Historically we have thought that Indians save very intensely, and they are very conservative spenders. We know the way our parents saved, and some of us are a beneficiary of that. Maybe that was in the past that. Is not necessarily true as of now? Indians are no longer the kind of saver that they used to be. Why our parents used to save intensely was because of a variety of reasons.
- They did not have as much as spending avenues in the past.
- They did not have easy credit/loans available.
Things have changed quite dramatically today. You can buy anything and everything as per your wish. The supply of stuff is enormous. Our parents use to wait for months for delivery of their scooter, car, etc. Not any longer. Today if you wish you can buy anything even if you don’t have money because an easy loan is available. Taking your phone on EMI or, taking your car or, on EMI taking the TV on EMI or, taking a house of EMI, differs your expense and mortgaging your future. So, it takes some time for people to start saving.
So this is the one problem everybody should be aware of and really start appreciating what’s going on and acting upon it or else it will be injurious to your financial health. The first step is to overcome the problem of not being able to invest or save in the first place. But once you have started saving then there are a lot of psychological issues that play. After you start saving the money, it will lie in the saving account because it’s not a meaningful amount and you wait for the money to accumulate.
After accumulation people normally go for a fixed deposit or some kind of money back policy that is low-yielding, and you feel happy that you have done something. But you don’t understand what is going. These returns are less than the inflation in India. So, investing in such areas will eat away your money over time. There is a lack of appreciation of compounding. The early you start faster your money compounds. Even starting with a small amount is extremely important.
People in the early days of their carrier will earn less and we may have lots of essential spending. So only a modest amount of surplus is left with you which is quite understandable. So, you think that nothing meaningful can happen with such a tiny surplus. But it is extremely important because the power of compounding that can happen on your small amount could be quite magical. And more so in your formative years developing those beliefs that you must be at it because saving and investment are a matter of habit and have nothing to do with scale. There are a lot of people who earn well, but they don’t save or invest and there are a lot of people who are very disciplined about their savings and investments. So, it’s more a matter of attitude and habit and you should form that habit as early as possible. All the procrastination will affect you in the long term.
It’s not an easy thing to save because effectively what we are doing is that we are postponing our consumption for a future date. Then investing has another dimension to it. We make a lot of excuses because we think that you will get some opportunity in the market, or you think that the market is too high. We come across all kinds of jargon. Maybe these are the valid reason. But mostly these are mostly turn out to be an excuse and this excuse is unlikely to help you because the more you delay the more is a big opportunity loss.
One day we are going to earn well, and we are going to save but if we don’t methodically compound our money, we run the great possibility of outliving our savings if it is not earning an optimum return. In the past, there were not many avenues compared to today and it is possible to invest your small sum of money methodically and regularly in a manner that should be very conducive to your savings behavior.
Every time in the past we have seen seasonal investors who come into the market when the markets are very high, and they have generally been disappointed. In the last two decades. If we look closely, we can see that investors came in large numbers in 1992 only to lose money or get disappointed or as recently as 2008. Earlier it was not possible to be very methodical with your equity investments. Today it is possible. You can start with as low as Rs. 500.
There are also a lot of mental blocks that people have that they think to require a large sum of money. It’s no longer. Also getting started has become easy and there are you know very simple vehicles that will help you get on board. If you have never taken any market link exposure through a mutual fund or anything it is possible to do your e-KYC.
Starting to invest will be a great beginning for most investors because once you have done it and you have you will be able to demystify things yourself and preach to you that you know it is easy and you can do it. You will be doing a great favor to yourself and your children. This is not something which you can really delay because we are going to live longer and not having enough or out leaving your savings is going to be one of the biggest risks that we will be facing in our lifetime.