by Kalu Aja
Welcome to the Naira and Kobo series…
We are going to have a conversation about money, investing and the economy every week, our goal is to leave you better enlightened about the financial world and your money.
This will only work if you make an effort to implement what you learn here, and make sure you speak with your financial adviser before taking any financial decision decisions, okay.
To learn about money, we have to understand the basic principle of money, so we will start the series by talking about my 4 principles of money which are;
- Starting early
- Being constant
- Watching inflation
First thing we have to do is understand the process of Planning, to be specific financial planning.
Financial Planning is all about how you agree your financial goals and invest resources to meet those goals? Financial Planning is a process, it never stops. It allows you make informed decisions regarding your money.
Your financial goals range can from buying a home to getting out of debt. in taking these financial decisions, you will also have to consider external influences like inflation and the GDP growth.
Infographic A speaks to the steps in financial planning
(1.) You establish a financial goal, what do you want to achieve with your money? buy a home?
(2) After you agree a financial goal, you list out your assets and liabilities, to determine your net worth how far are you from financing your goal with your networth?
(3) Create a plan to reach your goal, this is where you attach timelines, and a cost to your financial goal.
(4) Set up a budget to meet and control your spending
(5) Implement your plan
(6) Monitor and amend your plan as events change
It’s pretty straightforward, following these steps allow you to plan based on factual circumstances….
So what’s the next principle? Starting early.
Look at infographic B…
So two brothers got a N2,000 allowance every year. Brother A invested his N2,000 when he was 21 years old, and continues until he is 30 years old, so in 10 years, Brother A invests a total of N20,000…got it?
His brother B invests the same N2,000.00 when he is age 30 every year till when he is 50, so in 20 years he invests N40,000.00. got it?
Assume interest is 8%, Brother A will have N145,841, at age 50 while Brother B will have N98, 846 at age 50…why?
Brother A started earlier…
Brother A saving had more time to compound, even though Brother B invested more cash than Brother A…
in summary, money grows with it earns a return, you earn more when your money has TIME to compound. So if you have not started investing, you need to start today as an early start allows your money to compound more times.
We will stop here this week…next week we will look at the other principles of personal financial planning.
Financial Jargon of the week:
A Bear market is a financial market condition in which prices of financial securities are falling…it’s usually a downturn of 20% from the market peak and last for a long period of time. Don’t confuse a bear market with a Market Correction, which is a 10% fall and has a shorter duration in time…
Our key learning for the week have been;
- The financial planning process
- Starting early is beneficial
- Bull and Bear markets
Kalu Aja is a financial planner with 17 years experience spanning brand management, private and investment banking, and pension management.