Assets over liabilities: What you should know (2)

Dear Readers,

Welcome back to our conversation about focusing on the power of assets over liabilities.

Last week, we demystified these terms, explaining why assets work for you and how liabilities can hold you back. We also touched upon the critical importance of understanding your net worth and why shifting the balance towards assets is foundational for wealth building, financial security, peace of mind, and ultimately, financial freedom.

Now, in Part 2, let’s move beyond the “what” and dive into the “how.” It’s one thing to understand the concept; it’s another to practically apply it to your daily financial habits and choices, especially in our dynamic Nigerian context.

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The Practical Path: Shifting Your Financial See-Saw

As I always tell my clients, the journey begins with an “honest assessment” of where you stand. Grab a pen and paper, or open a spreadsheet. List out everything you own that has value (your assets) and everything you owe (your liabilities). Be thorough and brutally honest. This isn’t about judgment; it’s about clarity. Once you have that snapshot, you can focus on two key, interconnected strategies: aggressively reducing liabilities and systematically building assets.

Strategy 1: Aggressively Reducing Liabilities (The Debt-Slaying Mission)

This is often the most impactful first step, especially for those burdened by high-interest debt. Think of high-interest liabilities, like credit card debt or some quick loans from apps, as financial quicksand. The interest payments eat away at your income, preventing you from saving or investing.

Prioritize High-Interest Debt: Start with the debt that costs you the most. This is often credit card debt, which can carry exorbitant interest rates (sometimes upwards of 25-30% in Nigeria!). Paying this down is like getting an immediate, risk-free return on your money, because you’re saving on the interest you would have otherwise paid.

Avoid New Unnecessary Debt: This sounds obvious, but it’s crucial. Before taking on a new loan for a depreciating asset (like a new car when your current one is fine), ask yourself: “Is this truly an asset that will appreciate or generate income, or is it another liability?”

Strategy 2: Systematically Building Assets (The Wealth-Compounding Journey)

Once you’ve started tackling your liabilities, or even alongside it, you must commit to building your asset base. This is where your money truly starts working for you.

Automate Your Savings and Investments: This is arguably the most powerful habit. Set up automatic transfers from your salary account directly into savings accounts, investment platforms, or your RSA. “Pay yourself first” is not just a cliché; it’s a financial superpower. Even a small, consistent amount, say ₦10,000 or ₦20,000 monthly, directed towards an investment can grow significantly over time, thanks to compounding.

Diversify Your Asset Portfolio: Don’t put all your eggs in one basket. As we discussed in Part 1, assets can include cash, investments (stocks, bonds), real estate, businesses, and intellectual property. Explore different avenues that align with your risk tolerance and financial goals. For instance, consider local equities listed on the Nigerian Exchange, mutual funds, or even fixed deposits if you’re risk-averse.

Consider Income-Generating Assets: Beyond appreciating in value, some assets can put money directly into your pocket. Think about rental property, a side business that generates profit, or even dividend-paying stocks. These create passive income streams, reducing your reliance on active income alone.

The Long Game: Discipline and Flexibility

It’s not always easy, and it takes discipline. There will be temptations to incur new liabilities or to dip into your savings. There will be market fluctuations and economic shifts (like current inflation and exchange rate dynamics in Nigeria) that might test your resolve.

The goal isn’t just about accumulating wealth for its own sake; it’s about getting free. And that is a goal worth pursuing. Start today, assess your position, make a plan, and watch as your financial see-saw steadily tilts towards a future of greater security and peace.