How To Gain Financial Freedom – For The Youth, Before They Go Head Long Into Aso-Ebi And Designer-Crazy.
Almost everyone around the world craves financial freedom but only few can pay the price. Most times, people confuse generous income with financial freedom. They think it means making a lot of money, and that if they can just make a little more each month, all their money problems will be fixed. They dream of living like kings and queens forever, irrespective of how lavishly they spend. However, a popular saying goes ‘it’s not how much you earn, but how much you keep and invest’. We’ve all seen different people that started strong financially, especially celebrities and sports icons who during their primes were making income in eight to nine-figures, only to go bankrupt just a few years after retirement. While a few could be because of unforeseen circumstances, most are usually caused by financial recklessness and frivolous spending.
Being financially independent requires much more than earning a high income, it requires financial intelligence for one to understand the difference between assets and liabilities, and the discipline to continuously invest in assets even when liabilities look more attractive and feeds the human desire for instant gratification.
Youths and Financial Freedom
Being a youth can be a rollercoaster of emotions, with an unstable sense of self-esteem. insecurity, loneliness and disguised vulnerability occasioned by unrelenting peer pressures. They are constantly in search of love and belonging. Many, in the confusing milieu tend to think that being with the trending material possessions is a sure path to that high place of acceptance, but on the contrary, it often leads to financial ruin and makes gaining financial freedom a mere utopian dream.The route to financial freedom for today’s youth is tough because pop culture has put consumerism on the front burner of youths’ consciousness, using musical lyrics and videos, and social media contents to showcase ostentatious lifestyles and life of sheer indulgence in expensive parties and binge shopping. The marketing and advertising industry understands how powerful these impressions are, in influencing the minds of people towards the choices they take. They make the most of it, to sell hip products and services to this demography. Savvy marketers understand the insatiable consumption pattern of youths, and their lack of restraints and as such push irresistible offers for people to buy goods and services, which in the end mostly leads to buyers’ remorse, as money would have parted from the wallets before realizing the purchase wasn’t worth it. In advanced economies where credit cards are readily available, youths rack up debts very fast from buying all sorts of stuff that will usually not add long term value; from electronic gadgets to designer clothes, shoes, watches, video games and latest mobile devices. In our clime where consumer credits are not readily available, borrowing from family and friends to meet up with the Joneses becomes the usual option. There are also recorded cases where students spend their tuition fees or even joined fraudulent/robbery operations, others sell off parents or family members properties all in the bid to buy up items for peer impressions.
Using the famed Abraham Maslow’s hierarchy of needs, one can see that most youths are stuck on the Social ladder- searching for love and belonging. Spending almost everything they have at the expense of moving up to the higher rungs of the ladder. Humans need to feel a sense of belonging and acceptance among social groups, regardless whether these groups are large or small. For example, some large social groups may include clubs, co-workers, religious groups, professional organizations, sports teams, etc. Some examples of small social connections include family members, partners, mentors, colleagues, and confidants. Humans need to love and be loved. Many people become susceptible to loneliness, social anxiety, and clinical depression in the absence of this love or belonging element. This need for belonging may overcome the physiological and security needs, depending on the strength of the peer pressure.
Bringing it home to Nigeria specifically, our cultural idiosyncrasies leads to this unique habit of always buying new set of clothes- popularly called Aso-ebi, for different events that regularly come up. From weddings to burials, birthday celebrations to baby dedications, all are mostly celebrated by coercing family and friends to part with some money for buying the chosen type of fabrics for the occasion, and in order not to be seen as being the odd one at the event, people do everything within their power to ensure they buy. It doesn’t also help that the celebrant solely decides the amount to be received on each of the fabrics. As lottery and betting houses proliferate around the nooks and crannies of our cities, many dream about winning the lottery, getting an inheritance, or expecting the government to subsidize their lifestyle. However, the one sure way to build wealth irrespective of people’s background is to work, earn, save and invest.
According to the Nigerian Bureau of Statistics (NBS), employment figures as at Q3 2017 shows that the Youth, comprising people within the age range of 15-44 years make up 45.43% of our total population. Unfortunately, due to the current economic challenges the country is facing, 73.5% of this demography is either unemployed or under employed. This gives rise to severe competition for the very few available employment opportunities and requires that one must stay on top of his game and manage resources efficiently like the Biblical Joseph in the time of famine in Egypt. A popular saying goes that a fool at forty is a fool forever- meaning that not investing wisely at this period of one’s life makes it extremely difficult to recover the lost opportunities.
