by Kalu Aja

So last week we saw the positive effects of having a financial plan and starting to invest early.

We continue by speaking about being Constant in your Investment and watching inflation.

Simply put if you invest N1 naira every day into an account for 55 years, you will have N20,075.00, however if you invested N1 every day for 55 years at say 9% you will have N481,795, just one N1 a day. The third lesson is simple, be constant in investing.

…however there is a problem, it’s called inflation.

If you invested and earned 9%, and inflation was 12%, then your real rate of return is negative because your investment has not grown faster than inflation.

Inflation is the sustained increase in prices of goods and services, inflation causes your cash to be worth less than it should, So inflation is the enemy.

When investing, we must consider the rate of inflation and subject to our risk profile seek to achieve real rates of return that beat inflation.

Today, June 2016, Inflation is reported at13.7%, thus practically if you have cash in saving or fixed deposit paying less than 13.7%, you are not making a real return on your investment.

So in summary the basic principles of money remain, have a financial plan, start early to invest, be constant in investing and watch inflation.

Great, let’s now do a financial health check to determine our status financially, let’s do this by drawing up our net-worth statement.

To get our net-worth, i.e. what we are worth, we list our Assets then subtract the total assets figure from the liabilities figure…

So take a notebook or on a Microsoft Excel program, create a table, on one side write all the things that saves you cash or gives you cash those are called Assets.

On the other side, list all the thing that takes cash from you these are called liabilities, use the structured below

1. AssetsA1. Things you own that give you no income e.g furniture
2. Assets A2. Things you own that give you income e.g Shares
3. Liabilities B1. Things that take your income e.g rent
4. Liabilities B2. Things that take your income away and charge you a fee e.g credit card

Now at the bottom of the page, subtracted the total assets from total liabilities….

If your answer is positive, you have a positive network, if negative, its not that bad, it depends on many factors, like how old you are. We will look at this in detail next week.

So do your net-worth statement this, have it handy for next week…..regards.

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Financial Jargon of the Week what is an Assets and a Liability?

An asset as defined is a resource with economic value owned or controlled with the expectation that it will provide future benefit.

A liability is a legal debt or obligation.

I define assets as objects or services that give you income eg a shop or a car you use to do business,

I define a liability as objects or services that take income away from you eg rent.

So if you own a car, is it an asset? The answer depends on how the car affects your wallet. If the car saves you time and transport cost, allowing you to earn more money, then the car is an asset, but if the car is constantly breaking down, or requires a lot of work to keep it running then it’s a liability…

So is your phone an asset or a liability?

Key Learning

1. Assets
2. Liabilities
3. inflation

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Kalu Aja is a financial planner with 17 years experience spanning brand management, private and investment banking, and pension management.

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