Our life will never go in a straight path; it will have many bends and shifts because of the contingent events that are likely to occur in our life. Certain events that have a chance to occur in our life have the power to shift our life path and sometimes our entire plans, strategies and goals in our life will be changed due to such events. So, here we are going to discuss about how investment can act as a shield to your life path, for not to get shifted to such a direction, which restricts you from achieving your personal goals and ambitions.
A Story of Smart Investing – Thommichan & Josychan
Thommichan and Josychan are neighbors; they are working at the same company. Thommichan is very much concerned about the future and gave more importance for saving and investment, but Josychan never have any Investment habit, where he had a bad habit of overspending. Both future goals are to become millionaire. Josychan’s salary is 120% of Thommichan’s salary, were Thommichan salary is 30,000. Thommichan’s plans to become a millionaire through making smart investments, but Josychan’s plan to become a millionaire through earning more money through his work. Thommichan invested his money in mutual fund through SIP, for Rs.10,000 per month from his salary, were Josychan started to work harder than Thommichan to earn more money.
After 15 years a contingent event took place at their life. A Corona virus broke out, the entire economy in the world is now under depression and both of them lost their job. Now Thommichan’s total value of his investment shows an Amount of Rs. 50,45,760, (for 12% rate of return), where his total invested amount is Rs.18,00,000, which he got a return of Rs. 32,45,760, but Josychan have a bank balance of Rs 5,50,000.
Now Thommichan and Josychan have certain loans and they are in a need of some emergency fund for their sister’s marriage and to cope up with the present economic condition. Thommichan manage his loans and emergency needs with his fund, that he redeemed from the mutual fund, but Josychan have a deficit amount when he compares his present need to fund with his bank balance and now he have to find an extra money, for that he had taken a loan in order to come out of such deficit. After fulfilling, Thommichan’s all present needs, his investment value of the mutual fund is still showing a huge balance of money, where he started an online business with that fund. Thommichan is still chasing his dream to become a millionaire, where his mindset is entirely on that and he has also taken a new SIP scheme for investing in mutual fund.
But Josychan’s goal to become a millionaire is now shifted to such a target of paying the monthly installment of loan correctly by doing certain works and now he strictly focuses only on paying the debt correctly, where his goal to become a millionaire being restricted by his current debt burden.
The above story tells about:
1. The importance of Smart investment for building a better future.
A smart Investment can save your life from contingencies and it can act as a shield to your Life path, that provides protection from unnecessary bends and shifts occurred in your life path, which restrict you from achieving life goals. In the above story, Thommichan’s goal to become a millionaire is on the right track, even though a contingent event had occurred in his life, but Josychan’s Goal to become a millionaire is now shifted to a target of paying his Monthly loan installment correctly due to the occurrence of contingency on his life.
A smart Investment will always help us to achieve our financial goals, Personal goals, Life goals etc. And it also helps us to meet our Emergency needs, Priority needs and any other needs in our life.
In the above story, we can see that how Thommichan’s investment help’s him for meeting his emergency needs, but Josychan become helpless for meeting his emergency needs, where he had taken a loan to find his balance fund for his emergency need, after considering his bank balance.
Note: Investing in Equity linked sSavings Schemes (ELSS) in mutual funds, which have a lock-in period of 3 years, are eligible for tax deduction of up to Rs. 1, 50,000 under section 80C of the Income Tax Act.
2. Benefits of SIP
SIP (Systematic Investment plan) is a scheme through which we can invest our money on installment basis, where it does not need any huge initial investment, because the investments are on installment basis. The other benefit of SIP is that, when the market goes down more units can be brought out with the same amount of money that you invest monthly.
Note: For better return on future, we have to be consistent in investing money in every month and avoid unnecessary redemptions. In the above story, Thommichan is very consistent on investing money in every month and he did not redeem any of his units unnecessarily, which result him a huge return in his future.
3. Consciousness on contingencies
Only if you are conscious of contingent events, then only you invest money for your future, to cope up with such event that’s likely to occur in your life. The famous accounting principle “prudence” use to teach us that “anticipate all the losses that have a chance to hit in our life, but never book profit before it realize” like that we have to be conscious towards all the events that have a chance to hit in our life, then only we will become more conscious about investments. In the above story, Thommichan’s consciousness about the contingencies made him a smart investor, which he is more conscious about the future.
4. Provision for emergency needs
The sudden events occurred in your life path will made a huge impact to your life and you will become in a need of some emergency fund, but such events are uncertain to your current life, so, we never consider it, but once it occurs, then we will be in huge trouble, so, in order to manage such emergency needs, creation of provision for emergency needs through savings and investments is very important. In the above story, we can see that Thommichan had created a provision for emergency fund through his smart investments and he manage his emergency needs very easily, but Josychan who had not created any provisions had become in trouble to find the fund for his emergency needs and he had forced to take loan in order to find the balance fund, after taken his entire bank balance for meeting his emergency needs.
5. Saving and Investment Habits
There are lots of Saving rules Like 70 20 10 rules of money , 50 30 20 rules of budget, 10% savings rule etc. But all such above rules to consider while saving, is up to you, which is according to your monthly earnings, needs and wants, but one important thing is that, the more you save and invest, the more stronger you build a platform, to earn more in future, so, you have to sacrifice some of your wants to save more, to earn more in future, but saving alone will never build your money, for that you have to invest your savings in such a platform, which expand your money, through returns and compounding. In the above story, we can see than, Thommichan not only save his monthly earnings, but he invested his money, in such a way his money had expanded to huge fund on his future, but Josychan nearly saved some of his money in his bank, but he had not invested his money anywhere and his money which he saved remain the same.
Note: we have to put some amount of money in bank or liquid fund in order to manage our daily and sudden needs.
6. Power of compounding
We got returns from our investment on a particular rate, but, if we reinvest our returns with our initial investment, then on next period we got return on previous return which we reinvested + our initial investment and it will go on until we redeem . It also expands your investment value more quickly and at the time of future you will earn a huge capital gain. In the above story, Thommichan had reinvested his return from his investment, which he had not redeemed any of his units on short period, but he holds it for long term and that result him a huge capital gain.
Note: The power of compounding will become more effective, only if you hold your investment for the long term.
7. Dangers in overspending
Necessity needs are very important and we have to spend money on that, because it’s very essential for the survival of human being, such as food, water, cloth, shelter, health etc., but certain wants of human being, which are not essential for human being survival, such as purchasing of some luxury items and here, we have to control over spending otherwise your spending will go beyond your earnings through your credit purchases and it will increase your debt burden. How can we manage overspending through 30 day rule? If, you have a habit of overspending, then it will not wipe out from your life soon, as you decided to stop overspending, because it’s actually programmed to your unconscious mind, through long period of such practice of overspending and you always have such inducement of spending more money, when you receive your earnings. So, here we are going to talk about, how to reprogram your subconscious mind, in such a way that you can delete your bad habit of overspending from your mind. For that we have a famous 30 day rule “a strategy to control spending” and here, we are going to discuss, how this rule will help you, to control your spending. When you feel or induce to buy something that’s non – essential, whether it’s in a store or online, the rule says not to buy, but you have to take down all such wants, until the 30 days are passed. During such time frame, you might think about, whether you really need such item or not, it also help you to classify your needs and wants for your life. After 30 days, you started to think rationally and you will avoid such items to purchase, which is not much essential for your life. Through this way you can control your spending and once it become your habit, after you do this continuously, then your subconscious mind will be reprogrammed and it will wipe out your bad habit of overspending.
