Make you money work for You

The main reason for this is that money does not retain its value. That means what was worth a hundred rupees last year is probably worth ten or twenty rupees more this year. Bit by bit Historically, inflation in India has always been at a much higher level than in the developed world. It has changed a lot over the past thirty years but has seldom fallen below 4% per year consistently.The long-term average over this  period is around 8%. Eight percent doesn't sound so bad. It simply means that something worth Rs.100 becomes Rs.108. However, this is only the annual rate for one year.

Over several years there is a compounding effect, meaning that one year's inflation rate  feeds into  the next year's, and so on. Rs.1 lakh saved in 1982 and  kept as cash in a drawer  all the time then it would be worth less than Rs.9,000 today, about 1/10th of the original value, with an inflation rate of 8%! Therefore, we must not only save, but also invest our savings. Investing means putting our money in a form where it will bring some profit. Typical forms of investment are real estate, gold, bank deposits, postal savings, stocks and mutual funds.Therefore, anything that we can put  money into and let it grow can be called an investment. Of course, adjusting for inflation shouldn't be the goal of a smart investor. If you take the time to learn and apply the basics, you should be able to make more than enough to keep your money worth. Investments can  become a source of income in their own right. If you allow this sum to accumulate instead of using it as income, it can become a significant fortune.

Take the example above. Suppose the same Rs.1 lakh was invested  in the shares of a group of leading companies in 1982 so that their value grew at the same rate as the BSE Sensex. The money would have grown to Rs. 1 crore as of July 31, 2014, a growth rate of 15.26%! That's a lot more than the rate of inflation, which means that that sum of Rs.1 crore can buy you a lot more today than  Rs.1 lakh did in 1982. When you invest for long periods, you don't just saveInflation can also make you rich. But investing can be as risky as it is rewarding. Newcomers who start investing with overly optimistic expectations and a lack of knowledge or caution can get into trouble.