The aim of this lesson is to build the capacity of workers and salary earners in wealth creation through personal finance management. This is a detailed lesson and simple lesson. Please enjoy every bit of it, and most importantly, learn and practice them.
On Sunday, March 29, 2009, I was listening to a radio programme, “Every Woman” on the Network of Radio Nigeria (FRCN) and the topic was, “Should a Husband and Wife Have a Joint Account?” The participants in the programme had a lot of varying opinions concerning the issue. Some say they should have a joint account, while others were of the opinion that they should not have a joint account because it could lead to some other adverse effects. One man was outstanding in his opinion when he said that the issue of joint account should work if there is an effective communication between the couple. He later advised that for a husband and wife to have a joint account, they must have lived together and studied themselves probably for about fifteen years.
While this programme was going on, I kept asking myself this question; “Why must people always plan in retrospect rather than planning in prospect?” I think this is the big difference between the financial lives of most wealthy people we know and the poor people around us. Planning in prospect is the best approach to life’s situations. In this case, a person envisages the situation ahead of time and gets ready for that, by planning towards that. Even though the situation might not be as exact as envisaged, but at least it gives the person an overview of the different scenarios, on which to base his/her decision making when the need arises. This is where many wealthy people find themselves. On the other hand, planning in retrospect simply means planning when a situation becomes out of hand. This is usually informed by the idea that one crosses the bridge when one gets to it, a traditional belief system which is not right all the time just as it is not entirely out of place. Of course we have to bear in mind that no problem just surfaces; every problem has a gestation period. This is what Robert G. Kiyosaki described in his book, Rich Dad, Poor Dad as “running a rat race”. Unfortunately, it is the kind of situation many of us who are civil servants and employees find ourselves in.
While still listening to the programme, I drew up a plan on financial management that should be maintained by a woman and a man even before they meet for marriage. In my personal application, I call it “The Triangular Theory of Personal Finance Management”. This plan, when carried into marriage and harmonised, would help them encounter their financial responsibilities with the right motive. Hence, the question of whether or not a couple should have a joint account and the associated problems should not arise, because, they would see themselves facing the same financial goals where only but synergy would lead them to success. However, it is not limited to marriage alone because it is just an aspect of our enormous financial responsibilities. It extends to so many other areas of life, which includes catering for our day-to-day needs, growing our career/businesses, and so on.
What is this plan all about?
It is a financial plan that is pure and simple for everyone to use in his/her day-to-day financial activities, which will give room for further financial development and wealth creation. This plan focuses on fiscal/financial responsibility, self-discipline, value clarification, goal definition, wealth creation, wealth building and wealth sustenance. We have to bear in mind that it is not a strange theory rather it is all about the things we know about financial management. We are just putting them altogether in simple, workable terms for everyone to read, understand and practice.
The financial cycle goes like a triangle: from point “A” to point “B”; to Point “C” and back to Point “A” again and so it continues. See the diagram below:
The Business Dictionary defines income as the flow of cash or cash-equivalents received from work (wage or salary), capital (interest or profit) or land (rent). In the simplest form, income is money one earns by working or by capitalising on the work of others. Every worker earns salary or wage depending on the nature of his/her work. This money you earn is your income. Whenever you earn money, appreciate God for the opportunity and give value to that money no matter how small you earn. Earning brings fulfilment and purpose to one’s life. However, what matters most is not what you or how much you earn but what you are able to achieve with that much or the little you earn. This is financial responsibility. Hence, as important as this first step is, more important are the following steps.
Savings is something, particularly money that has been set aside for the future. The business dictionary defines it as the portion of disposable income not spent on consumption of consumer goods but accumulated or invested directly in capital equipment or in paying off home mortgage, or indirectly through purchase of securities. Everyone knows so much about saving but to so many workers, it is not practicable. More so, the manner of payment of salaries/wages of civil servant in the country makes it even more difficult and kills the culture of saving among workers. However, it is still very important that out of every little you earn, you save something. Many millionaires and financial experts tell of the importance and benefits of saving in financial life of people. It does not end with saving, however as experiences have shown. It goes a step further and that is investment.
The business dictionary defines investment as money committed or property acquired for future income. It further explains two main classes of investment: first is fixed income investment such as bonds, fixed deposits, preference shares; second is variable income investment such as business ownership (equities), or property ownership. In economics, investment means creation of capital or goods capable of producing other goods or services. I call it Wealth Creation.
