So, someone threw up this investment question in a WhatsApp group,
I have been thinking of this advice of always having some savings set aside somewhere – in case of an emergency, or, to take advantage of some windows of opportunities that sometimes open.
But in a situation where your money is working so hard (demand consistently exceeds supply) to the extent that attending to basic household things is a challenge sometimes, how realistic it is to set aside money somewhere – earning peanuts??
If I know my money will earn 8% a month somewhere, what is the motivation for me to keep it somewhere where it will earn a paltry 15% in a whole year?
It is a conundrum that many people continually have to deal with. Striking a balance is truly tough.
A wily bird, full of experience, gave his own opinion, thus,
There are 3 needs for money.
– Emergency needs
– Transactional needs
– Investment needs
Each of them is very important. Sometimes they are mutually exclusive, but we have to find a way to strike a balance in the allocation of resources
The one who threw up this investment question further asked,
But in a situation where you want to multiply your money as fast as possible, how do we determine that balance?
Wouldn’t anyone naturally want to push resources to where the highest Return On Investment (ROI) can be earned?
The one sharing his wealth of knowledge is a former Investment Banker, so, this had everybody paying attention.
He says further,
As much as you must sell your grains to make money when the price is good, you still must keep some grains unsold for the purpose of planting- next year
The question I had agitating in my mind was, why wait until next year to plant if you can plant all your seeds today with the assurance of reapting a bountiful yield tomorrow?.
Also, we have to eat some of the seeds as well.
Companies that go borrowing still have reserves in the books… have you asked yourself why?
Borrowing (OPM) could be for future growth, while today’s cashflow continues to take care of day-to-day activities
Reserves are for emergencies.
Life has a way of throwing things at us that we never imagine could happen, so we must always be prepared, psychologically and financially.
lf you’re not very rich yet- with ample abundance-I will suggest you keep funneling almost all your money into Investments that yield as much as possible, while simultaneously allowing you to liquidate that investment – as needed. You of course factor in things like your age viz a viz the risk in deciding whether the returns are justified.
You can become less aggressive with your Investments when your Wealth Ratio becomes greater than one.
Wealth Ratio = Passive income / Running expenses.
Do not park your money!
Very rich people have learnt not to use their money to do business, whenever possible..
Other people’s money- OPM- is what made many rich people rich and they will continue using that to keep themselves even richer.
They keep using other people’s money to do business, with their return on investment (ROI) being infinity and that’s why they are that rich.
If you have access to “emergency money that is not your own for those life’s surprises like health challenges, etc, by all means, ensure your money works as hard as possible. But if this is not the case, it is wise to always have some funds set aside.
With Online Lending Platforms opening up left, right and centre these days, emergencies that are not major can generally be taken care of without your having to put your money in some low-yielding savings account.