What does it take to gain financial freedom?
In the words of Robert Kiyosaki, a personal finance guru, you must know the difference between an asset and a liability, and buy assets…Rich people acquire assets while Poor and middle-class people acquire liabilities, but they think they are assets. When Robert published his best-selling book Rich Dad, Poor Dad, he declared that most of the things average people regard as assets, including personal homes were liabilities, arguing that ONLY investments that brings one extra income should be termed an asset.
It is often argued that one of the failures of formal education is that it never prepares anyone for mastery over personal finance, even though money plays a pivotal role in our lives. It then suffices to say that for one to gain financial freedom, a personal effort is required to learn the rudiments of personal finance. Attaining financial freedom first starts with seeing the big picture about life. Planning for the future, knowing that young age is fleeting, and that responsibilities will grow as one grows into adulthood and that a good portion of one’s earnings needs to be set aside for retirement age when active work ceases.
But being young also carries endless possibilities, creativity, curiosity, energy, impatience and guts. It is much like life as an adult – just more intense. Everything comes in brighter colors, maybe more contrasting colors, though. As a youth on the journey to financial freedom, here are a few key factors that ensures one gains financial freedom;
1. Start NOW
The right time is now, today is your day of salvation, says a popular scripture. And as a Chinese proverb goes, the best time to plant a tree is twenty years ago, the best next time is now. The reason to start now is because you have one of the biggest ingredients required to grow money -TIME. Having time on your side means having a longer period of being able to save money to invest and a longer period of being able to find investments that can increase in value quite nicely over time. There is a reason that compounding – the ability to grow an investment by reinvesting the earnings – was referred to by Albert Einstein as “the eighth wonder of the world.” The magic of compounding allows investors to generate wealth over time, and requires only two things: the reinvestment of earnings and time. The longer money is put to work, the more wealth it can generate in the future. The world’s 3rd richest man, according to Forbes 2018 ranking, Warren Buffet started investing at a tender age of eleven, and he never looked back. Today he is worth over eighty-five billion dollars ($85bn). Learn all you can about various investment options; short term investments like savings account, money market funds, fixed deposits, etc.… and long-term investments like Mutual funds, bonds and debentures, life insurance policies, real estates, equity markets etc. even acquiring skills on how to run a successful business as an Entrepreneur.
2. Create your own ‘LUCK’
“Diligence is the mother of good luck.” – Benjamin Franklin
In the age of instant coffee and instant noodles, many of today’s youth have only one idea of luck- winning the big money lottery. It is not difficult to decipher when you consider the tremendous amount of time and resources they pour into reality TV shows that promise big money wins, even with no show of any career skills-set, like the Big Brother Reality Show. Others use every money they receive to place bets at sports betting houses at street corners. But according to CNBC, a financial media company, Lottery winners are more likely to declare bankruptcy within three to five years than the average American. Studies found that instead of getting people out of financial trouble, winning the lottery got people into more trouble, since bankruptcy rates soared for lottery winners three to five years after winning. Some even resort to illegal means popularly called yahoo-yahoo by defrauding rich American/Europeans through online communications. This instant gratification seeking life is attributable to the ‘entitlement mentality’ that pervades the minds of millennials today.
When it comes to financial freedom, there are few true overnight successes. Behind what looks like sudden success is often years of work, trial and error, and failures. But the harder you work, the more good ideas and chances you may make for yourself. And being a youth gives one enough time to recover from failures and keep pushing. ‘The harder I work, the luckier I get’ – This quote about the relationship between work and luck comes from famous film producer Samuel Goldwyn.
You need to apply Benjamin Franklin’s advice to create your own luck, put diligence to your work or business and never settle for a mediocre output. Do everything it takes to move yourself forward.
3. Have a financial plan
If you want to build a great structure, you first have a design and a plan. Same way it is with having a great financial future. Many people think that financial plans are only for people with so much money, they don’t know what to do with it. But, a comprehensive financial plan can benefit people at all income levels. It helps you to start making smart financial decisions very early in life. Creating a financial plan helps you see the big picture and set long and short-term life goals, a crucial step in mapping out your financial future. When you have a financial plan, it’s easier to make financial decisions and stay on track to meet your goals. The sooner you start making smart decisions, the sooner you know where you want to go, and if you have a plan to get there, the more likely you are to attain it. If you start in your youth, you don’t need to have millions to start saving. The longer you wait, the more you must save to make that goal, this is because the more time investments have to grow, the less money an individual need to put away to achieve the same returns as someone who gave their money less time to grow.
