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  • Writer's pictureAgnė Daukšienė

When managing income, it's crucial to first learn the fundamental principles

In our daily lives, each of us makes financial decisions of varying importance. However, armed with extensive professional experience in large corporations and personally investing for over a decade, I believe that investment should become the third step in managing personal finances, following saving and building a financial safety net.

Investing since my college years, I understand that short-term or long-term financial goals are primarily achieved by a simple principle: spending less than what is earned. First, I seek to increase my savings by investing them. Second, I want to ensure that I can remain financially independent in the face of unexpected events – this is commonly referred to as a 'safety net.' Third, I aim to have sufficient assets and income for retirement. Yes, I began thinking about retirement at the age of 23. I am well aware that state-provided pensions will not meet my needs, so I must take care of myself and build for the future.

My journey into investing began with conservative asset classes - second-tier pension funds. Later, investments in the third-tier pension funds were added. The investment portfolio is occasionally supplemented by the acquisition of bonds, stocks, and units of investment funds.

The 'goodness' of investments also depends on context. Investment is the process of 'employing' money to transform it into another asset: real estate, stocks, bonds, or other asset classes, aiming to earn from it or achieve other goals – social, scientific, and the like.

It's essential to understand that investing is a long-term process characterized by fluctuations. For instance, the 2008-2009 crisis negatively impacted real estate prices. If real estate was acquired in Vilnius in 2007 before the crisis, it took about 10 years for its value to recover. Currently, it should be worth more than it was in 2007.

To save on mortgage payments, it's worth investing in more conservative asset classes for several years. Meanwhile, for long-term goals, it's better to opt for riskier asset classes, as market fluctuations smooth out over the long term.

Investing in local capital markets essentially finances the needs of the state or businesses, injecting money into the economy and promoting its development. The more financially literate the population is, the more they invest, creating a triple value: individuals have alternative income sources, invested money aids businesses, and the state in achieving its goals.

In financial institutions, there's approximately €21 billion worth of residents' deposits, exceeding the 2023 Lithuanian budget of €15.5 billion. Imagine what would happen if at least a tenth of this money were invested in local businesses, potentially creating jobs. My initial investment choice – like participants in the second and third pension tiers – not only secures income for retirement but also contributes to local capital markets and the overall economic development.

I wouldn't agree that those with the lowest incomes shouldn't choose or be able to opt-out of investing as a financial tool.

Let's make a comparison with Estonia. As many as 52% of Estonians, who were given the opportunity, withdrew from the second pension tier, spending the money on purchases – non-essential needs. And although three-quarters of Estonians remain in the pension accumulation system, it's very likely that those who withdrew the money needed it the most – they didn't fully understand the consequences. All of this is based on financial literacy and whether we truly understand how to achieve our financial goals.


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