Saving is not Investing
TLDR: Savings and investments are not the same - why
Right from a reasonably young age, my Dad had drilled into my head that you need to save for your future. He always used to say
Savings is your first expense
This is sound advice when i started my career in 2001. If you are someone who earns a monthly pay check from work then make sure that you set aside a portion of your income for your savings as soon as the salary gets credited into your account.
This is excellent advice as you set aside a certain percentage of your income every month before you spend the rest. It would be even better if you can automate that.
What is a good savings percentage - 20% to start with a good, but if you have any dreams of FIRE, then higher the better. I currently target close to 35% , I don’t think I can do more than that. But if you are in a dual income household you should aim for 50% savings rate to FIRE.
But why is Savings not investments
Savings is the necessary first step in your investment journey. But savings in a bank account or fixed deposit is not going to make you rich. It will barely keep up with inflation and at the end of 20, 30 or even 40 years you will have hardly anything to show for it.
The key is to a decent real return (returns - inflation) of anywhere between 3 to 5%. So invest in assets that can yield that return on investment. Be it stocks, mutual funds, ETFs, gold real estate whatever be it.
Ideally you should aim for a mixture of products across different asset classes, different currencies and different countries.
Conclusion
Savings is an essential first step but it is not the end of your investment journey. Put your money to work across by investing in companies that grow, commodities that appreciate, index funds that show promise. Make it grow and don’t just let it sit in a bank account earning 4%.
Good luck and Happy investing.
