‘How much does your life cost’? I asked this question to several women in the last few weeks and they all freaked out! Lol!
‘Arese what do you mean by that?’ I definitely don’t know the answer to that question. One person even went as far as saying and I don’t want to know! *tears**
Now obviously all our lives have value that is worth more than money, so that’s not what I’m referring to. However, I wonder how many people have ever considered how much it costs to be them. The roof over your head, the car you drive, the holidays, the wardrobe etc. All of those living expenses added up, how much does it cost every year to be you? ₦500, 000? ₦10m? ₦30m? Talk true! ‘You no know abi’?
As the New Year begins and it feels like the only thing that is certain in Nigeria is uncertainty, I think it’s important to ask ourselves some money questions in order to gain some clarity about our finances.
How much do I spend?
As oil prices fall and the naira continues to lose value, the cost of living in Nigeria has become more expensive; therefore how we spend has become increasingly important. If you are not in the habit of tracking your spending then as things become dramatically more expensive you have no idea whether or not you can afford the lifestyle you have become accustomed to.
Don’t worry I’m not the spending police because I like enjoyment too. However, going through the process of tracking your spending and establishing the amount you require to maintain your lifestyle does several things for you including; shedding light on exactly where the money you earn is going and helping you spend intentionally, so your money is not being pulled in different directions you are not in control of.
For example, isn’t it funny how sometimes, we tell ourselves at the start of the year, I want new furniture or I want to do my Masters but when the time comes we don’t have enough saved up to cover the cost?
However, if we look through our bank statements, that money certainly went through the account. It was just spent on other things, things that didn’t seem expensive at the time, ₦20, 000 here, ₦10,000 there but they all add up over time to large amounts.
So a valid question in 2016 is does my bank statement reflect expenditure on the things I value the most or is my spending a reflection of which direction I was dragged in that day, that month or that year?
What are my money goals?
At the beginning of the year most people have a vague idea of what they want the money they earn to do for them. Some people want to make enough money to buy a new car, save enough of their salary to pay their rent or go on holiday. These are all awesome goals but they all have one thing in common they are all goals that equate to saving to spend.
Let me explain, it’s great to have the discipline to save towards these goals but once they are paid for, your money is gone and literally has no return because they are not assets. Its important to make sure at least one of your money goals is to save and invest towards an asset that will produce an income in the future.
For example, Nkem has three money goals in 2016. Pay her rent on time without borrowing, go on holiday in the summer and save towards buying land in Ibeju- Lekki to build in 5 years. Let’s say Nkem earns ₦6m per annum and has decided to set aside 30% of her income towards her money goals. This is what working towards her goals would look like spread over a one-year period.
This way she has found a way to cover some important aspects of her life while building assets.
What is my net worth?
This is a question we usually reserve for the Dangotes and Bill Gates of the world but everyone needs to have an idea of what their hard work translates to in terms of wealth. How much of the money you earn is converted to assets over a period of time?
For example, Nkem and Tope have both worked at the same company for over three years and both earn ₦6million per annum. Every year Nkem puts a percentage of her salary towards building assets and still finds ways to treat herself to one or two things that matter to her. This year her goal is to buy land, last year it was to build a stock portfolio and the year before it was to invest in treasury bills. As a result, her net worth at the end of 2016 will come to about ₦2.6 million due to capital appreciation and dividends from her investments. Tope on the other hand, has savings of ₦500, 000 in her savings account because she’s waiting to earn more, so she can save more.
Although, Tope and Nkem both earn the same salary, Nkem is wealthier because she is worth ₦2.6million while Tope is worth ₦500, 000. So its possible to be a high earner with no real wealth when you measure your financial success based on how much you earn, instead of how much you are able to keep and convert to assets.
It’s not the overall number that is important but the trends in net worth that are more significant. So even though your net worth is ₦500, 000 at the start of the year, your goal should be to find ways to increase that figure by a realistic % per annum.
Happy New Year and I wish everyone a financially productive 2016.