I am sure you must have heard of the term Financial Planning. What exactly is it?
In the simplest term, it is the planning for finances in such a way that right amount of money is available to you/your family at the right time.
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Despite understanding the criticality of Financial Planning, only a very small percentage of Indian population takes it seriously.
Why is this so?
When you run any business you would definitely take care of the company’s accounts as you become accountable to the company’s stakeholders but when the accounts are personal, we don’t feel any accountability. As a result we tend to get careless in our financial matters.
I know now you would say that India traditionally is known to be a country where savings are given a lot of importance. But interestingly the savings rate has been declining in India which has dropped from 37% in 2008 to 30% in 2013 and that’s significant. The primary reason for the decline is the factor that persistent high Inflation.
Effect of Inflation on Our Savings
The most notorious enemy of wealth creation in India. True?
A survey conducted on financial planning by a leading company reveals that only 30-36% consumers take inflation into account during financial planning.
Let me explain the impact of inflation on saving in the simplest term. If you have Rs 1,00,000 as of now. Given the Inflation rate (Consumer Price Index) which is now at around 10% persists for the next 5 years, the amount at the end of 2018 stands at just Rs 62092.13.
Understanding the factors that are causing inflation which include reduction in Diesel subsidy, mismanagement of food supplies, depreciating rupee and a lot of other issues, I can say that the high Inflation rate is here to stay.
So Savings are not worth?
With inflation touching sky high, the money you save need to be invested in financial instruments which can beat the inflation by some margin .
What can you do to secure your future
Let us see how could you beat the Inflation
As it is quite clear, only Long term investment in Equity can beat the inflation comprehensively. If you are invested in the market in some way, you must know the pain of losing your hard earned money.
It takes lot of patience and skill to spot quality stocks that can give you multi bagger return.