| When I was a beginner, my biggest investment | | | | who are 100% financially independent no longer |
| dilemma was identification of best investment | | | | needs to do job to earn their livings. Lets assume |
| options to build a perfect portfolio. When I was in | | | | that an investor decides to save and invest $100 |
| this dilemma only one thing was clear that "i want | | | | equally among asset saving and liability saving. At |
| to save my hard earned money to invest it on | | | | this the choice of a suitable investment options |
| assets and not on liabilities". People generally save | | | | becomes most important. The choice of |
| to buy a house, car, TV, motor bike etc. But we | | | | investment option is dependent on the time span |
| cannot ignore the need of liabilities in our live. A | | | | for which you can keep your savings invested: |
| good house, a nice car, a furnished home, all adds | | | | (1) Asset savings - long term investment |
| to our standard of living. There must be a perfect | | | | (2) Liability savings - short term investment. |
| balance between savings that is focused on | | | | Investment time horizon for asset savings is |
| buying assets and other which shall buy the | | | | minimum 5years. It means if you buy one a share |
| required liabilities. This is the reason why I have | | | | today then you must not sell it for next 5years. |
| classified savings as: | | | | Liabilities investment has time horizon of 1year to |
| (1) Liability savings. | | | | less than 5years. Investment options like shares |
| (2) Asset savings. | | | | and mutual funds (equity linked) are best choice |
| The objective of asset savings is to accumulate | | | | for long term investment options. Bank fixed |
| assets and liabilities savings buy needed liabilities. | | | | deposits and recurring deposits are best choice |
| People often forget to do this differentiation in | | | | for short term investment options. |
| their savings. People save and then invest on | | | | (1) Asset savings - invest on shares and equity |
| assets like shares, bonds etc and ultimately | | | | linked mutual funds. |
| redeem to buy liabilities. This is not right, savings | | | | (2) Liabilities savings - invest on bank fixed |
| focused on assets should always buy more | | | | deposits and recurring deposits. |
| assets and never a liability. The fund generated by | | | | The quantum of money an investor allocated to |
| liability savings should be used to buy liabilities. With | | | | asset savings and to liability savings is very critical. |
| this concept, we will briefly discuss the affect of | | | | If you are saving more for liabilities then your |
| the above two types of savings on your financial | | | | speed of becoming financially independent will be |
| independence: | | | | slower. If you are saving more for assets then |
| (1) Asset savings - makes you richer | | | | you will be always short of funds to buy the |
| (2) Liabilities savings - makes you poorer but | | | | needful liabilities. It is very important to know your |
| increases your standard of living. | | | | optimum levels of savings. In most cases you will |
| It is not sufficient to think about savings and | | | | find that your savings are not enough to buy the |
| investment in isolation. The savings should make | | | | needful liabilities at the desired time. In such |
| you richer and in parallel increase your standard of | | | | situations do not cut you budget of asset savings; |
| living. If an investor can manage this balance then | | | | you must look for other avenues to meet the |
| he can be sure to reach his goal. The goal of | | | | deficit. This is one reason why so many people |
| asset savings is to give the investor a financial | | | | start doing business (work from home types) to |
| independence. Financial independence decreases | | | | make up for this deficit. |
| the investor's dependency on their job. Investors | | | | |