Have you ever heard the saying, “Money makes the world go round?” Well, that truth is not far-fetched. Our daily struggles and hustle all boils down to the desire to make money to solve our basic human needs. Finance, numbers, figures, revenue, cash flow and like terms all point towards money making.
Contrary to popular opinion, there is really nothing wrong with desiring wealth and riches. It’s okay to make few extra cash now and again. Let’s be honest. Money makes life easy. Money is the means to a flamboyant lifestyle. It is the medium people use to solve their basic needs and a gate pass to a life of comfort and luxury. Money after is the legal tender that solves must of our problems. Even the holy book says the “love of money” not “money” itself is the root of all evil. There should be room for moderation. Don’t you agree?
In our world today, the need for financial freedom and stability has become more apparent. There are a lot of fears and uncertainties surrounding our relationship with money. We are often confronted with the fear of survival. We are worry about not having enough to spend. Money is an integral part of our lives. It influences our lifestyle, attitude, behaviour, values, and even our future.
One thing we were never taught in school was how to make or handle our finances. There was no formal training designed to guide us through the essentials of finance. The phenomenon of personal financial management is alien to us. Thus, we grew up without a good understanding of basic money skills. It is not strange to find adults who earn more money than they need to survive, struggling to solve their financial problems. They max out their credit cards and still find themselves buried under a pile of debt. Such individuals live from paycheque to paycheque without any substantial financial plan for the future. They think of money only in terms of needs and expenditure. This perfectly describes how most of us handle our finances. Little wonder we always complain about money never being enough.
Can we really live a life void of money troubles? Sure! You can. It’s no magic trick or enchantment. Money actually treats us they way treat it. Your behaviour towards money determines your financial outcome. Financial freedom can be your reality if you learn the principles of handling money. It is wrong to think that financial stability is a function of money circulation. For example, two men may work in the same organization and earn the same pay check at the end of the month. One ends up broke before the next pay day while the other has a reserve of excess funds even after attending to his need.
Why? It is all a function of their money attitude. Even if your salary is doubled or your business profit increases and you do not curb your spending habit, you will always run into deficit. In the presence of regular and adequate cash flow, one can still run into debts if he doesn’t get his money habits right. We have a limited number of productive years. You won’t always be as strong and active as you are today. What happens when you become old and fragile unable to thrive through the hustle of a 9-5 job? What happens when you are get laid off? What happens when retirement comes knocking on your knock? Will go from being from riches to rags? At this point, poverty may become inevitable. If we really desire to build wealth, we must debunk this mediocre mentality. Wealth acquisition requires an understanding of how money works. It requires a in depth knowledge of the concept of expenditure, investment and financial management.
Financial management helps us estimate our capital requirements, regulate our capital consumption and determine disposal of surplus income. If you are unable to control your spending habits, you won’t be able to maintain the lifestyle you have become accustomed to. Many people adopt expensive lifestyles they cannot sustain. They continuously spend everything they earn before the next pay is due. It like running in circles going round and round…money in, money out and you are left with nothing.
Someone once said to me, “The way you do one thing is the way you do everything.”This simply means that the way you manage your money as an average working class citizen determines how you will manage your money when you become a multi billionaire. If you are not prudent with the little you have, you won’t be any better when more is given to you. We must understand that our needs grow with our income. There will always be an uneven distribution of our resources among our needs. They way you manage 50 naira is the way will manage 50 million.
The True Definition of Wealth
We tend to define wealth in terms of cash flow and spending patterns which is a very faulty metrics. You may be a 6 figure earners living in the most exotic locations in the world and enjoying the good life yet you always seem to running out of cash. Climbing up the income-earning scale whether are an employee or an entrepreneur does not necessarily make you rich or wealthy. Spectators may be quick to assume that your wealth because you spend large and seem to have inevitable life. Yet we both know that the thought your mounting financial problems keep you up at night.
Wealth creation is more than just earning fat pay cheques. It goes beyond how much you earn to how much you can keep. The truth is rich and broke people handle the same amount of money differently. The way we behave towards money stems from how we think about money. Broke people think it is about cash influx but rich people know that it is not all about how much you earn, salary, wages, profits, bank statements and allowances. They understand that is more about how much you can keep at the end of the day. It is about how much you can convert into tangible assets that produces more money in the long run. They understand the relationship between how we earn and how we spend. They also know where to draw the line and create a balance. Rich people earn for the future while broke people earn for the now. Broke people do not give a thought about the future. They earn to satisfy their immediate gratification.
There are different types of income, active income and passive income. Active income is the reward you in return for service rendered. Active income is the salary, wages and allowances you are paid at your job. It is the profit you make as an entrepreneur or business owner. On the other hand, passive income is the income you do not break your back to earn. It is the money you make while you are sleeping or having a night out with the boys. It is your regular return you earn from your assets and investments. Profit from land sale, dividend from stock portfolio, profits from fortex or rental income from real estate properties are good example of passive income. You don’t have to sweat to make this kind of money.
You can only claim to be wealthy when your passive income expenses your expenditure. Mark the word “Passive”. Can you see it is not about your daily or monthly earning? It is about creating a balance between your income and expenditure and still have surplus at your disposal.
