The Need to Invest

1.1 Why should one Invest?

Before we address the above question, let us understand what would happen if one chooses not to invest. Let us assume you earn Rs.50,000/- per month and you spend Rs.30,000/-towards your cost of living which includes housing, food, transport, shopping, medical, etc. The balance of Rs.20,000/- is your monthly surplus. For the sake of simplicity, let us just ignore the effect of personal income tax in this discussion.

To drive the point across, let us make a few simple assumptions.

The employer is kind enough to give you a 10% salary hike every year
The cost of living is likely to go up by 8% year on year
You are 30 years old and plan to retire at 50. This leaves you with 20 more years to earn
You don’t intend to work after you retire
Your expenses are fixed and don’t foresee any other expense
 The balance cash of Rs.20,000/- per month is retained in the form of hard cash

Going by these assumptions, here is how the cash balance will look like in 20 years.