result of your decision to invest the extra money. From Rs. 1.14 crore, the cash balance has increased to Rs. 5.58 crore. 

Now, coming back to our question on why one should invest. Here are a few valid reasons to consider:

  1. Fight inflation: By investing, one can beat inflation or the growing cost of living. 
  2. Build wealth: By investing, one can have a bigger corpus at the end of the predetermined time frame. 
  3. To fulfil one’s financial goals in life.

In a nutshell, it is very essential to start investing as early as possible to reap the maximum benefits.