PERSONAL FINANCE & ECONOMICS: To address the theme of this article, we shall attempt to give meanings to the three words that make up the theme which are personal, finance and economics.
ECONOMICS: is the art and science of allocating scarce resources to alternative uses
FINANCE: deals with funds as a scarce resource
PERSONAL: 1. Belonging to or affecting a particular person rather than anyone else
2. of or concerning one’s private life, relationships, and emotions rather than one’s career or public life.
GAINING FINANCIAL INDEPENDENCE: is getting sufficient income from passive investments (houses, dividends, treasury bills, interests, etc) so that you do not need to work for income to live well
How do you finance yourself and your family to meet your collective needs/wants throughout your life and thereafter?
- How important personal finance?
- To meet financial needs
- To save yourself and your family from stress resulting from inadequate finance
- To take advantage of opportunities
- To have a comfortable retirement
- To leave an estate for others in accordance to your wish
EFFECTS OF POOR FINANCIAL HANDLING
- Over 80% of persons age 65 and above have no significant sources of income to meet their needs/wants
- Most workers live from pay cheque to pay cheque and can not survive long without a job
- Most divorces and family problems are money related
- “Lack of” and/or “lust for” money drive many crimes and negative attitudes/behaviours
- Poor finances lead to poor education and lack of generational improvement
- Lack of money do lead to low self esteem
SOME REASONS FOR POOR PERSONAL FINANCE
- Nonchalant attitude. “Absentee Management”: Not watching expenditures and investments
- Taking undue risks: Lending one’s money to incompetent persons or institutions to invest
- Lack of Financial Knowledge: Inadequate counsel or information on investments opportunities
- Non-cultivation of saving habit
- Impatience and not waiting for ones investment to mature: Similar to opening your seed and eating it after planting
- Living above one’s income, thereby borrowing fund to consumption
- High interest borrowing
- Competency obsolesce: Not improving oneself to match changing competency requirements
- Poor Health
WHAT YOU NEED TO KNOW ON ABILITY TO CREATE WEALTH
- Most people can be wealth builders and it is never too late to start
- As your energy level goes down energy with age, your ability to create and maintain wealth decreases: so you lay your golden eggs while the sun shines (while you are earning income)
- Wealth like all natural creatures grow from seed: so start to save and invest now, no matter how small
- You create wealth with money that you capitalize or works for you, not the money you consume: Reduce consumption and increase capital for investment
- Increased income generally leads to increased and consumption and expenditure: Do not increase consumption and expenditure to match increase in income. Save more as your incomes increases
IMPORTANT STEPS TO ADEQUATE PERSONAL FINANCE
- Have a personal vision for yourself and family during your work-life and after retirement. Write it down and review it periodically.
- Analyze your needs and wants as a percentage of your income: Resolve to spend less than your income. Cut your expenses if necessary.
- Based on your vision, income and expenditure, agree on a percentage of your current income you must save. You may start small and increase this % as your income. Write down your financial plan ( in line with your vision and review it from time to time
- Work to improve your income by improving your capability
- Save preferably via an automatic deduction from your payslip or salary account
- Invest via a reputable financial firm or internal company organizations like Thrift and Loan. Good passive investments are blue chips stock, Government treasury bills, houses in very good locations, reputable mutual funds. Also, shell or company shares and matching funds
- Invest at wealth building rates:
- Currently 20% or more in Nigeria and > 13% in the US.
- TIP: Investing 20% of your income at an interest of 20% p.a. can make you financially independent in less than 10 years.
NOTE: High reward goes with high risk and low reward goes with low risk
- Avoid savings accounts that usually pay low interest and can become dormant. Keep only an emergency fund normal savings.
- Pay-off all consumption and high interest rates soonest.
- Safe guard or insure your investments (as required or necessary) against theft, fire and other possible risks.
- Carry your spouse and family along. Write a will or a have joint accounts to safeguard your investments when you pass away.
- Associate with friends and organizations that will improve your financial knowledge and provide market information
- Maintain good health and enjoy yourself. Personal economic growth is possible.