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Invest:3 benefits of investing for your future

  1. Stock Markets Basic
    1. Invest:3 benefits of investing for your future
    2. Types of Investment Diversification asset classes
    3. What is the share market? What Does It Do and How Does It Work with examples
    4. SEBI What is Securities and Exchange Board of India
    5. Stock Broker Financial Intermediaries or Market Intermediaries role in share market
    6. Depository and types of Depository Participants in India
    7. ICCL, NSE Clearing Limited and Bank’s role as Financial intermediary
    8. Angel Investors What are their roles with examples
    9. Venture Capitalist Who Are They and What Do They Do
    10. CAPEX Understanding Capital Expenditure with examples
    11. Private Equity Explained Understanding PE With Examples
    12. Initial Public Offering (IPO): What It Is and How It Works
    13. Launch IPO Why Do Companies Go Public
    14. IPO process how Initial Public Offering works in India
    15. What is IPO Key Terms Related to Initial Public Offering
    16. What is the share market?
    17. Share price understanding how does prices increase or decrease with examples
    18. Share trading: How Does It Work? with examples
    19. Types of traders in share market
    20. Market Index How Indexing Works, Types, and Examples in share market
    21. Share market indices importance and key terms
    22. Index construction methodology
    23. Share market terminology
    24. Share market terminology for beginners
    25. How to Trade Shares for Beginners
    26. Clearing and settlement process in the Indian Share market
    27. Stock selling learn What happens when you sell a stock
    28. Corporate actions in share market and impact on prices
    29. Bonus Issue of Shares Explained and How They Work
    30. Stock Split and Buyback of Shares What you need to know
    31. Monetary Policy by RBI Repo Rate, reverse repo rate, Cash reserve
    32. Inflation and IIP explained with examples
    33. Purchasing Managers Index, Budget, Corporate Earnings Announcement and Non-Financial events
    34. Stock market basics for beginners
    35. Offer for Sale and Follow-on Public Offer explained with examples
    36. Rights Issue and its relevance to shareholders explained with examples
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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
1720000360000360000
2792000396000396000
3871200435600435600
4958320479160479160
51054152527076527076
61159567579784579784
71275524637762637762
81403076701538701538
91543384771692771692
101697722848861848861
111867495933747933747
12205424410271221027122
13225966811298341129834
14248563512428181242818
15273419913670991367099
  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
17200003600003600001759360
27920003960003960001935296
38712004356004356002128826
49583204791604791602341709
510541525270765270762575880
611595675797845797842833468
712755246377626377623116814
814030767015387015383428496
915433847716927716923771345
1016977228488618488614148480
1118674959337479337474563328
122054244102712210271225019661
132259668112983411298345521627
142485635124281812428186073789
152734199136709913670996681168
  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. 

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