Managing your personal finance – OSAGIE OKUNBOR

Managing your personal finance OSAGIE OKUNBOR

It’s always a difficult situation having to deal with money issues especially when you lack the required knowledge and skills or when you never studied Accounting or Finance related courses. Understanding numbers isn’t exactly everyone’s forte. Hence, millions of Nigerians continue suffer in silence from issues relating to managing one’s income and personal finances. Some have burnt their fingers by getting involved in several “get rich quick” schemes or other related “grow your money within days” types of businesses. I am sure many persons have received such unsolicited email or request from their likes. A typical example that comes to mind is the popular “MMM” scheme which when it crashed a few years ago, made Nigerians to lose a lot of money running into Billions of Naira. Till date, a lot of persons are yet to recover from the shock while some others have since lost their lives due to high blood pressure in the aftermath of the crash. One of my mentors, Dr. Tayo Oyedeji (@tayooye on Twitter) once outlined the key ways of making money and key ways of growing money which I would highlight in this article.

Two key models for making money
1. Competence and skill (For Employees)
2. Hustle and Flow (For Entrepreneurs/Self-employed)

Two key models for growing money
1. Frugality and savings
2. Investment and Equity

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For the purpose of this article, we would be focusing on “Frugality and savings”. Say for example, if you earn an income of 50 Million Naira monthly and spend 50 Million Naira every month, the money just passed through you as water passes through a drainage pipe. You cannot be classified as a wealthy individual just because you earn amongst the Top 5% of people in the country. You are just a money conduit. However, if you earn a modest income of 100,000 Naira every month and you are able to keep 25,000 Naira as savings, you just grew your net worth by 300,000 Naira a year. If you keep the same momentum (income and savings remaining constant), over a 10 years period, you would have amassed a healthy sum of 3 Million Naira (the Millionaires club) without doing anything extra, just by being financially disciplined. If you ever want to become a prodigious accumulator of wealth, you MUST as a matter of principle be financially disciplined. Otherwise, you may have to keep working for the rest of your life just so you can feed.

As stated earlier, to achieve a certain level of financial freedom, one must be ready to live a frugal lifestyle. By this, I do not mean that you should deprive yourself of everything you need just so you can save. There should be room for enjoyment and fun as it helps to reduce the stress level that a lot of people face (especially in Lagos). Rather, I would suggest that you first start by understanding basic economics, inflow and outflow of money. Just like a company does, you should always ensure that your income (inflow) is ALWAYS greater than your expenses (outflow). That means, you must never spend 100% of what you earn if you desire to achieve financial freedom and sustainability.

I would recommend that you follow these three key principles which I use
1. Budget
2. Save
3. Invest

Budget: Before you make any expenses from the income that you receive every month, it is advisable that you make a budget of the things you require (needs). In this manner, you are able to track where your money is going to. You can then create time to analyse your records to discover a pattern. Personally, I make use of the following heading to keep track of my daily expenses “feeding, transport, others”. As the heading implies, “feeding and transport”. The column, “others” however, involves everything else that I need (including recharge card, vacation expense, family expense, hangout with friends expense, cinema expense etc). Then, I total up the amount at the end of each month which reveals consistent patterns except for rare occasions of slight changes. At a glance, I can sum up my expenses for each month and I am therefore able to estimate my living expenses on a monthly basis. This can be time consuming for most people (having to keep a daily record) but it has helped me a lot to survive a limited income. I have been doing this for over 7 years now and the results are simply amazing. Be prudent in your expenses and only spend on needs and not on wants. Always spend less than you earn.

Save: Without any savings, nothing else that you do financially really matters if you desire to escape the rat race. Therefore, ensure that you put aside a certain amount of money (percentage of income) on a monthly basis. This would come in handy especially in an emergency situation. A lot of persons struggle to maintain this habit. They may start very well at the beginning, however, they lack the willpower to continue after a certain period. I would recommend an easy approach should you decide to follow through on this. Walk into your Bank and ask them to place a standing order on your account to deduct a fixed amount on a particular date (every month) from your income (say 10–20%). The money would be transferred to a different Bank (Savings account) that you operate. You must ensure that you do not have easy access to that account (such as ATM card, mobile app, USSD etc). To do a withdrawal, you must have to visit the bank’s branch which a lot of persons find very discouraging. This idea may come easy for Employees as the majority of them receive their salaries on a fixed date every month. Set the standing order on your account to take effect at most 24 hours after that date that you must have received your salary alert. This way, you won’t have to do the transfer yourself and since you can’t easily access the savings account, it is highly unlikely that you would spend such money. For Entrepreneurs/Business owners/Contract staff, you can select a particular day of every month (say 30th) for the standing order to take effect. Personally, I have been doing this for over 4 years now and it happens seamlessly as the standing order does the job.

Invest: Now that you have been able to save some amount of money, it’s time to start investing. You have worked so hard to save, therefore you must invest only in things that you understand. By investing, it is a sure way to increase the financial returns of your savings. Investing is a far better option than leaving your money in the Bank which yields only a tiny fraction of interest. Before investing however, read about Treasury bills, Mutual funds, Money market and other financial instruments. These are some of the safest investment instruments out there. Ask your Bank or Stockbroker for investment advice. You can also read up on it online as there are several articles and materials there. Remember, you want to invest SAFELY so that you don’t lose your money. These days, they are several apps that allows you to save from the comfort of your mobile phone. Check them out an see which one works best for you. I make use of PiggyVest to invest. You would be able to grow your investment steadily if you are able to follow through with this.

Remember the story of the race between tortoise and the hare? Slow and steady, wins the race. Goodluck on your journey to financial freedom. See you at the Top.

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