As 2007 draws to a close, I would like us to reflect on how to effectively manage our hard-earned cash. So much has been written on this topic by myriads of authors. This demonstrates the importance as well as the amount of curiosity on this subject. From the numerous analyses so far, it emerges clearly that the laws that governed successful personal financial management many centuries ago are still alive today.
There is nothing new. People have been teaching about principles of money, success and affluence for millennia. There is no reason why all of us cannot benefit from the huge body of knowledge and wisdom on this subject. Failure to observe the laws and principles governing personal money-management contributes to domestic disputes, empty bank accounts and miserable post-retirement.
Every author on this subject has a different take and provides different emphasis. However there is a common thread that runs across all of them. Some books that have left an indelible impression on me include: i) Rich Dad Poor Dad by Robert Kiyosaki; ii) Retire Young, Retire Rich by the same author (Robert Kiyosaki); iii) The Richest Man in Babylon by George Clason. Others are iv) Think and Grow Rich by Napoleon Hill; v) Money, Success and You by John Kehoe; and vi) The 10 Distinctions Between Millionaires and The Middle Class by Keith Smith. .
Today, schools and universities contribute significantly in imparting academic and scholastic excellence. When they leave university, graduates are near-gurus in their areas of specialization. They can answer almost any question in their areas of study. The universities even go an extra mile in preparing their graduates on corporate management, corporate finance, decision making, human resource management, corporate strategy and many other aspects. The graduates therefore arrive at their respective work places ready to run, so to speak.
Yet these institutions of learning fail to prepare their graduates for the challenge of managing personal finances. This is sad. It’s like sending soldiers into battle with sophisticated weapons without teaching them how to operate the weaponry. At the end of each year if you take stock of all the money that has passed through your hands in the form of salaries, allowances, bonuses, commissions, leave grants loans, advances and other perks you will be amazed. It is a colossal amount. Yet when you check your bank account balance you will be shocked at the smallness of the balance. In some cases the account may even be in red.
The business of hand-to-mouth needs to stop. It is not sustainable. And it is unhealthy. There are available tools that can help individuals and households effectively manage their domestic finances. These tools allow individuals and households to: a) adopt a systematic strategy enable them plan and monitor their mode of acquisition for cash; b) sensible management and prioritization of expenditure; and c) investment of any surplus funds into profitable ventures. Any tool however, can only be effective if the user is committed and disciplined.
If you are involved in competitive sporting activities you will know that you do not go into a major competition without proper planning, practice and a well defined winning strategy. Yet when it comes to personal finances, it is sad that many of us go through life without any defined game plan. This is the major cause of disastrous personal finances in many homes. Without some form of game plan or strategy a year plays out as one month’s income-expenditure pattern replicated twelve times!
Reading the various books on the subject one begins to appreciate the systematic framework for managing personal finances. Let me share with you some of my perspective on this complex but very important topic. At least if you understand and internalize this perspective it allows you to have fundamentals upon which to set your targets. When things go wrong you have a reference framework upon which to undertake postmortem and interrogate your strategy.
The fundamentals of personal financial management hinge on five major principles. These are: a) strong desire; b) enhancing your capacity to earn; c) improve your capacity to save; d) seeking advice from experts; and e) ensuring that your surplus money is employed to make more money for you. We shall briefly analyze these important points one by one:a) Strong Desire: Where there is will there will always be a way. A strong desire serves as a catalyst to push your thoughts, beliefs and values in order to translate them into reality. All successful people know and use the power of strong desire. Strong desire is tremendously important for the achievement of all your goals; be they in about academic performance, career, or money.b) Enhancing Your Capacity to Earn: Almost everybody makes money. It is by strategically and wisely using the money we earn that we can achieve financial success. Anyone who has ever earned a wage knows that it is never enough. Whether you are a medical doctor, engineer, teacher, consultant, forester, economist, architect, nurse, sportsperson, cleaner or laborer you all make money. We should all strive to find innovative ways of making more money. This can be done in various ways. If you are a Secretary, for instance, and you only know how to use a type write you may want to enroll for a computer course to improve your skills thereby improve your competitiveness. If you are a medical doctor (general practitioner) you may wish to go back to school and specialize as eye specialist, gynecologist, brain surgeon, physiotherapist etc. This will enhance your capacity to earn more cash income. In whatever you do, please look out for opportunities for you to enhance you capacity to earn more money.
c) Improve Your Capacity to Save: Many of us have problems with saving. After earning your salary, there is a tendency to spend spend spend spend as if there were no tomorrow. There is a great need to prioritize your expenditure to ensure that you have some savings. We all have excuses as to why it is difficult/ impossible to save. The truth is that saving is a disciple we all have to cultivate. It does not come easy. Even if your salary was tripled today, if you have not cultivated the discipline of saving you will find ways of spending all of it. So it is really not about the amount, rather it is an attitude problem. Different authors provide different recommendations in this regard. Most authors, however, recommend that 10 – 20% of your monthly salary should be saved. If followed religiously, your bank balance will grow. d) Seeking Advice From Experts: If you want advice about football, obviously you ask football coaches or accomplished football players. If you want quality advice about house construction, the best people to ask are architects and contractors. When it comes to money matters, for goodness sake, ask financial experts. Do not ask people who have no clue about money. You may wish to seek advice from Financial Experts, Bankers, Investment Analysts or other people who are known to be rich. They know better.e) Ensuring that Your Surplus Money is Employed to Make More Money For You: The saved money as highlighted in d) above, should be employed in a portfolio of investments that will continuously generate profit for you. Instead of you working for money, it is your money that will be working for you and bringing profits on regular basis. There are plenty of investment opportunities out there where you can put your money. Usually such opportunities are disguised as problems, challenges and inconsequential events. Some of the potential investment opportunities include real estate, network marketing, treasury bills, corporate shares, bonds and many others. However, as highlighted above, seek expert advice in order to identify the best investment opportunities and deals that are appropriate for you. Relying on wages alone is not the best strategy in the 21st Century. A combination of cash flows from your job and profits from your investments should improve your standing in society and propel you out of poverty.
These financial management principles have withstood the test of time. They have potential to add momentum to your life. A momentum that will move you out of the poverty trap. It is a momentum that will push you from a hand-to-mouth existence to a more purposeful and fulfilled life. As we begin the new year (2008) let us ponder these principles and make a start on the journey towards financial independence and affluence. Merry Xmas and a Prosperous 2008!!
