Imagine that like the genie from the story of Aladdin in Arabian Nights, your money fulfils your different wishes, be it an exotic vacation, buying a car, a home, or saving for seed capital for your start-up. For this to happen, your money needs to become capable enough and grow muscles like people do through regular exercise at the gym. Like your body, money also needs to become more capable with regular exercise in the form of investments to have the financial muscle to do the heavy lifting of fulfilling your wishes and dreams.

Clearly, at the beginning of one’s financial life, it is important to understand why your money needs to develop muscles and the workout regimen required for it.

Why your money needs muscles

They say if you dream, then dream big. At the same time, it is also true that big dreams come with large price tags. Let us take the example of buying a car. A popular car brand is likely to cost upwards of Rs 6.49 lakh* (ex-showroom Delhi price). Remove the brand name. For a young person in early work life with a monthly take home of Rs 50,000, this is equivalent to a year’s pay. Clearly, any person wanting to buy a car, to begin with, needs to keep aside money for it. The same would be true for other requirements such as buying a home and retirement needs.

When it comes to saving for major life goals, keeping money aside is also not enough since the price tags for our dreams keep rising. In the present example, the prices for the same car model would have started from Rs 5.14 lakh** onwards in 2019. This means a compounded annual increase of 4.77% since then. For many other goals like continuing education or other forms of higher education, it can be as much as 11-12% annually# or costs doubling every 6-7 years with costs for sought-after disciplines like management in top tier institutions being as high as Rs 14.0-27.0 lakh##.

Thus, a key requirement for money to grow muscles and become capable of fulfilling goals is to grow faster than inflation. In other words, the regular workout for money should be such that it grows strong enough to beat inflation in an arm wrestling match.

When to start money’s workout

Now that we have made a case for bulging muscles for your money, the question is when do you get started? Here it is important to remember that like warm-up routines before gym sessions, you similarly need to prepare your money and finances for emergencies before starting to invest. This preparation can be done with the help of an emergency fund. In early work life, this is ideally money equivalent to 3-6 months of expenses depending upon your age, dependency, lifestyle, etc. You also need to have adequate insurance coverage for life, health, income, car, and home. Without ample protection for emergencies and mishaps, there exists a potent threat of premature use of investments during emergencies.

As part of the preparations, you also need to arrange money for imminent expenses such as the replacement of your existing work laptop. Finally, as with any gym regimen which involves identifying the muscles to be developed and the gym routines required, identify specific financial goals and estimate the amount of money to be saved in the time at hand.

What to Remember For Money Workouts

For an exercise regimen in a gym to bear results, the various routines and apparatuses must be used in the right way. It is not different for money workouts where you need to keep in mind the following aspects about investments.

Risks

For money to grow faster than inflation, you need to invest in higher return investments such as different equity mutual funds like an index fund, large cap mutual fund, besides mid cap mutual fund and small cap mutual fund. Equity-oriented funds such as a balanced advantage fund are also among the options. It is important to remember that a mutual fund with some or large amount of investments in equities typically experience volatility in the short term due to various market-related factors. However, they are potentially rewarding in the long term i.e., 8-10 years or more.

Time horizon

The more time you have at hand, the greater the risk and volatility you can manage, and better the prospects of riding it out and tapping the high return potential of any high-risk, high-return investment. Depending on the time horizon, one can opt for an equity mutual fund or a mutual fund with adequate significant investments in equities.

Regular investments

Like regular exercise is needed to build muscles, similarly, you need to regularly invest to develop financial muscle. This also helps you benefit from all market conditions something that a Systematic Investment Plan (SIP) from mutual fund, especially in growth investments like equity mutual funds, can help achieve. With any SIP investment, you buy more units when markets are low and lesser when the markets are high. In the long term, this reduces the average cost of buying units and you gain when the market appreciates in the long term.

Liquidity

Financial muscle is built through investments with high growth potential in the long term. Such investments are typically volatile in the short term and thus emergency access is to be ruled out. Many long-term investments have exit restrictions or premature exit penalties. This is opposite of money parking options like bank savings account, short-term fixed deposit (FDs), debt mutual funds like liquid funds for current expenses, emergencies and imminent needs like big-ticket purchases where liquidity and not returns hold the key.

Clearly, you need to help your money to serve you better and can do it with simple steps. It goes without saying that its regular workouts that can help you easily work out life’s different situations.

Source Reference

*https://www.marutisuzuki.com/price-list/swift-price

**https://motoroctane.com/news/99234-maruti-swift-2019

#https://business.outlookindia.com/news/education-inflation-at-12-tackle-it-with-smart-investments-cheap- loans-says-report-news-308187

##https://bschool.careers360.com/articles/mba-fee-know-how-much-your-mba-will-cost-in-top-b-schools