Save or Perish


Providing  for future has been one good habit of humans since time immemorial. It would appear that it is the law of nature.  "Ants regularly store more food than they consume".  People were saving in different ways-storing their agricultural produce, their commodities, gold or currency.  They were always preparing for the rainy days.

In other words, people realized that the source of money is income and income is limited.  They also realized that future needs especially financial needs would be uncertain and unlimited.  Future can hold many surprises and therefore one should be prepared financially to meet such contingencies of life.  Therefore they saved for the future.  There was a time when people depended upon the landed properties or ancestral wealth for their livelihood.  But times have changed. The joint family system is no more there.  Each family unit will have to work and also provide for the future financial needs of the family unit.



Common financial needs of a family are:


Children's education/Their marriages/Start in Life

:: Asset acquisition like house/car etc

:: Unforeseen contingencies like loss of job, illness, accidents, death etc

:: Retirement

  Investment And Creation of Wealth

It is not enough to save.  The saved money should be wisely invested.  Saving alone is not sufficient in money management because the cost of living is ever on the increase and the value of money is constantly on the decline by inflation.  To counter the decline in the value of money, the savings should be channelised into investment so that there is an appreciation of wealth that beats the inflation.  So also to meet the ever-increasing cost of living, investments will have to be made where wealth is enhanced or created.

  Magic of Compounding - Time Value of Money

Investment make sense because the money you save do not remain idle but gives returns in the form of interest, dividends, capital appreciation, bonus or even lump sum payments in the case of insurance.  Money grows because these returns becomes part of principal and gives further returns.  This is called compounding.

The following chart shows how Rs.100 saved every month regularly grows.

Years 5% 9% 12%
10 15,594 19,497 23,234
20 41,275 67,240 99,915
40 1,53,238 4,71,643 11,88,242
  Personal Financial Management

A prudent person should evaluate his state of finance, determine his future needs and decide on a well-designed mix of investment alternatives that will attain him, his objectives.  This is personal financial management.




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