By: Tarun Prakash Srivastava, Sr. Executive Editor-ICN Group
Every living power grows with time. We have to keep our savings alive so that they can not only protect their existence but by using the rule of compounding over time, make their existence bigger also.
Welcome back.
I believe that your journey till now has been proven to be full of enthusiasm and new faith.
You have been introduced with the principles of “First Payment to You,” “Lace of Richness” and “Saving is the seed of Richness” so far and I believe that you have understood them well and applied in your life honestly. You have got a new personality, and your life philosophy is becoming increasingly positive. This is a very good start, and you are eligible for congratulations.
Now we will try to understand more esoteric theories. One doubt can arise in mind – can a person become wealthy by mere savings or with those savings, we will have to resort to any other principle.
Often I have heard scholars saying that saving cannot make you rich because your savings are only part of your income and it can never be more than your income. Those scholars are right in their place. It is true that savings can never exceed your income. If you are earning twenty-five thousand rupees per month, then you cannot save twenty-six thousand rupees. If you are earning one lac rupees per month, you cannot save one lac rupees one thousand rupees. But this fact is not true even though it appears to be correct.
Driving a boat in the river flowing, the boat does not start traveling itself. Not only does the car run by filling its petrol tank, and even the world’s accurate medicine cannot make you healthy if it is closed in bottles. As long as we do not associate with the boat with the nights, an accomplished car driver with the car and its proper time and proper intake of the medicine at proper time and intervals, these objects cannot be functional and effective. This rule is also associated with saving. The savings do not only make you rich, but if we add the ‘investment’ with savings and this investment is done carefully, then this savings will be ‘activated’, and it starts earning for you. In fact, careful investing of savings makes it an earning member of your family.
You must have paid attention – when I advised you to ‘make the first payment to self,’ then I said that you could save that limited amount each month in the form of a fixed deposit or recurring deposits. The first benefit will be that the said property will be one step away from you and you will not be able to use that wealth even after any slight economic pressures on you for fulfilling any current need. And the second benefit is that your money will become ‘activated’ and you will start making extra money in the form of interest. Note – If you have kept that money in your safe only, it means you have allowed devaluation of your wealth. The graph of inflation can be seen rising in every country and region. I do not want to make this book complicated by counting the reasons of such rising inflations because many books and study papers on this topic will be found in the market or on the internet and you can study it at your convenience. It is enough for us that life is ‘life’ and death is ‘death.’ time is ‘time, ‘ and ‘inflation’ is ‘inflation’ because these are natural truths.
Every living power grows with time. We have to keep our savings alive so that they can not only protect their existence but by using the rule of compounding over time, make their existence bigger also.
Here, I have accepted the fact of rising inflation, and I expect you to accept this universal truth without any arguments also so that you can focus on what I am going to say now.
If you have saved money at the rate of 20 percent for one year so far, at the end of the year, you have saved twelve times of your monthly savings, i.e., 240 percent of your monthly income. If this process is for two years, then this percentage reaches 480 of your monthly income and if you have done this process for three years, then this percentage reaches 720 of your monthly income.
Now try to understand another important fact. If you have kept your savings in your safe only, you have made it ‘inactivated’ and then, by the end of the year, based on an average 5 percent increase in inflation, your one-year savings of 240 percent will be reduced to 228 percent. If you again keep your saving in your safe box for the next year also, on completion of two years, your total savings of two years, which were 228 + 240 = 468 percent, will be reduced to 444.6 percent with the rate of 5 percent inflation and in the same way, after three years, your total savings of three years will be 444.6 + 240 = 650.3 percent in place of 684.60 percent.
The following table of the devaluation of funds is very important for you based on inflation and I believe that till now your brain will start to understand the nature and behavior of money.
The devaluation of savings on the basis of inflation
One year later:
| Time | Saving | Devaluation @ 5% | Balance amount |
| After one year | 240 percent | 12 percent | 228 percent |
Two years later:
| Time | Saving | Devaluation @ 5% | Balance amount |
| Balance of the first year | 228 percent | Loss of 468 percent @ 5 percent = 23.4 percent | 444.6 percent |
| Saving of the second year | 240 percent | ||
| Total saving | 468 percent |
Three years later:
| Time | Saving | Devaluation @ 5% | Balance amount |
| Balance of first and second year | 444.6 percent | Loss of 684.6 percent @ 5 percent = 34.23 percent | 650.37 percent |
| Saving of third year | 240 percent | ||
| Total saving | 684.6 percent |
It means you have devalued your three years saving of 720 percent to 650.37 percent by keeping it locked in your safe resulted in the loss of 69.63 percent.
That is why I have told you from the beginning that your savings have to be invested and it would be good to do the initial investment in the form of a fixed deposit or recurring deposits. The above table also tells you that interest is not a great option for your additional income. By earning the interest of the bank, your savings are saved only by devaluation. Changes in the rate of interest at the time to time by the Reserve Bank are also indicative of changes in the rate of inflation.
Tarun Prakash Srivastava
From my book ‘Science of Money’ available on Amazon.com in English at http://bit.ly/Science-Of-Money and in Hindi at http://bit.ly/साइंस-ऑफ़-मनी
