Moving From Display Of Social Status To Financial Independence

The Covid-19 pandemic brought an economic toll that could not be predicted by any traditional or scientific means. If the pandemic has taught us anything, it is that life is unpredictable. One time you could be comfortable with your current income and get interrupted, leaving you in financial distress.

Before the pandemic hit the globe, much of the expenditure went on swathe services. The United States spent $10 trillion on parties in 2019; as the pandemic hit the world, expenses went to stocking food and other essentials. Suffice it to say; Covid-19 exposed the consumerism culture of many people the world over. Shockingly, most people have been perilously operating one crisis away from financial ruin. Unfortunately, it is this consumerism behaviour that has kept low-income earners from attaining financial freedom. Our generation consists of unfettered spenders living extravagant lives. This behaviour has held us hostage to our lifestyle and forced us into a rat race, constant tug-of-war between a luxurious lifestyle and work, a merry-go-round of work for income, income for lifestyle, and lifestyle for work. Hence, no investments, appreciating assets, or income-producing assets to support such lifestyle.

Wealth is not embodied in material possession but in the freedom to know that you can afford it. The irony of looking wealthy is that it’s an enemy to real wealth. Perhaps we might attain the liberty we desire if we widen the gap between our ego and our income levels. There is an urgent need to have real, honest, and genuine conversations around investment matters. It’s the right time for individuals and organizations to assess where they are and establish what it takes to create investments that support their short-term and long-term financial goals. In our optimism, we must be honest in our quest for financial freedom. The following discussion entails some of the strategies you might need to invest in the new normal.

Strategies;

1. Start with ‘YOU.’

You will have the money success that matches your level of personal development. If the covid-19 pandemic brought with it financial distress, then the first place to look and go work on is YOU. Invest in yourself, learn enough to trust yourself, to master essential money management skills and simple investing options. You don’t need to be a rocket scientist to learn and be in a position where you can make sound financial and investment decisions.

You have probably read many books or comments about financial planning and financial freedom, which provoked your mind into having good intentions to trim your budget, start a saving plan, cut debt, etc. Now it’s time to move from just having good intentions and depending on luck. Instead, it would be best to have solid-ground commonsense strategies to improve your personal financial life. You need to know the truth, not the hype, about what to do with your money and why.

• Begin paying yourself first (build a Freedom Fund or a ‘Nest Egg’)

The most important financial decision of your life is what portion of your pay check or income you get to keep aside. Saving must become a priority, not just a thought.

You can target to set aside money enough to cover two (2) years of your living expenses for a start. This expense cover is referred to as “NEST EGG or FREEDOM FUND”, to ensure you always have money for yourself in the future and a sense of control over life events. Whatever percentage (%) you decide, stick to it no matter what, in good and bad times. Probably you think or say that you are spread thin enough, every penny is accounted for, nothing left for setting aside for investment, you aren’t alone many people think they can’t afford to save. But frankly, you can’t afford not to save.

• Think WEALTH CREATION not amassing most CASH.

With the help of a qualified financial advisor, you can come up with a long-term investment strategy. This is a framework (rules, principles, procedures, etc.) to help you achieve your investment goals, it determines the day-to-day financial decisions you make and the long-term adjustments you will need to make to your life to create wealth. The idea is to develop and grow investments, appreciable assets, or income-producing assets to a point at which interest/income from such investments will generate enough income to support your lifestyle without necessarily having to work.

In the world of “today/now needs,” the principle of balancing the need to meet today’s demands with the need to invest in the capabilities that will produce tomorrows’ success is unavoidable. Think long-term, go for a strategy that synchronizes the present with the future- A strategy that promotes sustainability and growth. You may be meeting the current short-term bills, but the real question is whether you are making necessary investments to sustain the success and development in the long term.

Just like health, wealth creation is not easy. It requires discipline, sacrifice, persistence, commitment, and, yes, delayed gratification. If you cannot immunize yourself from temptations of instant gratification, you will be hard-pressed to find success in wealth creation.

Life Cycle of Building Wealth:

• Early-stage – in this stage, the most crucial determinant of your financial outcome is your saving rate as a percentage (%) of your income. Therefore, the strategy in this stage is to aggressively save and invest as much money as early and frequently as you can, then shift to let your accumulated money grow/compound.

• 2nd Half stage – the primary determinant is your investment return net of inflation. The essential skill for success in this stage is Asset Allocation. Where to park your money and how to divide it up among different available asset classes. It’s all about being more efficient and more effective with your portfolio selection to speed up your wealth creation through compounding magic. Compounding increases the value of your money over time, even if you don’t increase your investments.

• Financial freedom stage – at this level, time and compound interest do most of the work for you (money working for you literally). Financial Independence becomes a reality, and your living expenses are covered by recurring income that comes from your investments. You have freedom and choice to live as you please-as well and as fully as you can, for as long as you can, freedom to passionately pursue your dreams, freedom from the pressure of money, freedom to take care of your health and relationships/family.

CONCLUSION.

We should approach Investments with the same discipline, patience, and sacrifice needed for business success. It’s not worthy to absurdly put your money in every manner of investment. Instead, if you are serious about achieving your financial goals, you’ve got to be strategic.

Match your investments to your goals, once you know what you are working towards, you will be able to measure progress towards specific life goals.

The best time to begin your journey to financial independence was yesterday, the other best time is NOW. Just for a fact majority of people woke up today wishing they made better financial decisions 3, 5, 10, 15 years ago. Do not be part of the statistics!  

https://icifa.co.ke/static/resources/journals/icifa-investment-review-journal-498180f478a9.pdf