by Noriyuki Morimoto
Asset formation means setting aside a part of your current income and building up funds in a planned manner for future use. This is deeply linked to daily life, as it involves curbing current consumption and using the funds for future consumption. Therefore, discipline in household finances is needed in well-planned asset formation.
For younger working people, voluntarily setting aside a certain amount of money from current income and preparing for post-retirement life in the distant future would require a high degree of planning and household discipline. Whatever assumption can be made in theory, this is almost impossible given the reality of how people feel in daily life.
Such a way of life seems way too well-behaved and going against human beings’ natural propensity of consumption, and incompatible with the outburst of human vitality that drives growth of the society. If you think of it as a meal, it’s more like eating for nutritional value than enjoying the taste and occasion. It is a rather abnormal way to live.
To be realistic, it should be necessary to learn asset-building habits and discipline based on short- or medium-term objectives that are much more relevant for the person’s daily life and emotions. For example, a household budget may be devised for purposes closely related to regular life, such as buying a new car, planning a trip, or a bathroom renovation.
In order to achieve such a goal, you have to first set a target amount, and next the amount that can be set aside from the monthly household income. As a result, the timeline to achieve the target should be automatically estimated. In this situation, the stronger the emotional attachment to the purpose, the more disciplined the household will be and the higher the probability of achieving the goal.
As a car is a daily necessity, if the car breaks and can no longer be used, you will have to replace it immediately. Similarly, if the bathroom is damaged and cannot be used, you will repair it immediately. In such cases, if you have sufficient fund on hand, you can use it. Or you may have to take out a loan. In either case, there is no room to take time for asset formation to achieve the purpose.
Asset formation is not for an absolute necessity, but something for a richer, better, more enjoyable life. Or for the realization of dreams. Therefore, what is important is your emotional attachment to the purpose, not necessity.
Chief Executive Officer, HC Asset Management Co.,Ltd. Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (now Willis Towers Watson) in 1990.