The above statement has been repeated many times and it normally refers to putting money into investments so as to enjoy the power of compounding. I think I don’t need to emphase that if time is your friend, the power of compounding will grow the money to a very huge amount of money. But this is only half the story.

The true meaning of making your money work hard for you has two side of the story. Firstly, one would want the money to be invested for a purpose and that purpose is normally to accumulate sufficient wealth for retirement. Therefore, the assumption in this is that the person currently has insufficient or very little money. However, very often huge amount of money is required when a person is young. Things like incurring a huge hospital bill, disabled to the extend of not able to work, major illnesses are examples of time in which a person is required to have the ability to obtain huge amount of money. Therefore, it is important to leverage and get hold of such huge amount of money. Putting one’s money to work hard involves setting aside a sum of money for leverage purpose. In the event that a huge bill comes in, the person will have access to this large capital. Insurance is a kind of leverage. For a small premium, huge capital is available in times of need. Unlike other forms of leverage, once this leverage is exercise, repayment of this leverage isn’t required. How much this leverage factor is? For a person below 30, for $192 a year, he has access to a capital of up to $297,000 of annual cash for the reimbursement of hospital bill. This is 1547 leverage factor. Or consider a male of next age 27, for premium $485.80, he has access to an inflation adjusted $2,300 of monthly income until age 65 should he be unable to work. This represents a present value of 2300*12*(65-27)=$1,048,800. The leverage factor is 1048800/485.80 = 2159.

People often ask me, is it not wasted to spent so much on insurance? I would like to ask back this question: will anyone give you a huge sum of money in times of need? No of course not. I am not referring to just leverage 10x but 1000x or 2000x. The leverage isn’t optional but a necessity because a person who is financially active and have many dependents must leverage otherwise he or his family will be destroyed due to the lack of money in times of need.

At the same time, the other side of the story of putting money to hard work is to invest according to one’s risk appetite so that the power of compounding will help one to growth wealth. When the time comes to retire, this sum of money will be available to fund one’s personal expense in his golden years.  

It is a mistake not to execute this two prong approach by putting one’s money to hard work. If you leverage through insurance only, there isn’t much left of one’s wealth when he retires because a lot of money goes into insurance with the remaining surpluses eroded through inflation. On the other hand, if one would to invest but not leverage through insurance, then in times of crisis the investment and his entire wealth will be wiped out. The retirement fund plan will be ruined. The worst of all, his family will be destroyed due to the lack of leverage. Thus, it is important to make one’s money work hard for you BOTH by leverage and accumulating one’s wealth through the power of compounding.