If you really want to be wealthy, your financial goal should be acquire enough assets and investment plans that can produce enough money to sustain your lifestyle. The profits from the sale of your asset can comfortably buy you the car or house of your dreams. It can finance that exotic vacation you’ve been craving.
Smart Money Sense
You journey to financial starts by embracing the wisdom of financial management. Financial management is one of the basic money skills we must imbibe if we really want to be wealthy. Financial management is a structured system of planning, organizing, directing and controlling our financial activities. It is the principle that controls our money habits. It guides our use of the financial resources at our disposal.
Track Your Expenses
Pause for a minute and ask yourself, “Where does all my money go?” Most people do not keep track of how they spend their money. They just keep spending and spending until it’s all gone. You should know where the money you earn goes. Bookkeeping is not just necessary tracking cost, revenue and expenditure in your business or work place. You need to incorporate that skill in your personal life. You must be the accountant of your life and account for every penny that goes in and out of your pocket. Some people don’t even have an idea of how much their lifestyle costs.
They do not know the percentage of their income that is spent on feeding, accommodation, transportation, clothing and other miscellaneous. Do not form the habit of impulsive spending. There is no room for spontaneity in finance. You must be intentional about your finances. You can start by having a clear idea of what consumes your money. Don’t say it doesn’t matter. If you are spending all your money on frivolities, you are shooting yourself in the leg and your creditors will soon come knocking.
Live On a Budget
If you have extremely bad money habits, you must live on a budget. Budgeting helps you track your expenses and curtail your excesses. Budgeting helps you properly allocate your resources across your needs. It is the recipe for financial stability. It helps you spend within your means. No more impulsive or unnecessary expenditure. You can divide your budget among your basic needs, financial goals, personal treats and emergency situations. Don’t just write a budget and forget it on your reading desk. Make sure you use it. Refer to it from time to time. You can update it occasionally.
No matter what you do, do not exceed you spending limit. If you do the budget becomes ineffective. Remember your expenditure does not have to increase simultaneously with your income. You do not need to create new spending channels because you received a pay raise. Contentment is a virtue. Instead, find ways to trim unnecessary expenses. One way to do that is to go for cheaper options of the item you want to purchase. Always compare prices when you shopping. Do not forget that pricing is part of sales strategy. Traders know how customers think so they exploit this to their own advantage. Expensive does not automatically translate to best quality. There are items of better quality you can purchase at cheaper prices.
Make Your Money Work For You
If you must create lasting wealth in the 21st century, you must embrace the concept of passive income. Passive income is the money you make when you are sleeping. The money just makes itself without you breaking your back. Stagnant money profits nothing. Passive income is generated from assets and investments which include; stocks, real estate, mutual funds, treasury bills, agro investment and rental properties. A mutual fund is a pool of revenue obtained from many investors for the purpose of investing in stocks, bonds and money market instruments. Money market instruments are short-term securities like treasury bills while stocks are long term securities. Real estate investments include residential rental property, raw land or commercial properties. Please, for heaven’s sake it is very unwise to borrow money to invest as there are certain risks associated with investments. Ultimately, do not invest in anything you go not fully understand. Always conduct a research and survey before you dip your money into it.
Create Financial Goals
Create a bucket list of financial goals you intend to achieve monthly, quarterly or annually. When you remember you have a goal you must meet, it helps you stay focus and shrinks gluttony. You will no long jump at the sight of designer clothes or Chanel bags. Make your financial goals fit into your monthly and start saving towards it. It is a way of building healthy saving habits. Once you receive your monthly pay cheques, transfer the designated percentage before making any expenses. Your financial goals could include to start a business, buy a car, building project, business expansion, retirement plan or part of your investment strategy.
We are the binge binge generation and our mindset is to stay classy and flashy even at your own expense. Our spending decisions are often influenced by peer pressure, societal trends, validation and the need for statutory acclamation.
Contentment is the recipe to a peaceful life. Do not fall for the trap of societal pressure. Think twice before you decide to go on a spending spree. You are in no competition with anybody. Fake lifestyles have become a menace to our society. It is like a cancer to hand eaten up of core values. You see people incur unnecessary expenditure because they want to measure up with their equals or rivals. The pressure becomes fierce when they discover you have a new or improved source of income. They begin to see you as a money bag and expect you to live large. You hang out with friends and they expect you to foot the bill. They tease you for buying cheap items. They ask, “What are you even doing with all that money you are making?” “Yolo! Enjoy your live now oh. You only live once” they say.
Spending recklessly to please people or to upgrade your social status will be your grates undoing. Do not let anyone cajole you into incurring expenses you will regret. Common money sense is that you should not spend above your means. Remember the saying, cut your coat according clothe. Don’t spend reckless spending just to impress people or prove a point. Calibrate your finances according to your needs. In economics it is called a “scale of preference”. A scale of preference is a list of your most urgent needs. In every scale of preference there is always an opportunity forgone. It is an item of less importance which you have to strike off the list. Learn the wisdom of dealing with financial demands and requests from family and friends. Establish an effective system or structure to control your cash inflow and expenditure.