Spending – The Fastest Way to Riches!
It’s the longest month in 2014, and the most ideal time for many of those (annoying) articles on how to save towards your financial goals for the year and bla bla. The kind of articles that skips telling readers what exactly to do or how to achieve these goals. So..here’s the opposite of those articles, with less jargon in it.
On December 30 2013, I opened my balance sheet (it’s a great idea to own one) and found out that my net worth had increased by almost half of my average gross income in 2013. Simply put, I certainly earned myself a good pat on the back.
In the local Yoruba language, money has a spirit named “Ni na” which translates to mean spending. The sooner we realize that money is meant to be spent (not saved), the easier it gets to attain the financial goals we set. So in 2014, your main objective should be to spend your way to achieve the goals you set.
To be clear as possible, I classify the use of my income into: assets and operational expenses. Assets are tangible items like investments (treasury bills, stocks, loans), watches, shoes (yes shoes! 50 pairs of shoes at N5, 000 is N250,000!), gadgets, etc. Operational expenses are your consumables, everything else that is not tangible, gas for the car, ice cream, magazines, etc.
So the first thing to do is decide what monthly part of your income to spend on assets and what percentage to spend on operational expenses. My advice is that you spend at least 20%. However, for the purpose of this discussion, let us assume 35% is an ideal amount. So you earn N100k monthly, you should aim to spend about 35k monthly on assets. You should know that the worst place to keep this money is in a personal bank account. It needs to go to a third party. This 35% should be paid to your fund manager, broker, adviser or portfolio manager, immediately your monthly income/salary is received, either via:
- Direct Debit: Instruct your bank to debit your account and credit the account of your manager.
- Post-dated Cheques: Issue cheques dated the day after your monthly salary is paid for January to December.
- Internet/Mobile Transfer: If you are disciplined enough, you pull out your token and do the transfer every month immediately your salary is paid.
So let’s discuss investment/asset classes:
- Treasury Bills: The safest things to invest in. They are just as good as cash in the bank, but even better, they earn you 10 – 11% per annum, are guaranteed by the government, and therefore have no inherent risk of loss.
- Bank Deposits: These will earn you about 3 -9% per annum and can be for periods of 1, 2, 3, 6 or 12 months. You can call the customer care line of your bank for specific rates.
- Deposits in Non-Bank FI: These non-bank Financial Institutions accept deposits and pay higher than the bank will pay you. You will have to do some work here. There is a laundry list of these finance houses. You can start by looking at this sifted list here (http://www.cenbank.org/out/2012/pressrelease/gvd/public%20notice%20on%20the%20status%20of%20finance%20companies.pdf)
- Stocks: These can create wealth for you as quickly as they can erode; you should speak with an adviser to understand your risk willingness and ability, and guide you. It is okay to be weary of the stock market. We all lost money in 2008 – 2009 and in the spirit of Thomas Edison; we learnt one way how not to lose money.
- Mutual Funds: Less risky than stocks. Good way to spread your risk and own some stocks indirectly. If you followed the (stock) market closely, you will be familiar with the rise and rise of the NESTLE:NL share.
- Land: There is an umpteen number of real estate firms that offer the opportunity to purchase land with payments spread over as much as 60 months. The onus is on you to background check the firm before any decision to purchase a plan. You should look for firms that have a track record of success with at least one estate development.
So if you have your account officer’s number, he might be a good person to speak with immediately. But here is a short list of firms you may contact to speak with someone on how you can get started right away: Mansard Investments, ARM Investment Managers, RegCharles Finance & Investment Company, Stanbic IBTC Asset Managers, FBN Asset Management.
Finally, like workout partners, accountability/financial partners are always necessary to ensure a bit of credibility throughout the financial year.