Why you need to invest, instead of saving
insurance plans, and their savings as being sufficient to secure his family’s future. Are Singh and his wife missing out on anything in this plan?
The couple is doing well in following a budget and saving a big portion of their income. The mistake they are making is in not understanding the difference between saving and investment. Saving money means accumulating it in a way that it is easily accessible and is without any risks. It is typically held in bank accounts and deposits. However, holding money in such avenues is suitable only for their immediate or unexpected needs. They must realise that all their future financial requirements will not be of this nature. Having all their money in these avenues is a costly choice because the trade-off for safety and liquidity is lower returns.
The money Singh is saving is an asset that has the potential to generate higher returns, which will help him reach his goals faster. The amount that will have to be set aside from the couple’s current income will come down since the returns that will be generated will add to the corpus being created for their future needs. They can use the income that will be freed in this manner to meet other goals or improve the present quality of life for the family. To enhance the earning capacity of their money, Singh must make conscious choices to invest the money, instead of leaving it in the bank account by default.
Investments provide higher returns, but come with the risk of lower liquidity and fluctuating values. Singh can manage these
