When you invest, you put your money to work so that it grows over time, It’s just like planting seeds or trees.
Understanding Investing
Imagine if your grandmother used to remark on the affordability of items during her era and how costs have subsequently escalated. This is something that most of us can understand and connect with.
Consider the milk you buy and how its price has fluctuated over the course of ten years! There is a term for it, referred to by some individuals as inflation. However, there is a straightforward mathematical concept to see how this specialized terminology is, to some extent, thwarting your aspirations.
I have a strong affinity for dosas due to its uncomplicated nature, crisp yet tender texture, and delectable taste, which also makes them effortless to prepare. There is no justification for harboring animosity towards them.
You currently possess a sum of Rs. 1,00,000 in cash. The cost of a Dosa in your city is Rs.100. What is the maximum number of dosas you can purchase if you use all of your money to buy them?
Perform the calculation – Rs.1,00,000 divided by Rs.100 equals 1000 Dosas.
Suppose a year has passed but you still have the same amount of money in your safe. Just assume that the inflation rate, which refers to the increase in prices, is 10% in the market. Therefore, the price of my Dosa will amount to Rs. 110 after one year, calculated by adding Rs. 100 to Rs. 10. What is the current quantity of Dosas that you can purchase?
Recalculate the mathematical operation – Rs. 1,00,000 divided by Rs. 110 equals approximately 909 Dosas! In the previous year, it was possible to acquire 1000 Dosas, however, currently, the quantity has decreased to 909 Dosas.
Who consumed your 91 Dosas?!
In ten years, the price of a Dosa will be approximately Rs. 260, accounting for compound inflation. Using this amount, you can purchase a total of 384 Dosas. A significant act of trust, far removed from the starting point of 1000 Dosas!
Is There A Resolution To This Problem?
Suppose you received Rs. 1,00,000 and invested it in an asset that yielded a 15% annual interest rate. You have acquired a sum of Rs. 1,15,000, while the market value of a Dosa stands at Rs. 110. What is the current quantity of Dosas that you can purchase?
The result of dividing Rs. 1,15,000 by Rs. 110 is 1,045. Additional 45 dosas!
After a decade, you would possess a sum of Rs. 4,04,555, considering the cost of a Dosa to be Rs. 260. By performing a basic calculation, you can afford to purchase a total of 1,555 Dosas.
The Above information or example has been provided by Dr. Raghuram Rajan and Finance Seekhon taking the reference from Quora.
Importance Of Investing?
Investing enables the acceleration of your wealth, surpassing the impact of inflation that gradually erodes the worth of your money.
Attain enduring objectives: Investing facilitates the accumulation of capital to meet important milestones such as retirement, education, or a down payment on a property.
Combat inflation: Investments have the potential to surpass inflation and safeguard your ability to buy goods and services through interest, dividends, or appreciation.
Utilizing compounding: Initiating investments at an early stage and maintaining a consistent investment strategy allows you to take advantage of compounding, wherein your profits accumulate and multiply over time, leading to accelerated wealth generation.
Ensuring the financial future: By assuming control of your finances through investment, you are constructing a more robust and -assured future for yourself.
Investing plays a very crucial role in the finance world, if you want to keep learning more about finance and topics related to finance and investing, follow Finance Seekhon today and keep learning new things every day.
