Personal Finance with Raphael: Dele’s dilemma
Dele was one of the lucky few who got what could be termed a good job not long after NYSC. Initially, he felt well remunerated as his income could easily cater to his needs. Barely a year after he got married, he began to notice a strain on his finances. His financial goals were increasing, life was getting more demanding and his income was no longer adequate. At first, he focused on getting a promotion at work in the hope that a bigger salary will fill the gap. But even after the promotion came, it seemed like his needs also increased with his income. He recently just got to know that his wife is pregnant with their second child, and he is more concerned about his finances than ever. Is there a way to make his money work for him? Dele needs help….
It is obvious Dele needs a second income source. His work is however too demanding to afford him time to pursue other businesses. His only option is to put the money he currently earns to work, he needs to ensure his money is working as hard as he does.
How do you get your money to work hard for you?
Making your money work hard for you requires a bit of Mathemathics. If you have a goal that would cost you N200,000 in 24 months but could only save N5,000 conveniently every month beginning from today, your total savings at the end of 24 months would become N120,000. So, the next question is at what interest rate per annum would these savings grow to N200,000 at the end of 24 months. That is N120,000 savings in 24 months at N5000 monthly should grow at the rate of X to achieve N200,000. What is X? X is 4.18% per annum. You need an instrument that would preserve the savings and grow at a minimum of X.
Solving Dele’s dilemma
The first thing Dele needs to do is to set his financial goals and be clear on them- he needs to be clear on what he wants to achieve. He can also set his financial goals according to preference for achievement. Secondly, he needs to ascertain his financial status. That means he needs to be clear on his Net worth (his total assets minus liabilities). This would provide him with a position of how much he can conveniently set aside to achieve his set goals. To achieve this position of being able to set some money aside he needs to make use of a budgeting tool to capture every penny that is earned and spent.
The third step of making his financial dream come true is to break down his numerous goals into short term (0-2 years goals), medium term (2-10years goals) and long term (>10years goals). At this stage, he also needs to get a detailed understanding or knowledge of the various financial instruments that are available as they are specifically structured for the different categories of goals listed above.
Stage four requires Dele to implement his conclusion on choice of investment in stage three. Otherwise, he would bear the cost of procrastination! The final stage requires that Dele does not go to sleep after investing his hard-earned money but ensures he monitors and reviews regularly. He should review his short-term goals monthly, medium term goals quarterly or half yearly while annual review for his long-term goals.
I guess we have been able to solve Dele’s puzzle. He can get back to work and rest assured that his hard-earned money is working as hard as he does, and his growing financial goals are consistently achieved.