For this system to work effectively for you, you must take the following steps;
- Open and operate different accounts for the three (3) activities
- Plan your every financial activity
- Decide on how much to save every time you receive any form of income
- Invest, invest and invest
- Make sure you maintain the cycle
- Monitor your investments adequately
- Improve your skills by learning from those that have made it
Putting it All Together
I recall the former Governor of Anambra State, Chief Peter Obi, at the launching of the Onitsha Branch of the Nigerian Stock Exchange in 2008, stating that he believes in wealth creation and not poverty alleviation. Hearing such words, some people would take it as a political statement, while others would see it as a tactical way of dodging from the common people’s expectation on the government in meeting their daily needs of people. However, those who would understand know very well that it is the best approach to sustainable wealth. Suffice it to say that for one to create wealth, one has to develop a financial management strategy that would stand the test of time by sustaining wealth and multiplying every single financial seed, whether in scarcity and economic melt-down or in affluence and economic boom.
One good thing about the human nature is that everyone has within him/her the ability to create wealth no matter the condition we find ourselves in. We were born to multiply; to create and to take dominion of the world and all that is in it. Every worker is a wealth creator because what you produce while at work is an aspect of wealth. The difference we all have with people like Bill Gate and most wealthy men we know is this; we create wealth and depend on some other person(s) to give us (by way of salary/wages) a little out of the wealth we create. We all need to live above that level by taking ownership of the wealth we create. How can you do this? It is by following these simple steps in establishing your personal finance management model which gives room for wealth creation. I call it “money culture”. This model is anchored on the above three (3) most fundamental money activities as shown in the diagram above.
You need to save at least 10% of your earning in a separate savings account each time you receive you pay cheque or any form of income. When you have accumulated some little fund, look for where to invest it. No amount of money is too little for investment when you know how and where to invest at every point in time. As a civil servant you need to invest more on what will be giving you residual income.
Robert Allen (2000), in his book, Multiple Streams of Income, distinguishes between two levels of income; linear income and residual income. Linear income is the income you get from paid. It can come in form of salary or wage. On the other hand, residual income is the income that derives from investments that does not necessarily require your presence and direct labour. You work hard once and keep earning your payment. We all have to bear in mind that no amount of money is too small to invest as well as no time is too late to start investing as long as you start immediately.
These are some of the ways and where you can invest your savings:
- Stock Market: Who said shares are not viable anymore? They still are, if you have the eyes to see them. Penny stocks still yield more than 100% gain in more/less than 2 years. I have practical examples. Seek the advice of professionals and informed colleagues.
- Network Marketing: The trend is now going into this form of investment. One of the greatest fallacies I get from people is when it comes to network marketing, they say: “I can’t do it”. When you go out to the market, buy a good pair of shoes, a friends sees it and asks you, you tell the friend where you bought it, the price and say a lot of good things about the shoes, the friend gets to the market the next day and buys it. What exactly have you done? Marketing! The friend goes out repeats what you did and another customer is made. Supposing the cycle repeats again and again even without your knowledge; Network Marketing has been fully established. But worst of it, you got nothing out of it because the seller does not even know you brought those subsequent customers. But in network marketing, you are the manager of a business; your business. Invest in Network Marketing!
- Foreign Exchange: How much is dollar in the market? Yet people use it. We all are crying that things are very expensive and unaffordable and we attribute it to the price of dollar in the market. The Central Bank of Nigeria (CBN) has formerly devalued the naira as at June 15, 2016. Hard times will definitely be more severe, yet people are making money through those hard times. They are investors. Technology has even made it so simple that you can achieve anything from the comfort of your home and with as little as that small phone you have. Design a way to take advantage of this opportunity.
- Internet Business: Internet is a world of its own and believe me, whatever is happening in the real world as we live in it is happening on the internet, only that it is even bigger than you can imagine. It is the world without boundaries; endless possibilities and unlimited potentials for anyone to achieve whatever he/she wants to achieve. Instead of clicking away on the internet, entertaining yourself with Facebook, google, yahoo, twitter, WhatsApp, etc. and making other people wealthy, find a way to share in the wealth, but be properly guided.
Others include: agriculture, real estate, treasury bill/certificates, Federal Government Savings bond and so on. I will devote more time to explains these vehicles of investment because I have special interests on them.
These thing are real. They are what you can do at your leisure without disrupting your work schedule. You, however, need the advice of a financial expert to determine where and how to invest your money at every point in time. And who said you can’t do it? Do it yourself. Read books and study about investments, it is fun. Make it a hobby and you will enjoy it. Challenge yourself today, practice this for one full year and you will see the benefits. It is all about setting the right goals and meeting them.
We cannot go on and on with all details but bear in mind that the strength of this plan lies in the fact that it will make you develop clear financial goals and any single goal met becomes a strong leverage for meeting the next goal, and likewise other goals, and so it continues. Achieving your financial goals is anchored on planning which is what this system is all about. Three things are important in achieving this: plan, work and pray. Plan as if your insight is the totality of reality; work as if everything depends on your strength and pray as if everything depends on God, and surely it does, for He blesses your plan and perfects your work.
Remember, “your direction is more important than you speed” (Richard Evans) Feel free to contact me for more guidelines using this link.
See you at The Top!
Ifeanyi R. Ibekwe