Financial Wellness

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In my last post, I promised to address the question concerning what avenues to utilize in order to achieve financial freedom. The thoughts I will share will revolve around a quintessential young worker, on a humble salary, who has an approximate working life of 25 years. Before my analysis, it would be appropriate to draw your attention to a recent article from the newspapers that was predicated on the substantive issues addressed in this blog.

I was shocked to see that out of the options for financial wellness, the salary was bottom when it came to routes to becoming wealthy. I agree that a salary in itself cannot make you rich or give you financial security. One of the most obvious reasons I guessed was that salaries are overly taxed; salaries do not grow as quickly to cover ones increasing costs and sometimes, one does not put in the full pensionable time and may drop out through illness, retirement or death. In short, salaries are a function of one remaining in work.

From that premise, I agree with the article about the limitations of a salary to financial sustenance.

The article goes further to describe other sources of income that attract less tax and are available in perpetuity. These are portfolio income and passive income. The interesting thing is that the article does not indicate where and how anyone will accumulate the resources to be invested in both these categories of investment that attract less tax and are for the longer term. Where does one get the resources from?

To me this is the ‘missing middle’; the gap that most salaried people miss and consequently, relegate themselves to purely salaried earners and thus, never having the opportunity to build the passive and portfolio assets to guarantee income referred to above.

On to the question about financial freedom for a young salaried employee who has 25 years of active working life ahead of them. The first step is that one must try to envision themselves far into the future…in this case 25 years ahead. Without this key-hole exercise, which by the way is an involving, relentless, meditative activity taking both emotional and imaginative energy from your body, it would otherwise be difficult to really commit to its outcomes. Take time to constantly imagine oneself many years ahead and try to identify those attributes in people that you see today. If you look around, you should see yourself in the future, scary but true. This exercise can be undertaken by middle-aged people who want to see themselves as elderly people. Anyone with a heightened sense of awareness and of sound mind can do this exercise any time for any time period. Elderly people who want to see themselves when they were young can do it too!

This calls for an intense mindset engagement regarding expenditure, lifestyle and other choices. It also calls for focus on and perseverance and commitment to the decisions made.

From the salary, a percentage will be put aside for saving before expenditure. Spend only what is left after savings is provided for. When done on a regular basis for an extended time period, that pot should grow sufficiently for one to move these funds into higher earning deposits. Over time savings turn into investments of varying types and returns. Simple mathematics will translate a 25-year pursuit into substantial opportunities leveraged into long-term income. What am I saying?

  • There must be a plan
  • There must be motivation and consistency
  • Perseverance and some innovation
  • There must be ample time assigned to this exercise

Possibilities will include the option to pool resources to invest in riskier assets or ventures to reduce overall risk; teaming up with like-minded people for greater possibilities and lower risk.

The reality is that investment is risky, failure may mean loss of the honey pot. Information discovery is difficult so there is the risk that the portfolio may not grow as quickly as one would like. The adage “better safe than sorry” also applies here. When all else fails, what you have left is your gut feeling, and your attention to what everyone else is doing! Over time, risks that must be managed against the risk/ return profile and also, how much time into the investment continuum there is. The younger you are, the more risk you can afford (Again, Genius analysis).

Another very pertinent factor to note is that growing savings and investment is a drip, drip endeavor. Most communities grow their wealth base this way. Wealth creation is a generational exercise where accumulation takes place in one generation for future generations to invest, multiply and apply. Most people I know have not inherited nest eggs in the way it is common in the west. Most parents bequeath to their children the best education circumstances can buy and hope for the best. Unfortunately without a word of caution, such funds can be squandered away or these children with such education opt to stay overseas working in sub optimal positions and eking out a living. Some have done very well but the law of averages means that most will be on the fringes of success trying to break the glass ceilings.

Our children are still young and have more time on their side. They must be saved from this job without wealth trap. Let them start early. Let them be given the information about how the humble salary if properly leveraged can help them achieve a sizeable nest egg for their children to cross the job to wealth threshold.

Finally, attitude change towards saving is required to change the collision course to poverty in old age. It is not how much money one makes while you work. Rather, be realistic and ensure that you leverage on what you have at hand. It should fit in with your overall end game plan. A job is what most of us will ever have so we must focus on that and revolve your plans around the monthly salary. Let us manage our expenditure and get into the habit of interrogating every expense.

Savings /investment is a long-term exercise. Over time, it will undulate with the changing opportunities and circumstances. It is an interesting and fulfilling learning opportunity from which much enjoyment can be derived.

BN

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