The Concept of Saving Money

Motsuthung Yanthan

The term "money" is what we always use in association with politics and corruption in Nagaland. But today we will be discussing about it purely on economic perspective in this article.

According to general observation, handling of money in most Naga households revolves only around keeping it in savings accounts or inside the steel almirah or using it as a medium of exchange- which is what money is for- to buy consumer and "eventual-perishable" goods. This is normal for the majority of us. Now, our spending habit, which is a major topic of discussion in itself, is not the matter of concern today. Today, it's about our savings.

Whether it's for weddings, child education, retirement or vacation, we are always saving money. We save money with the intention of keeping it for later use. But are we really keeping it? If my grandfather kept Rs 50,000 in 1970 in order to build a massive house today, could he have built it? He could've then, but not today. This is what we call inflation. As a result of inflation, the value of money is always decreasing, and more so for an idle one.

In India, the inflation rate fluctuates at around 5-7% which means the cost of products are increasing at that rate, and it also means the value of money is decreasing at that percentage. That's right. The money that you are saving is depreciating by 6-7% each year.

The most that our dearly beloved SBI bank gives its savings account holders is not even 3%. Meaning that your money in savings account is still depreciating by 3-4% each year. The next best option is Fixed Deposits account. It has it's disadvantages. But the most it gives is also about 5-6%, which is relatively better yet is still below or about the line of depreciating your hard earned money.

The impact of these depreciations are not felt immediately. But 30 years or 40 years down the line, if your bare savings of say Rs 50 lakhs can't make you your dream house, you can only regret.

Now, inflation is not the one to be blamed here. In fact, inflation is inevitable and a certain amount of it is also needed to keep the economy running. RBI announced that 4% (+/- 2%) is ideal for India. While most developed countries keep it at 2-3%. So, the question is not how to suppress it but how to get one up in the game of keeping your money. And the answer is to let your money multiply itself.

There are several ways to do it and it's all up to each person how to do it. In general it is called "investment". And in particular, some of them are stocks, bonds, commodities, real estate, mutual funds, loans, etc.

Most Nagas, especially the elders, are reserved on these subjects. And they are not wrong. The money you earned came with the price of your labour. Likewise, the money that is to be multiplied comes with the price of a risk of partially losing it.

But everything is a give-and-take in this world. If what you give in investment is your knowledge and time, the risk of giving your money is reduced. By investing your money somewhere you have confidence on, you can keep the principal amount and make it churn out profits, which we here call it multiplying.

Even within the realm of investments, there are risk intensities depending on a person's expectations of return. For example, giving out loan to someone in Nagaland, which is a whopping 8-10% of interest returns per month, is highly profitable yet highly risky. And in real estate sector, renting out houses demands high investment cost and slow returns, yet has minimal risk. Likewise, even in stock market, a retail investor carries more risk and high rate of return compared to the one investing through mutual funds, even if they are both trading on equity.

The word "risk" is what we don't play with in Nagaland. Whereas, there are billions out there that have already stepped in the field. While it is entirely up to an individual whether to step into smart investment or not, I'm just here to point out that the money you are saving is being lost one rupee after another. The point of true saving is only when the inevitable depreciation is balanced by a calculated multiplication.