It is in preparation for the One-Day Course On Understanding And Profiting From Stocks event to hold on May 11, 2017. I hope you've registered (if you find it useful).
What would I be saying about financial investment?
Well, I would essentially be saying "delay gratification". Form the habit of spending just what is necessary and invest the rest. Don't compete with your colleagues on stuffs that cost you money with just emotional returns: expensive vacations, expensive car, expensive clothes, expensive gadgets and so on. Don't spend on things you would eventually have cheaply in the future if they are not a necessity.
I have friends who worry that they've not gone for a proper vacation outside the country. So they spend a large chunk of their savings on a vacation to an expensive European or American city. They have this left-behind mentality they feel compelled to fix. And there are those who just must live large. They must appear executive, drive executive cars, take executive foreign courses and live in executive houses. In the end, it is their bank accounts that bear the brunt. They earn and spend, then console themselves that what they've spent on were invaluable experiences and strategic personal branding things that would lead to multiple fold returns. I shake my head.
As far as growing wealth in a structured and logically sound way is concerned, spending way less than you earn is the foundation. Then you invest the remaining. You can't eat your cake and have it. If you can discipline yourself to live cheap and delay gratification for some years you will be able to fund your exotic dreams from cash flow from your investments without even touching the principal (original investment amount).
As an example, I am planning to have my investment pay for my house and office rent. I am almost there. So with just a 12% annual return on my investment I can forget about where my house and office rent will come from. And since I am still actively working and earning, it frees up more money for me to invest from my regular income. So in just a few years I can fund all vacations I want without touching my original savings/investment. And that is the logic behind delayed gratification.
Once you have taken up that new mentality, then you should proceed to doing the following:
- Have an emergency fund: Put away 3 to 5 months monthly living expense in a special savings account. I use the Diamond HIDA (high interest deposit account) for mine. This is the money you will need to draw on for unplanned expenses -- emergencies. It is very important. Once you take out of it, you must replenish as soon as you can, with higher priority than your other accounts.
- Have an investment account: This is different from your savings account. And shouldn't be a bank account. If you have low risk profile, go for money market investment mutual fund or bonds mutual fund. You can try Stanbic IBTC Asset Management Limited. If you are more adventurous like me, then go for equity mutual funds (ARM Discovery fund or Stanbic IBTC Nigerian Equity Fund) or open your own brokerage account to trade stocks yourself (I use Meristem and ARM).
- Keep your expenses low as you grow your income and increase the portion you put away into investment accounts. Never let your expenses balloon as your income grows. Between 2012 and 2016 I have seen my income grow almost 10 fold yet you wouldn't notice any change in my lifestyle. In fact, my living expenses reduced. That way I was able to save/invest in just one year (2016) more than I had saved/invested in the prior six years. It wasn't easy resisting the temptation to buy new this and that, and go for an out-of-country vacation. And I am thankful I didn't because this year started on a rocky note and I have needed to draw heavily on last year savings to fund unplanned expenses with the tax authorities and account auditing amongst other emergencies. The comforting part is that I saved well enough last year to sail through easily and have formed the valuable habit of living cheap. I practically have no ego. You will see me walking down the road more often than you will see me driving. And when you are booked everyday and months ahead, there is nobody to try to please with fancy dressing and posh car. Interestingly, decision makers like confident down-to-earth consultants who have impressive portfolio of jobs over model-looking glossy talker. So I have never lost a project bid because I dressed cheap. Ironically, they seek me out rather than me going after them.
- Watch your investments! I spend a huge amount of time analysing the stock market and following the news about the companies I invest in. You have to keep ensuring that your great investment last year is still great today.