Efficiency is using the least resources to produce the best results. Financially intelligent people are very efficient in converting resources into enduring wealth. If we add up all the money that has passed through your hands and compare it to the value of the assets you own currently, would you be pleased?
Have we been diligent in converting cash into durable assets – whether incomes generating assets or personal use assets? In previous editions we learnt that personal use assets are properties that we use personally, that do not generate income – your house is a personal use asset except you rent out some rooms. Do we have sufficient durable assets to justify the amount of money that we have been blessed enough to handle?
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A person who earned an average of N100,000 a month over the past 10 years has handled a total of N12 million. The rule-of-thumb is that such a person should have enduring assets (both income-generating and personal use) of at least N4m or 33%. It is expected that the person would have directly saved and invested 10% of the N12m on income-generating assets. Whilst 10% should have been expended on enduring personal use assets. Both types of assets, if properly invested, should double in nominal value every 10 years in economies where inflation averages over 10%. Though the investment is spread over 10 years, the assets growth is propelled by cumulative and compounded annual returns.
Using the above example as a guide, how many of us have been efficient in managing our financial resources? For those of us who did not make the 33% minimum, could the problem be in our personal budget or lack thereof? Or maybe the budget is ok, but we do not have the financial discipline to implement it? Do we have too many seemingly genuine demands on our finances that prevent us from fiscal discipline? Turning your monthly salary into hourly wages would help to appraise every expense. If someone who works eight hours a day for 22 working days monthly, she works a total of 176 hours. With a salary of N88, 000 monthly, she earns N500 hourly or N4, 000 daily. When a friend comes to her to offer aso-ebi at N2, 000 for the Ankara and N1, 000 for the head tie; she buys it and gives the tailor N2, 000 to sew it. That’s a total of N5, 000 for this outfit or 10 hours of work. Can a person who disburses money like that be said to be efficient?
Giving the pay for a full day’s job and two hours the next day to your friend is great if you really love her or you’re helping her in a medical emergency. Otherwise, you need to reappraise your expenses. A person who has a financial plan and spending budget is unlikely to spend money like this habitually. As the saying goes, ‘’if you don’t have a vision, you’ll spend your life implementing someone else’s vision. Implementing someone else’s vision is not wrong per se, but if you’re doing it out of a lack of personal vision, then it’s unhealthy.
Someone once said that a good definition of madness is ‘’using money you don’t have, to buy something you don’t need, to impress people you don’t like.” If that is true, many of us have displayed this sort of madness on several occasions. Many of us are regularly pressurised into buying things we can barely afford to impress casual acquaintances. We must pull ourselves out of this rut by focusing on our financial goals and rejecting such purchases in the sweetest and most friendly voice you can muster.
In previous editions we said ‘’it’s not how much you make but how much you keep’’ that matters. This refers to our financial efficiency because the money we keep should be used for income generating assets that grow our wealth. Remember, we’re not just growing wealth for the sake of amassing money; we’re preparing ourselves to meet the financial aspects of life’s happy events, face financial emergencies, be a blessing to the genuinely underprivileged in our communities, support important social/ religious causes and still have enough money to spend during retirement when we can no longer work.
Let’s pay attention to our financial efficiency. Let’s ensure that we disburse our income for the greatest impact possible.
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