Monday, April 4, 2011

Why are Indians primarily savers?

Indians are primarily more on the saving side because of the environment surrounding it. They see everyone around them are saving and are doing the same! There is a big difference between Saving and investing and it will be a hard fought truth.

Setting a goal and standing by it is pretty hard. The commitment is easy to come by if you are working and set by your peers and your managers (some of them don't get it even under the supervision of strong managers.. :-) ) and its also the inherent nature of the entrepreneur and he has it in his veins. But, to see through a goal that is set as a part of retirement or getting a house is very hard to come by and its hard to come even for an entrepreneur.

Let us see a simple example. You need a house. First house. Absolute need. Alteration for rent. Everything. Fine. It should be understood that how much you are currently having in hand and how much you need as a loan and it should be a neatly laid out plan. How many of them who have bought the first/second house recently has plan and bought the house recently after this plan. This really hurts the whole economy. Because, without absolute need and plan, some people are ready to buy the real estate at whatever prices the agent is quoting and are happy at the price they bought just because they were saving this long and they are going to INVEST in a property for the long term! This again beats my thinking. You are investing in a highly illiquid asset class, which has a good scope of growth but not excellent but given the nature of the leveraged investment made in the real estate, the returns will be below par to that of the savings account at least till that of 20 years. And, if it was your absolute need, just forget about what we are talking about here and think you have bought something for your child or nice thing for something in your wardrobe for your absolute need and don't even think of getting any return out of this instrument.

So, you ask is SAVING bad?
No.. Not at all.. Saving is the first step towards Investing. As I was describing here, you need to spend less than what you earn and get your saving right on track before you think on your investment track.

After you start saving, make sure to invest in towards your financial goals that are well set and are tracked. If you can't track it properly, its time you hire a financial planner and there are many available in market to do that.

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