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Thursday, July 19, 2018

Creating excess pool of money

How to not lose money? Perhaps this a silly question to ask. 99.9 per cent people would say “Just keep it in the bank,for better returns make a fixed deposit or keep it at home or in a locker and you will never lose money…that's it.”

Written by Kartik Jhaveri | Published: May 14, 2012 3:26:59 am

How to not lose money? Perhaps this a silly question to ask. 99.9 per cent people would say “Just keep it in the bank,for better returns make a fixed deposit or keep it at home or in a locker and you will never lose money…that’s it.”

Logically speaking this is quite right. Financially speaking it depends what rate of return you earn and what the inflation rate is going to be during the duration of your investment. However,let us bypass both these arguments and talk about a different perspective.

Often people say if you don’t want to lose money don’t do anything stupid and do not take any kind of risk and your money will be safe then. Think about this for a minute or two. You might conclude that this is quite obvious and forthright. Don’t do any thing silly and if you stick by this advice where is the question of losing anything. Quite right.

In my view,however,I think this is quite a shallow thought. Someone saying this probably has the only,obvious perspective to money. Of the ability to buy things and the more you have the better it is. Nothing more than that.

Here is a different argument: If you don’t have something how can you lose it?

Most people just do not have money. Yes everyone earns and saves but 90 per cent or more would say that they need more; be it someone earning R 10,000 per month or earning R 1,00,000 per month. Hence I say most people don’t actually have money. When you don’t really have any idea of what to do with your money that’s probably the time you can say that you have money. This is quite obviously after doing whatever you need to generally do with money i.e. buy things,pay bills,pay instalments etc.

Hence if you are in a position to create money then you should be concerned on how not to lose it. The answer lies in the word “create.” The money you get as wage or salary is just a compensation for rendering your services. Even if you save some portion of it quite likely that it is going to be used sometime in future for something. More often than not when you actually have to use such money in future; that money is just never enough. Your extra savings may get used for some contingency or as an extra down payment or for something similar.

Let me tie in the above thoughts. Money is there when there is ample and you feel no concern about how money comes to you month after month,for as long as you are alive. Money is there when it is able to create more on its own without you having to fend for it day and night. It keeps flowing to you like a never ending river.

It is not about asset allocation and where you money is deployed and how it is doing in that asset it is invested into. There is rationale behind every investment strategy. It is not that having equity exposure is correct and having debt exposure fully or partially is incorrect.

It is about creating a situation where you empower your money to create more for you in line with your expectations. If you are living and working to pay bills,EMIs,buy food and material,doing savings for future and using up that money eventually then you don’t really have money. Look around you; what do people achieve at the end of their careers? A house,car,some bulk savings and some pension income. But along with all that there is quite a bit of worry and anxiety. Concerns always stay.

Financial dark clouds may just hit you anytime and situation may worsen. You may have ample as of now,so it may seem but you are still never 100 per cent satisfied. There is something missing. Perhaps a strategy so that you have ample coming your way later.

The answer may lie in “creating” that “ongoing excess” and such that it lasts forever. Creating such excesses is quite different for each family. For some it may be just simple discipline,to some it may be correcting a lot of wrongs,for some it may be to take action and not let the money sit in savings account forever,and for some it might be consolidation. The answer varies but if one starts on this journey of creating excesses; then to lose anything is very hard.

—Author is Director,Transcend Consulting

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