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"The Jambhavan Diaries"

Do you invest or just save?

"The journey of thousand miles begins with a single step." ~ Lao Tzu

When I was five years old, my dad has bought me a piggy bank to make me develop the habit of saving money.  Fortunately, I can continue the habit of keeping for the next 18 years. Thanks to my dad for helping me develop the habit of saving money at a young age.

All these years from the age of five till now, my habit of saving some amount of money has remained unchanged. Except for one thing, the strategy I used. 

Everything changed when I heard this statement for the first time in my life, "Rs. 100 invested today is not the same Rs. 100 tomorrow. " It should be higher than that - depending on where the money is put in. Now an interesting question that should arise in all of our minds is that: What is the difference between investing and saving? In one word, 'Returns.' 

Let me tell you a story, once upon a time, when I was young I have a habit of dropping my unspent pocket money into my piggy bank. This activity continues until there is no space left inside the piggy bank for accepting new coins and currency notes. One fine day you notice that the piggy bank is full and you decide to break it to use the money to buy something of value. As the process of breaking the piggy bank may sound easier, but not so in my house. You know why? My mum. 

My Orthodox mum will have to check right time, wrong time, numerology, horoscope, half moon, full moon, etc. Most importantly, the direction of breaking the piggy bank. After these social rituals, the time comes for us to break the piggy bank. My dad is responsible for breaking this piggy bank. He does that by bringing with him a small hammer or machete and hits it in the centre of the piggy bank. As a result of the shot, the piggy bank breaks into two halves, and you will be able to hear the sound of the coins falling on the ground. 

Now, the whole family gets united in a large dining table to count all the coins and currencies. We separate out all the coins and notes based on their denominations. After that, the tally and brainstorming process begins. Each one of us throws ideas of possible purchase with the money saved in the piggy bank. Finally, we decide what is of most value. For instance, Lord Shiva will receive all the money I had saved in one of my piggy banks. As I recollect, I was around 6 or 7 years old that time not aware of the worldly happenings nor financial models. As a matter of fact, my mum gave a nice investor pitch by convincingly saying, "If you give this money to Lord Shiva now, He will bless you with 100%+ returns in the next couple of days." As an innocent child, I believed her and generously accepted her request to devote all my saved money to Lord Shiva. Whether Lord Shiva will give a return on investment is still a mystery to me as well as to my mum? But, one thing is sure "Money is a fungible resource, and we could use it for getting some value." 

For example, if I have saved Rs. 2000 in my piggy bank it is not going to fetch interest on the money saved. However, by investing the same amount of money in recurring deposit or fixed deposit, it is going to bring a compound interest on my saved amount. In other words, I will be able to fetch interest on interest. The former one is saving whereas the latter one is what I call 'investing.' It is interesting for two reasons: Firstly, it gets us a surplus money on the amount we saved. Secondly, it beats inflation. The second reason is the ultimate reason behind why we invest. As you might be aware of the fact, "Inflation eats our purchasing power." Let me explain this with an example, let us assume that a masala dosa is costing Rs. 30 today. If the inflation stands at 10%, the cost of a masala dosa is also going to up - say Rs. 33/ -. The inflation is due to the increase in the price of raw materials required for making a masala dosa. In crude terms, we will not be able to buy a masala dosa at the same price next year. 

Keeping these things in mind, ask yourself this one question - Do you invest or just save?

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