Thinking of buying that Second House; a Holiday Home?

Dream Car on your mind?

Planning that exotic International holiday trip?

These are all examples of goals that are aspirational in nature. Goals such as these are aimed at adding comfort, luxury, & recreational value to our lives while raising our overall standard of living. Regardless of our current financial situation, we all have our share of dreams and aspirations that we strive to realize. However, our dreams come at a cost; and funding them, therefore requires us to think beyond the ordinary.

The importance attached to dreams and aspirations would vary vastly based on where a family currently finds itself in the financial well-being spectrum. It can still be safely assumed that one would make provisioning for life’s higher order goals only after the non-negotiable goals of life have been adequately provided for. Aspirations rank a notch lower in the order of priority compared to the non-negotiable goals, and they are generally flexible in terms of the time required to achieve them. For instance, a family planning to go on an international holiday trip in three-years’ time would be flexible enough to postpone their trip in case their finances at the time demand so. Similarly, a family that dreams of buying a second house or a holiday home may have a tentative time frame in mind to realize that dream. However, this time frame would most likely be less rigid and would be open to reconsiderations based on the financial situation of the family at the time of the intended purchase. This holds true for almost every aspirational goal that requires a considerable financial outlay.

It is this flexibility of time that works to our advantage when it comes to investing in goals that go beyond the basic and stretch into the realm of dreams & aspirations. Investing of this kind requires us to take exposure to assets that offer the greatest potential for wealth creation in the most efficient way i.e. better liquidity & greater tax efficiency too.

Broadly put, there are three options in front of us to fund our dreams and aspirations:

1. Bank Borrowings & Credit Products

2. Savings Instruments

3. Equity & Equity Linked Products

Let’s evaluate them to zero-in on the most prudent choice:

Bank Borrowing & Credit Products:

The lure of Debt is real as it offers a quick fix to funding your dreams and aspirations. However using credit cards, personal loans, car loans or any other high cost borrowings to fund your life’s comforts and luxuries could also put you at a serious risk of spiraling into a perpetual debt trap and eventual ruin.

Savings Instruments:

Savings Instruments such as FDs, Post Office Savings and other such Fixed Return Products are extremely low yielding by nature and don’t beat inflation in the long run. This could mean that you may have to deploy far more out of your earnings than what is reasonable for realizing your dreams. This leads to sub-optimal use of existing financial resources / savings and you could end up compromising on some of your other high priority goals.

Equity & Equity Linked Products:

Equity figures among the most efficient class of assets as it offers a definitive edge over conventional instruments, not just in terms of returns but also in terms of liquidity and taxability. However as an asset class, Equity is vulnerable to economic, political and geo-political events which could lead to frequent wild bouts of volatility. Additionally, occasional periods of underperformance and several other stock specific factors too would result in delayed price/value discovery. But with time on our side, we can navigate through these short term risks and aberrations, making it possible for us to accumulate wealth in the long run and plan for an exit at the most opportune time.

The comforts and luxuries of life are thus best funded by investing in equity which comes with the potential for superior returns in the long run. All you need is some sound advice, and the patience & discipline to stay invested.

WHILE YOU SWEAT TO EARN A LIVING,

MAKE YOUR EARNINGS SWEAT TO GIFT YOURSELF A LIFE.

Note: Let’s make this one point very clear. Investing alone is not going to make you wealthy. It simply boosts your wealth creation journey. Hence it is equally important to enhance your ability to earn so that your disposable savings go up. While dreams and aspirations can oftentimes be unreasonable and not in alignment with one’s current financial situation, when it comes to realizing those dreams, one needs to bring an element of rationality into the investing process. This will help us set realistic expectations. The above write-up only talks about how equity as an asset class gives you your best shot at wealth creation in the long run, so that your dreams and aspirations see the light of the day.