A typical financial plan helps to first outline where you stand right now, that’s your current situation. The second contains your top financial goals, or where you want to go. The third is a simple net worth statement. The fourth lists the steps you must take to achieve your goals. It includes your income and expenses, an overview of your debts/obligations, a section on retirement planning, and a section on estate planning. Finally, the fifth section is usually a separate document, your Investment Policy Statement, which lays out how your portfolio is to be invested. This process of establishing goals, gathering and assessing personal financial data and coming up with specific recommendations designed to help you achieve your financial goals is the heart of a financial plan.
Preparing a financial plan is active stewardship that pays off over time. Those who prepare a financial plan can reasonably expect to achieve higher levels of future income and net worth than if no financial plan is prepared. As a man sows, so shall he reap.
In summary, the financial plan addresses the following important questions:
“What are your long-term financial goals?”
“Where are you now financially and where will you likely be in
“What do you need to do to achieve your financial goals?”
4. Pay Yourself first
The Philosophy of paying yourself first, as a sure path to financial freedom is elaborately explained in George Clason’s classic book on personal finance- The Richest man in Babylon, written over a century ago. It’s message still holds true today despite how the world has changed within the period. Most people start spending money immediately it enters their hands/account- fashion accessories, mobile and home gadgets, utilities, rent, cars, etc. is always top of their mind. It’s only when they are done with all these, that they look at what is left and how to save it, but we all know that most times, there’s nothing left rather there may be need to even borrow to complete the payments. This scenario is the typical paying yourself last scenario. It’s the single reason why many employees live from paycheck to paycheck, irrespective of the amount earned, as expenditure always expand to meet income. Many of us are well acquainted with the Biblical Tithe concept- giving 10% of your income to the Priest. Paying yourself first follows the same concept- taking out a fixed percentage of your income, say 10% immediately the money comes in, and setting it aside in a savings/investment account before expenditures. That’s how to start the journey of financial growth. This practice will help you to manage expenditures and grow your investment funds. Let’s say your take home pay is N100,000 a month. If you pay yourself first with N10,000 monthly, in a year’s time that will amount to N120,000 which can be invested in a money market instrument. In doing this, you must be disciplined enough to avoid poor people’s habit of dipping into savings to pay bills.
Ensure that the money is not easily accessible, and resist the urge to use it for anything else other than the targeted investment. Even if you’re already in debt, structure your expenditures to fit it as you ride the pressure, once your debts are cleared, the habit would have stuck. The good thing about paying yourself first is that it’s addictive. Once you get used to the idea and start seeing your savings/investment increase gradually, the more you save, the more you want to save.
Now that you have started paying yourself first with the 10% of your monthly income, the temptation will be to spend the remaining 90% on any and everything that catches your fancy, right? Not quite. Gaining financial freedom requires understanding of how much you spend and what exactly you spend on. “Budget” is not a thing that comes natural to most young people but it is a crucial tool for mastering your finances. Budgeting is the process of creating a plan to spend your money. It is simply balancing your expenses with your income. If they don’t balance and you spend more than you make, you will have a problem. Many people don’t realize that they spend more than they earn and slowly sink deeper into debt every year. If you don’t have enough money to do everything you would like to do, then you can use this planning process to prioritize your spending and focus your money on the things that are most important to you. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do. If someone comes up with a big party idea in the middle of the month and requires you to splurge on a new set of Aso-Ebi which is not on your budget list for the month, you already know what to do.
Another critical process is writing down your daily expenses in a notepad. This is called tracking your cash flow, and it can give you a sense of control and confidence that makes it easier to make financial changes in your life. Get a notepad and start writing down everything you spend money on. Most people dread the idea of taking a close look at their expenditures but don’t put it off. Your findings at the end of the month when you review the list will surprise you. You will discover that you probably spend more on items that you shouldn’t, or that you pay too much for items that have better cost-effective alternatives. This can help to save more as you cut down on those unnecessary items. Successfully managing cash flow is your key to financial control. It will give you an awareness that has more long-term value than anything you can invest in, buy or sell. better, or bigger, or both. That’s thinking big, and I’m no stranger to that concept and you shouldn’t be either. I’ve had enough success to know that it works.
Otunba ‘Debola Osibogun
Consumer Awareness and Financial Enlightenment Initiative