It’s New Year and a time when the tone is set for many life’s activities. Needs, bills, and emergency expenses will keep flowing in and you don’t want to be caught unawares. Reports have shown that Nigerians are the highest spenders in Africa and the fourth-largest spenders in the United Kingdom. With the rising inflation rate, it will only be wise to begin the New Year financially smart.
A management consultant with a specialty in leadership, emotional intelligence, and personal productivity, Mr Kunle Adefila, stated that having money does not guarantee financial stability because lousy money habits will make one broke. He noted that one could move from poverty to wealth, noting that good money habits could elevate personal finances.
He said that many people couldn’t distinguish between money and finances and as such cannot successfully manage their finances. Adefila added, “I discovered long ago that many people handle money without understanding the science of it. Thus, they practice gambling without going to the casino, because to them, managing money is a hit-or-miss affair, purely a matter of luck.”
On his part, an economist, Dr Muda Yusuf, stated that competitive disposition and lack of self-discipline were major financial setbacks, stating that with proper planning, adequate financial literacy, and principle of delayed gratification, one would be financially stable. Highlighted below are seven good financial habits.
Save before you spend
According to behavioural experts, rich people save first and then spend what is left while poor people do the opposite. The management consultant stated that this was a matter of priorities, noting that the belief among the poor is that they cannot save because money is not enough. He said that those who grow wealth realise that money is hardly ever enough but make up their minds to save anyway. He added that to save effectively, one must start small but be consistent, have a target, and form a savings club to encourage the habit.
Separate savings from investments
Adefila said that savings served two purposes; liquidity and security i.e. having quick and ready cash one can access when one is in need. He however stated that savings cannot protect or grow money in the current global economic environment. “Today your savings account is not likely to yield above five per cent interest rate per annum, meanwhile inflation rate is at 21.47 per cent. The aim of an investment is to first preserve capital and then generate some profit. Do not leave huge amounts in a savings account and go to sleep. Consider a worthwhile investment,” he added.
“Adopt the strategy of investing bulk sums of money that come in occasionally and incremental amounts on a regular basis. Your little investments in government bonds, mutual funds, and so on, can become huge in the long run. To invest right, seek insider information. It will give you the first mover advantage,” the management consultant noted.
Adefila said that avoiding herd mentality, having a mixed portfolio (the old truism remains valid–do not put all your eggs in one basket) by investing in different industries and markets would help one benefit from the dynamics of different assets as well as if there is a loss somewhere, the effect will be minimal. He further said that a good investor must have a long-term perspective for investments since most investments take time to mature before yielding good returns.
Track your expenses
“According to Peter Drucker (Austrian-American consultant), ‘you can’t manage what you can’t measure.’ A basic step towards successfully managing finances is to track spending. Know where your money goes so that you can make informed decisions. Unconscious spending will land you in conscious trouble,” Adefila added.
Delay spending on wants
The 72-hour rule says whenever you want to spend on a want, try to wait for 72 hours. If the desire is still strong, go ahead and purchase. Adefila said however that most people find that after waiting 72 hours, the desire for frivolities often wanes and loses the initial urgency. This rule, he said, will help one gradually to curb the urge to spend on non-essentials. Yusuf added that self-discipline would help one prevent comparison with others’ lifestyles, delay impulse buying, and help one live within one’s means.
Eliminate bad debts
“Bad debts are money borrowed and spent on pleasure and consumer goods. Loans that are not used to produce wealth but rather spent on wants, don’t add any real value and should be eliminated,” Adefila said. He noted that bad debts encumber one making it difficult to gather real wealth, adding that good debts which are assets used for investments or profitable business could generate wealth such that one pays off the debts and still have some earnings left.
Invest in financial literacy
This is arguably the most important financial habit you could cultivate. The more financially educated one is, the better money decisions one makes and the harder it is for one to fall for scams, errors, or miss out on good opportunities. Adefila said there are many resources available such as free online resources and training or one could pay to speak to an expert and make huge wins in the process. He advised that adopting a mentor in any business venture, attending seminars, and learning from the experiences of others could save one from huge financial loss. Yusuf added that gaining financial literacy will help one know the kind of financial transactions to engage in, credits to take, costs, and if one had the capacity to service incurred credits to avoid a crisis.