Money plays a vital role in the world we live in. Everyone works to earn a living in order to support their family, accomplish their goals, and lead a peaceful life. However, in today’s world, merely earning money is not sufficient. Each year the cost of essential things increases, school fees, house rent, petrol and electricity bills, medicine and food are all rising high. As a result of this, people realize the necessity of smart investing and financial planning.
Many people consider investing as a task for businessman or financial experts. Some fear the stock market, others think that they need a large amount of cash (lakhs and lakhs). However, this is not true. Anyone, including students, office workers, small businessman, and beginners, can start investing in very small amounts. Smart investing does not help you gain wealth over night. It aids you in build a strong financial base slowly with discipline and patience.
What Does Investing Really Mean?
Investing simply means to use money in such a way that it grows over the years. Instead of spending the entire earnings on something you don’t need, people prefer to save a sum and invest it to fulfill future goals. These future goals can be home buying, child’s education, starting a new business, marriage plan, supporting your retired family or to prepare against any unforeseen circumstances.
Think of it as planting a tree. When you plant a small seed, it doesn’t grow into a tree over night. It requires the help of sunlight, water, care, and time. However, over time it slowly grows into a tree giving you shade and delicious fruit. Investing is just like that; an investment of small amounts on a regular basis can grow into a large sum over a period of time. The largest advantage of investing money is that your money starts working for you. Instead of solely depending on the income from salary or business, your investments are continuously working to provide financial growth.
Why Young People Should Start Investing Early
The major mistake that many people make is to begin investing late. Some say they will only start when they earn a very large salary, others believe they still have enough time. But the truth is, it’s always the early investors that have a stronger advantage.
The main reason behind this fact is Compounding. Compounding refers to the act of earning return not only on the money you invested, but also on the returns you receive later. Thus, your money gains at a faster pace. For example, two investors might invest the same sum every month, but one who begins investing ten years earlier would accumulate significantly greater wealth even if they invest less later. The time is what plays the most vital role in investment. Hence financial experts always say “Start small, but start early”.Even a small investment of 500 or 1000 can prove a strong financial support over a longer period.
Understanding SIP: A Popular Investment Option
A popular way of investing in India today is SIP, or Systematic Investment Plan. Through SIP, one can invest a particular sum amount at a fixed interval in the form of monthly installments in a mutual fund scheme. SIP has gained immense popularity as it is a very simple and beginner friendly way of investment. It can be started with as small an amount as 100 or 500 in many cases. Through SIP, people can also make investments a routine. In mutual funds, an experienced professional is responsible for investing your money in various schemes after a deep study of the stock market. Hence, people don’t require to acquire deep knowledge of the stock market to start investing. SIP is a widely accepted method by salaried and middle-class people due to its low investment and time flexibility.
Fixed Deposits Still Matter for Safe Investing
Fixed deposits, also referred to as FDs, continue to be the most reliable mode of investment for Indians of all ages. The major reason why FD investment is chosen by many individuals is that it guarantees relatively safe investment. In FD, the money is invested in the bank for a fixed tenure. In return for that, the bank is required to pay a fixed rate of interest to the investor on the sum amount. These investment schemes are especially liked by senior citizens, whose priority remains stability in investment. Though FDs are considered slow when compared to shares or mutual funds, FD is safe investment. Hence, for beginners who are afraid to invest in the stock market due to a fear of risk, FD is a useful starting step.
Gold Investment in Indian Families
Gold holds an emotional and financial significance in India. Many Indians invest in Gold in form of jewelry and coins especially during the auspicious occasions like Diwali, wedding ceremonies and other festivities. Currently, investment in Gold has now taken an digital approach as people invest in Gold ETFs and digital Gold using the online platforms. It is often seen that during an unstable market situation when stock market values are volatile; many investors consider Gold a safer alternative. Nevertheless, experts recommend keeping a balance of investments instead of depending entirely on gold as a financial source.
Understanding the Stock Market Carefully
The stock market has become an interest to young people of India with numerous videos circulating on the social media, finance related programs on television and various online investment apps available in the market today. Investing in the stock market essentially refers to becoming a partner in various companies and gaining profits in form of profit on selling shares of that company after the share price goes up.
However, beginners should not have a misconception that the stock market can miraculously make them a wealthy person over night. The stock market is prone to rapid ups and downs. One cannot always guarantee to profit. Hence to secure investment beginners should not make investment by following randomly circulated telegram tips, social media influencer opinions or any other recommendation available in the market. A thorough knowledge regarding company’s profit, risk involved in it and the current market conditions is necessary before making any investment. Patience and wisdom are also important for achieving success in stock market.
Common Mistakes Beginners Should Avoid
Many beginners often tend to make identical mistakes while initiating their journey of financial planning and investing. One primary error that many individuals are accountable of making is the desire of quick riches. Some people observe the lifestyle of rich individuals shown in videos on the social media and believe they will get rich within months or days. This is not true in reality; a majority of investments are generally long-term projects. Another common mistake made by beginners is investing without a plan or goal. An individual needs to have clear objectives to ensure efficient investing and consistency in making timely investments. Fear is another significant deterrent; an individual loses confidence in investment during the fluctuations in the market, panics, and ends up selling the stocks, whereas, a mature investor is aware that market falls are temporary. Also some individuals over invest in only one source of investment, it is advised to diversify investment over various options.
Importance of Financial Knowledge
Financial knowledge is becoming significantly important with the fast growing development in the modern world. Unfortunately, the knowledge gained in school related to financial subjects and budgeting is not practical enough for people to lead a successful financial life. As a result, many grown-ups face trouble with savings, budgeting, loans, credit cards, taxes and investing. Acquiring a basic knowledge regarding finance can help people:
- Prevent them from getting duped
- Understand savings
- Learn to control spending
- Build an emergency fund
- Make financially sound decisions
- Live a life free from financial worries
