Simple Steps Towards Financial Independence

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Goddy Egene writes on how to be financially independent based on tips provided by Fund Managers Association of Nigeria

I want to be a Mike Adenuga. I want to be a Folorunso Alakija. I want to be richer than Aliko Dangote. These and more are some of the thoughts that dominate the minds of many young Nigerians because they provide motivation and hope in respect of what is achievable. It is not good enough just to desire but actions are required to achieve our dreams and goals.

Independence is often associated with a sense of freedom and it is probably one of the most universally common goals of all human beings. Whether it is independence from parents, from friends or from debt…everyone is seeking to be independent in one form or the other.
As you get older and are saddled with individual and collective responsibilities, the quest for financial independence is let loose.

You begin to ask yourself questions like “how do I pay my rent? How do I pay for that dream wedding?, how do I pay for my children’s school fees?, how do I pay for my vacation?, how do I get all the good things in life that I need and desire such as a nice house or car?”
All these thoughts can hit you in a way that might be scary, especially in light of your current income and other realities. But there is no need to fear because there are ways you can better manage your finances and improve your quality of life, while living within your means.

While there are many books and articles with theories and steps on how to get rich and how to make money, these books and articles are not wrong, but as ‘experts’ in money management, the Fund Managers Association of Nigeria (FMAN) think it is important to provide simple, time-tested solutions that work.
FMAN believes the steps are simple even if the discipline of the process can be difficult. FMAN’s practical solutions are:

Save and Invest
“Do not save what is left after spending. Instead spend what is left after saving-” Warren Buffet
The importance of developing a healthy savings habit cannot be overemphasised. As such, it is critical to build the habit of saving a portion of your earnings with maximum discipline. Having a savings culture can be hard, but it is not impossible. Savings provides the platform that allows you make other financial decisions at your convenience and provides a viable platform for making investments instead of simply leaving your savings in a bank account.

You can therefore save and invest in Mutual Funds and other financial products that give returns higher than ordinary savings accounts. Mutual Funds provide investors the flexibility of leaving their funds for as long as possible irrespective of the minimum holding period of the Fund. Investors can also redeem their funds before the minimum holding period elapses but would be subject to a penal charge. The penal charge is usually a percentage of income earned and does not eat into the principal invested. This approach also makes your money work for you through the power of compound interest as your income/dividend is reinvested to make more money. Read up on treasury bills, government bonds and stocks, as these can also provide a good avenue for you to earn some more money on your savings. Ensure you determine your investment risk appetite, before investing.

Live within your means

There are many things that contribute to the deterioration of the finances of an individual. One of them is “living beyond your means”. Learning to structure your lifestyle and living within your means might also be difficult particularly with peer pressure and demands from loved ones. However, the benefits of staying out of the race to keep up with the Joneses and meet the demands of loved ones are enormous. Living within your means is a discipline that will require you to deny yourself of the urge to splurge on unplanned expenses. We usually write budgets but are unable to keep to them because we often spend on things we don’t really need beyond the fleeting satisfaction they give.

Have an emergency fund
Consider this your own personal insurance. Please understand that this is different from your savings. You save towards something you want to do (expected) in future but you have an emergency fund for unexpected events in the future. We never anticipate emergency bills and it is important not to allow the costs from unplanned expenses eat into the funds set aside for other purposes. An alternative for an emergency fund is an insurance plan. Insurance allows you transfer the liability for replacement costs of an insured item to a third party.

Look out for bargains
Always remember that it is not necessarily a sign of wealth or affluence to pay the highest price for an item. Strive to get the best value for your money by negotiating for discounts and purchasing quality items on sale. Never rush into an expense and be less frivolous in your spending. A little patience often provides us with better perspective on how an item we want is not what we need because often times, we confuse our wants for needs but if it is something you really want, then save towards it.

Be passionate about whatever you do
It is important you choose a career path that lets you live the life you envision for yourself while enjoying what you do. Do a lot of research and talk to people who already do the type of work you want to do. Ask lots of questions and find out how to create a successful niche for yourself in whatever career or business path you choose. The journey to financial independence is a lot easier if you are convinced the road you are on is the one that gets you there. Being passionate about your chosen field, career or business path is not just important because you will earn lots of money but figuring out what you want to be doing in your life helps you set targets and measure yourself against those targets as you move through different phases of your life.

The most important lesson here is to tailor your journey to financial independence to complement your life goals. Understand that life is in phases and we all go through each phase in our own unique time and way. None of the things we have said here are really age dependent and you can start making the small changes that can make a big difference in your financial life today. Someone very smart once said, “whenever you wake up, is morning”. Make today the morning on your journey to financial independence.