The world around us is changing at a rapid pace. Every day thousands of inventions are coming up all over the world that are simplifying our lives and making them better. Daily hundreds of new investment products are launched by mutual fund, insurance and other companies promising great returns. Some are genuine while all others are fake. The rich are getting richer and the poor poorer. In 2014, for instance, the wealth possessed by the top 0.1% of India’s earning population grew at a faster pace compared to that held by 50% of the remaining population, according to the World Inequality Report 2018, released on December 14.
Inflation is also rising at an alarming rate. The money that one spends for his monthly household expenses will not be sufficient to support his lifestyle 20 years down the line. The corpus that one is expecting to build to meet his future goals also needs to be planned keeping the inflation factor in mind. Else he might fall drastically short.
Herein comes the need to be wise about money. Good education and degrees alone do not translate to financial literacy. Unless one is aware of the latest news and happenings in the world of finance and economy, unless one keeps abreast of the latest investment options available in the market one can never expect to fulfill all his dreams and aspirations.
As a rule of thumb, one should save at least 10% of his monthly income. If possible, he should increase it even more. To quote George S. Clason from his famous book “The Richest Man in Babylon”:
“A part of all you earn is yours to keep. It should not be less than a tenth no matter how little you earn. It can be as much more as you can afford. Pay yourself first.”
According to Einstein: “Compound interest is the eighth wonder of the world. He who understands it earns it…he who doesn’t…pays it.” Here is an example of how compound interest can turn a small saving to a large amount:
Imagine you are a 20-year old branded coffee lover. Let’s say one day you chose to drink the neighbourhood Madras Coffee House coffee costing Rs.25 over the fancy Starbucks coffee costing Rs.125. Further, you invested this difference of Rs.100 at 15% per annum for the next 40 years. Can you estimate how much you would accumulate?
Rs. 26,786!!
Still, desire that Starbucks coffee?
These are the reasons why one needs to be cognizant of all the latest happenings in the world of finance. Only then can he truly make his money work hard for him and make it grow big enough to fulfill all his dreams and aspirations.
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