‘Living for the Gram’ is fast becoming a norm, and a lot of youngsters are following this trending lifestyle by the day. Even if you do not know what it means, at some point, you must have done something just to put it on Instagram, too. It sounds like a fun practice, but it might be making you spend a lot of money unnecessarily.
A recent study conducted in America revealed that 33% of people are spending more money because of what their friends are posting on social media. It can be said with some certainty that this is true for Indians as well. Haven’t you ever thought of going on a Europe trip or buying expensive gadgets right after your friends posted it on Instagram?
Is it worth it?
Spending money on something just because someone else did and posted about it on Instagram is no way to live a healthy life. Assume you are currently making ₹50,000 per month for working 22 days and 8 hours a day. So, you are working 176 hours a month and making ₹285 every hour. Now, imagine your friend Shweta just posted a picture of her holding the latest smartphone. Looking at the picture, you feel like buying a brand-new smartphone too. You quickly message her, “That’s a great phone, how much did it cost?” She replies “₹75,000.”
Now that is around 260 hours of you working! Ask yourself, “is it worth it?” The answer will be, “No!”
But does that mean you can never buy that phone or go on a trip to Europe? Of course, you can. Imagine the flood of likes and comments on Instagram! All it takes is saving regularly, learning how to invest money, and being patient.
Meeting short-term goals with the right investments
Before you start investing, you must understand the power of compounding. Some investment products offer you compound interest, which means you get an interest on the principal amount and on the previously accumulated interest. This is what will help you fulfill your short-term goals.
Here is how: If you have your eyes on a ₹75,000 smartphone, give yourself two years to accumulate that amount. Invest ₹3,000 every month in an instrument that pays 8% compound interest. At the end of two years, you will get ₹78,000 returns, and of course, the phone.
Let us look at something more expensive now—a Europe trip that costs ₹4 lakhs. You can get there by saving ₹10,000 a month and investing it in a financial plan that offers 8% compound interest. In three years, you will have ₹4 lakhs (₹3.60 lakhs of principal and ₹40,000 of interest). With the money, you will get your trip and all the photos to overflow your friends’ timeline with the picturesque European skyline.
On the contrary, if you opted for a loan at 8% interest, it would cost you ₹4.30 lakhs (repayment of ₹4 lakhs of principal loan amount and ₹30,000 of interest payment). So, by investing smartly and avoiding taking a loan, you could practically save ₹70,000.
Now that you know why it is best to save and invest your hard-earned money, read on to understand how to invest efficiently.
Why is investing important?
If you think saving money is enough, you might not be considering inflation. The value of money decreases over time due to inflation, thereby reducing your purchasing power. So, saving money does not help you unless you allow it to grow. When you put your savings in investment options that offer compound interest and hold it for the long term, the money will accumulate into a significant fortune.
The first step to learning how to start investing is by getting into the game early. The longer you stay invested, the greater will be your profits.
Things to consider before investing
Investing your hard-earned money without establishing a proper plan may not bring good results. So, you need an investment plan that can work. Here are four things to consider before investing.
You should always invest as per your budget and financial goals. If you want to build a retirement corpus, it is wise to start investing 10% to 15% of your annual income. For short-term goals, you can start small and decide the amount based on your objectives.
2. Investment options
Here are two investment avenues that offer compound interest.
- Recurring deposits: It is a flexible investment option that allows you to put money as per your budget every month. A recurring deposit amount is not fixed, and it offers easy withdrawals, encouraging goal-oriented investment.
- Low-risk mutual funds: If you are a beginner, low-risk mutual funds can benefit you as they ensure returns. It is a type of mutual fund that invests your money primarily in debt instruments like government bonds, thereby significantly lowering the risks.
3. Risk tolerance
Your risk tolerance is the amount of risk you are willing to take with investments. You must decide your risk appetite early and then look for options that are aligned with it. High-risk investment avenues have the potential to grow your money quickly, but you may also have to bear losses. Low-risk options, on the other hand, are a safe choice for new investors.
4. Investment strategy
Having a clear investment objective is essential. You must decide different aspects such as investment timeframe, amount, different instruments to diversify your portfolio, and your goal. After learning how to invest and develop a clear strategy, you may successfully generate profits.
How to start saving
Before you start investing, you should learn how to save money. Here are a few things you can do to achieve that.
- Cook at home: You cannot imagine how much you can save every month if you start cooking at home. It also gives you the chance to brag about your culinary skills on Instagram.
- Travel on a budget: You already know how to save and invest to fund a trip to Europe. But that is not the only place worth visiting. Many other places are equally beautiful and can be visited on a shoestring budget.
- Record expenses: This is a good practice that helps you be aware of your expenses. You can save a lot by identifying and preventing unnecessary outflows.
- Automate saving: You can allow your bank to automatically transfer a fixed amount from your salary account to the savings account every month. This leads to a regular saving and reduces your urge to spend.
Investing in your future is part of growing up, and now you have an idea of how to do so effectively. Use the strategies from this article to make smart investment calls and avoid spending unnecessarily. Do not allow Instagram posts to control your life.
This is a companion discussion topic for the original entry at http://jupiter.money/resources/spending-vs-investing-habits/