I think that most of us have, at some point in time or other, taken a moment to reflect upon why we are working so hard earn money. Most of us would usually arrive at the same answer. We earn money to meet our needs, both current and future and fulfil our goals and aspirations. These could range from fuelling our regular consumption to funding children’s education, planning for retirement or buying a house. For many, the purpose of money could be to acquire luxury goods and fund nice vacations. And then for others, it could just be for financial security and strength.
Whatever the purpose might be, it plays an integral role in our lives. However, income on its own will not serve all or some of the above purposes. We work hard to earn our money. However, we must also preserve and grow our wealth to ensure that the income we earn can continues to bear fruit through our lifetime and help us achieve our goals. To ensure this, we need to invest.
Wealth Preservation: Wealth, if not preserved, depletes over a period of time. Nearly two centuries ago, Nathan Mayer Rothschild, one of the founders of the Rothschild banking dynasty said, “while it requires a great deal of boldness and a great deal of caution to make a great fortune, keeping that fortune requires ten times as much wit.” The first step in astute financial planning is to make wealth preservation one of your mail goals.
Grow Your Wealth: We all understand that our money will not grow itself. Just like we take care diet and exercise to stay healthy we need to nurture our money to make it grow. In the investment world, investing your money is akin to nurturing. A smart investor will ensure that the money they have earned, works for them to grow and generate more money. Growing money entails investing in assets that generate returns and leverage on the power of compounding.
Inflation: Stuffing money under the mattress does not only makes for uncomfortable sleeping it also does nothing to mitigate the impact of inflation on your money. Putting your money in regular savings bank account does not help much either. Over time, money that is not invested judiciously, loses value. You could lose your money and your purchasing power if you keep cash idle. Make your money work for you by investing it in the right instrument.
Manage Tax Liability: While reducing tax liability should not necessarily drive your investment decisions, you must be cognizant that investing can play an important role in helping you minimise tax outflows. Meaningful tax planning entails investing in schemes and securities that the government has designated as “tax-free”. These investments can help an investor claim deductions under various sections of the Income Tax Act, thereby lowering net taxable income.
By investing your money judiciously and according to your long-term financial plan, you are ensuring that your wealth is preserved and grows over time so that it can meet your financial goals and become a source of security in your old age.
