Is cash really the best way to save money?
Following the government’s demonetisation move, we have received several queries from panicked customers who had been saving in cash every month, for several years, perceiving it to be a ‘long-term saving’. The irony is that these are salaried households with no real need for storing or dealing in cash at all. For instance, a home-maker saves Rs 2000 every month from the household budget for almost the last 10 years, hoping to save enough for her daughter’s higher education. The most common reason we hear for saving it as cash is that – ‘keeping it in a piggy bank / locker will avoid unnecessary short-term spendings’.
The good news is that these salaried families need not worry. The government has promised not to harass genuine / honest individuals when they exchange their currency.
But the bad news is that their money has already lost substantial value over the years anyway. For instance, the woman in the anecdote above has slightly over Rs 2 lakh of cash saved today. But its value today is less than half of the value when she saved it over the years. Price-rise has eaten the rest away. Instead, if she would have invested the money in a recurring deposit or a mutual fund, she would most likely have well over Rs 4 lakh today.
If you are saving for your child’s education, remember that higher education fees are increasing by ~10% every year. Unless your money is earning that much, you will fall way short when you need it.
Risks of storing cash:
- Theft/Burglary.
- Destruction during natural calamities like flood and fire. I know at least two families in Chennai who lost lot of cash (in addition to other valuables) in the 2015 floods
- Having to explain source of funds to income tax, when you finally bring out the money to spend
What are your options? There are several, but the best is to invest the same monthly saving into a mutual fund. If you dislike equity markets, there are always income mutual funds that only invest in bonds and provide a steady return. Mutual funds are well regulated and are the best way to store and grow hard-earned money.
The fisdom app now offers you a simple way to do this. No paperwork to do! From the comfort of your home and through your phone or computer, you can now start this investment. The money is available for withdrawal anytime on the phone itself. Just tap on ‘withdraw’ and money gets credited to your bank account next day.
If you are concerned that this money will get mixed with the rest of your budget or get spent prematurely, fisdom app has a ‘goals’ feature. You can set your ‘child’s education’ as a separate goal and start saving towards that. That way, you can always track how you are doing towards this goal and avoid using this money for other purposes.
Still have questions? Call us at +91 80 3040 8363 or write to us at ask@fisdom.com.
