We all have heard the famous story of the Ant and Grasshopper in our childhood days. However, its got a new twist this time. Read along to find out..
The story goes as…
Once upon a time, a Grasshopper was hopping, chirping and singing to its heart’s content in a field in hot summer’s day. There was an Ant staying nearby the Grasshopper’s nest. They were good friends. It was springtime and the Grasshopper was having a lot of fun playing, singing, and dancing in the sun. But the Ant was hard working. It was collecting food grains and storing them in its house for the winter.
The Grasshopper did not understand why the Ant was doing so much hard work and keeping for winter. He asked, “Hey,’ Ant! Why don’t you come outside and play with me?” The Ant replied, “I cannot. I am storing food for the winter when there won’t be anything to eat!” The Grasshopper only laughed at the Ant and said, “Why are you worrying now? There is plenty of food!” and continued to play, while the Ant worked hard.
When winter came, the Grasshopper did not find a single grain of food to eat. It began to starve and feel very weak. The Grasshopper saw how the hardworking Ant had plenty of food to eat and realized its foolishness.
The Story could have further continued as…
The Ant saved some food for the short term (i.e. the approaching winter) and also out of the savings she planted some seeds and nurtured them into plants..
Fast forward 10 years…
The Ant and the Grasshopper were now both little older. They could no longer work as hard as they used to do earlier. The Ant looked out of the window and saw the many trees laden with fruits from where she could source food during her retirement days. While the Grashopper still wondered how he would manage his requirements. It saw how the Ant had plenty of food to eat from the trees sown earlier and realized its foolishness.
The Story in Today’s Personal Finance world is not any different..
We see more Grasshoppers and few Smart Ants. We live in the world which believes ‘Zindgi na milegi Dobara’. We believe that savings can wait, Retirement is too far to think and so on. While we may enjoy like the Grasshopper, we must not ignore the Smart Ant. We should not ignore the bitter truth that a time will come when we wont be able work so hard.
The difference between Saving and Investing is not understood by many. This is because we are not taught the concept of Investment from the very beginning. We are only taught about Saving.
In this updated story, the Ant not only ‘Saved’ i.e. it kept its capital in a safe place for the near future but also ‘Invested’ its savings (by planting the seeds and nurturing it) and let the capital (plants) grow.
So while we all ‘Save’ our Hard Earned Money.. Smart people ‘Invest’ their Hard Earned Money.
Savings vs Investment
|BASIS FOR COMPARISON
||Savings represents that part of the person’s income which is not used for consumption.
||Investment refers to the process of investing funds in financial/ capital assets, with a view to generate returns.
||Savings are made to fulfill short term or urgent requirements.
||Investment is made to provide returns and help in capital formation.
|Inflation Adjusted Returns
||Less or Negative
||Short Term (1 to 3 yrs)
||Long Term (3 yrs or more)
If we don’t Invest our Capital, Inflation will eat up some of it. To know more about how Inflation affects us read Inflation the Hidden Enemy
Simply, Investments should at the minimum generate a return higher than the inflation.
The below Equation explains that in the beginning of our career we work for money and ‘Save’ for short term and ‘Invest’ for long term. Over time, as we grow older our Investment Income should increase and become equal to our occupational income so as we near our retirement our dependence on occupational income is done away with.
Simply put, if you are the believer of ‘Zindigi na Milegi Dobara’, your bank balance is like ‘Kal Ho Na Ho’ and if you don’t want be ‘Devdas’ its time to take a pause and Invest Like a ‘Bahubali’ and be a ‘Hero’ so that will help you in days of ‘Kabhi Khushi Kabhi Gam’ and if you require more help regarding the same ‘Main hoon na‘.. 🙂
CA Nitesh Buddhadev
CA Mitsu Buddhadev
Nimit Wealth Management
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