Studies have shown that the average worker can become a millionaire in his or her lifetime with sound financial planning but despite earning so much during their illustrious career people seldom achieve financial independence. This is not due to lack of income but the lack of knowledge to plan their finances.
WHY you should plan?
A good financial plan helps you and your family prepare for the unexpected, such as illness, loss of job, or even death.
HOW to be financially independent?
Planning your finances or income starts with assessing your financial situation up to determining your objectives and designing your financial plans to achieve them.
According to experts you can break your finances into seven key areas namely: Income, Savings, Retirement, and Tax, Expenses, Estate and investments. Note that each of these areas should have a target and a plan to achieve them.
To set yourself free from financial pressure and take control of your life, I suggest we put our income on a scale of 100% , where 10% of our income should go into tithes, 20% of our income should go into capital investments (i.e purchase of properties, land etc.) Those assets that are fixed assets should take 20% of our income.
The next 20% should go into floating assets: buying of stocks of blue chip companies where you get dividends or you trade on the shares when they appreciate. Other examples of floating assets are bonds, treasury bills etc.
The next 25% should go into Emergency cash: this is cash in your bank accounts. You should never touch it as this will reduce your blood pressure when the unexpected happens.
The last 25% should be on waste assets: these include clothes, transportation, feeding, shoes, cars, rent etc. this is the only part of your income to service yourself.
QUESTIONS to ponder on?
Assuming you earn 2 million naira a year, at the end of the year, do you have up to N500k in your emergency cash account? Do you have up to N400k in fixed asset such as land or did you invest up to that amount on your building project or do you have up to that amount worth of shares in blue chip companies?
If you do not have the aforementioned, then it means that you have spent the whole 2million naira per annum income on waste; buying cars, clothes, shoes, traveling abroad on vacation etc.
I am not saying you should not enjoy yourself but when you spend the whole or major part of your income servicing yourself, what happens to you and your family when you lose your job?
Hence my advice to some of us that spend all we earn is to build a comfort zone by putting most of our income in cash at bank, fixed assets and stocks.
In conclusion I will like you to know that it is imperative for us to dedicate time out in planning our financial destiny as this is a key to our financial independence. "If you know how to spend less than you get, you have the philosopher’s stone". Benjamin Franklin
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