Are you keeping all your funds in bank account? Lets understand why it is not advisable to do that.
In India if you are born in a middleclass family and has just started earning, your parents or your well-wishers have said at least once that you must start saving money for your future. But let me tell you they are all are wrong. Actually, we should not just save money but also put it somewhere where it can beat the inflation. We should not keep all our funds in bank account. Lets understand this in detail.
Why you should not keep all your funds in bank account
Let me give you an example:
Total money saved in a year: INR 10000
Let’s say you kept it in your savings account for entire period and you have earned 3% interest on your savings.
Total money becomes = 10000 + (10000 X 3%) = INR10300
Let’s consider average inflation rate at 6% for that year.
So basically, value of your money or buying power of your money is reduced by 6% i.e., if you were able to buy something at the value of INR 10000, now that thing has become costly by 6% means that of INR 10600. And let’s say you kept your money for 10 years in the saving account. Then here is what happening to your money.
|Year||Money in your savings account at the end of year (ROI at 3%)||Value of the item to be purchased||Approx. Depreciation in the value of your money|
So at the end of 10 years, you actually become poor by INR 6981. And it happened because you just stalled your money in savings account.
I am not saying Saving account is a bad instrument. But it is not meant for stalling all your money. You may keep your money there for short term, only if you need that amount for liquid form. But your rest of money should start working for you from day 1.
Just for comparison purpose let’s say you have kept your money in some other instrument having ROI as 8% (Believe me that’s really not so much).
|Year||Money in your savings account at the end of year (ROI at 3%)||Value of the item to be purchased Consider Inflation of 6%||Money in any other instrument (ROI at 8%)|
So eventually you become richer by approx. INR 2000. But these are just numbers for explaining, you will be definitely be richer than this. Only thing you need to consider is, your money should start working for you. Now there must be multiple questions in your mind like:
What will happen if I need money in an emergency?
Should I invest all of my money in fixed deposit?
Should I invest all of my money in stocks/mutual fund/gold ….? But hold on your horses, let’s go by step by step. Since now you have understood that we should not just keep all our money in savings account, then what next before doing investment. Read this for next step to understand that what all points we should consider before starting investment.