Where is the Money?
Where is the money?
Those who are new to the stock market would have by now got a basic idea as to what it is all about. But before we go into the question as to which shares to invest and all that, there are a few things we have to be clear about.
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Immaterial of how much we earn, we must save a part of our income to make a beginning in our investment process. While it is easy to find money when we have a high income, the only way we can find the money for investment when we earn less is to set aside a target amount every month and live with the remaining money.
Why should we Save?
We save because we cannot predict our future. By saving money we can to a great extent become financially secure and use it as a safety net during an emergency.
Here are some of the reasons as to why we save:
It acts as a buffer in case of an emergency – It could occur due to any number of things such as unexpected medical expenses, or a sudden loss of a job. We need money in the reserve to tackle these emergencies and avoid borrowing to pay for these needs.
Retirement – When we decide to retire someday, we may not have the regular income we are used to and may need our savings and other investments to support us. With advances in medicine and public health, people live longer and more money is needed to lead a comfortable life.
Education - The costs for private and public education for our children are going up every year and it is getting difficult to meet the increased costs.
In short, without the saving habit, we will be open to these risks of not having enough money for an emergency and may have to borrow money which could have been avoided if we had saved.
How much can we save?
While arriving at how much can be saved, we must make a budget using our net income, as this would reflect the take-home pay after taxes and deductions. Our potential savings would be the difference between our net income and expenses.
While making a saving plan we must ponder whether there are any variable expenses that we can eliminate or reduce and whether there are any fixed expenses that we could eliminate and set aside towards saving.
We have to be serious about saving a fixed 10% or 20% of our income every month, and this has to be done with strict discipline. When we make it our habit to set aside a fixed amount as savings every month and try to live with the remaining money, we have a great chance to succeed
