The next 20% should go into floating assets: you buy stocks of 'blue chip' companies where you get dividends or you trade on the shares when they appreciate. Other examples in this category are treasury bills, treasury certificates, bonds which are disposable in the capital/money market for profitable values.
The next 25% should (must, in my own opinion) be in cash. This is cash in your bank account in form of fixed or call deposit. You should never touch this cash. The palliative function of this cash is to quash your blood pressure when condition becomes bad and/or almost unbearable. You either grow the cash by way of re-investing both principal and interest or you plough it back to service your waste. Waste expenditure are expenses you incur to service yourself and families. Examples are bills incurred on GSM/telephones, satellite/cable, Internet bandwidth, diesel for generating sets, gas etc.
The last 25% should be on waste assets: these include cars, clothes, shoes, phones, rent and so on. This is the actual part of your income that you expend to service yourself.
Based on the assumption that you earn =N=1million per annum, numerically, your spending pattern should be as follows:
- Tithe - 10% =N=100,000
- Capital Investments - 20% =N=200,000
- Floating Assets - 20% =N=200,000
- Liquid Cash - 25% =N=250,000
- Waste Assets - 25% =N=250,000
On practical terms, assuming you earn =N=4million in a year, at the end of the year, do you have up to a million naira as cash in your account? Do you have up to 1 million naira in fixed assets such as land or did you invest up to 1 million naira on that building project of yours? Do you have up to 1 million naira worth of share (in their net present value) in some blue chip companies? We just realise that you have spent the 4million naira on waste: buying cars, shirts, shoes, travelling abroad etc. I am not swanning that you should not service/enjoy yourself but when you spend the whole part of your income servicing yourself now, what happen to you when the job is no more? It is more tragic when most of the waste assets are serviced by loan or debt instrument.
You should attempt to build a comfort zone by putting most of your income in cash at bank (as investment), fixed assets and stock. These are your succour in time of difficulty. In Information Technology, we call it disaster recovery strategy. You can apply this strategy in your personal life.
Let me give you a typical scenario of an average banker. The man gets =N=1.5million in January; he remembers he has to change his car. He spends =N=950,000 on car, he uses =N=10,000 to celebrate "wash" the car for his friends, he spends =N=75,000 to buy tyres and overhaul the car for use. He is left with =N=665,000. He remembers he has to change his GSM phone and install DSTV, he spends =N=155,000 on all that. Do you know what this young man has done? He has gallantly spent 79% of his income on waste. This kind of person can not make it. No voodoo can do magic for him. He grumbles at the end of the year when he looks back. He has not achieved anything that year.
FOOD-FOR-THOUGHT
How many of us at beginning of the year draw a personal budget for the salary year? At this psychological moment, pick up a pen, paper, calculator and look at your expected income and 'royalties' and distribute them according to the above cardinal points. Remember, when you fail to plan you have definitely planned to fail.
Ponder on this and see it as a challenge. Stop trading blames with your destiny... you can still make a whole lots of difference with the token you earn today. Yes, you can.
...I know a word is enough for (only) the wise.
This is a must read write-up for all and sundry.
ReplyDeleteWell tutored write -up. May God grant you more wisdom. But i opined that Capital investment should be increased to 50%.why? just in a moment.Let us reduce liquid cash to 15%, merge capital investment and floating assets together,in total we get 50%.
ReplyDeleteIn Nigeria today,capital market has come to zero. 1million fixed deposit(in a Bank)attracts 30000 Naira for 365 days(provided the bank is still alive before the fixed period lapses).so what next to invest on?
I have thought of this deeply.why cant we put our savings in a place that heart-attack will be far from us. Now to why i said capital investment should be increased to 50%.Talking of half from our income going to capital investment may looks like unreasonable.But come to think of it (from example in your write-up), =N=500000 to capital investment in a year,seems small to urban dwellers but more than enough for people in less developed city. In this case, urban dwellers have to choose location either outside thier well developed city to suburb or satellite towns. Returns on Land bought today will be 100% (or more) in a year’s time. Energy and resources must be channel on this than others.
Most of us derailed because of urban activities and social life. Hopefully, this your write-up can serve as clarion call not to serve our father land this time around but to position ourselves in a better place to survive and succeed in this new age.
Ayodele O Joseph