1.1What is money?
Money is something everyone agrees to accept in exchange for goods and services. In India we use the Indian Rupee (₹).
Before money, people swapped things (called barter): rice for milk, or a goat for cloth. That was hard, because the person with milk had to want your rice at the same moment. Money solves this. Everyone accepts it, it doesn't rot, and it lets you save value for later.
The stock market is simply a place where people use money to buy small pieces of businesses.
You work and earn ₹20,000 a month. You spend ₹15,000 on food, rent and travel and have ₹5,000 left. That ₹5,000 is your savings. The big question in personal finance is: what should you do with your savings?
Savings kept as cash slowly lose value because of inflation, which means prices rising over time. If tea costs ₹10 today and ₹10.60 next year, prices rose 6%. Your ₹100 note buys less tea next year. People invest in shares, fixed deposits, gold and so on to try to grow their money faster than prices rise.
- Assume a thing costs ₹1,000 today and inflation is 6% a year (a hypothetical rate).
- After 1 year: ₹1,000 × 1.06 = ₹1,060.
- After 10 years: ₹1,000 × 1.06¹⁰ ≈ ₹1,791.
- Cash at home earns nothing and loses buying power to inflation.
- Every investment that tries to beat inflation also carries some risk of loss.
Before investing, always ask: "What return do I need just to keep up with rising prices?" Any investment that earns less than inflation is actually making you poorer in real terms.
- Money is an agreed medium of exchange.
- Savings are money left after expenses.
- Inflation makes cash lose value over time.
- Investing is an attempt to grow savings faster than inflation.
Q1. What problem did money solve compared to barter?Show answer
In barter both people must want each other’s goods at the same time. Money is accepted by everyone, so trade is easy.
Q2. If inflation is 5% and your savings account pays 3%, are you getting richer?Show answer
No. Prices rise 5% but your money grows only 3%, so your buying power falls by about 2% a year.
Q3. What are savings?Show answer
The part of your income left after spending.