I’ve recently started tracking my net worth. Omo, I feel like a loafer because the only thing helping my situation is my pension account. We all know I only have one because it’s statutory. After all, wetin consign agbero with overload (silly statement alert!).
I mentioned in my April budget post that increasing my net worth was part of my goals for this year. Clearly, this is not a 12-calendar-month thing but an on-going process and so the focus will shift as I get closer to hitting my goal.
A quick word on net worth then and why I’m focusing on it.
Your net worth is essentially a snapshot of your financial health at one moment in time. It’s everything you own (Assets) less everything you owe (Liabilities) i.e. Assets – Liabilities = Net Worth.
At this point, I should say that, going into a lot of detail will make this longer than it has to be so I’ve created a glossary page which will define terms. I’ll just focus on my plans in this post.
For my purposes, I’ll define an asset by the formal definition – resources that give rise to future economic benefits. So anything I own that is not generating income or does not have the capacity to generate income does not qualify.
As Jesus did not die for me to work a 9-5 indefinitely, I have given myself 7 years to get my house in order so that I can go off and do the things I really want to do (travel the world and then lead the life of a recluse somewhere). This means whatever I’m investing in within the set period should throw off enough income to cover my cost of living for the rest of my life. I have a number figured out based on what I perceive my lifestyle will be in 7 years. Let’s hope I’m not too far off.
I came across Dave Ramsey’s 7 baby step programme sometime last year and modified it to suit my circumstances. The main reason for this is that it is targeted at people who are working on paying off debt before they start to build wealth. If you do have debt to pay off, his programme makes sense so you should click through and have a read.
These are the steps I will be taking:
- Emergency Fund: The original list recommends US$1000 for this fund. Conventional wisdom will have you socking away 3-6 month’s of living expenses in an easily accessible account. I had initially wanted to go with the equivalent of 6 month’s salary in a savings account (instant access). After much thought, I have decided to have ₦100,000 in a savings account for easy access and whatever the balance of 3 month’s pay will amount to in a fixed deposit account. The reason being that I’m trying to maximise the interest earned on the funds as most savings accounts pay out around 2% in interest whereas a fixed deposit pays in the region of 7% – 10%. If I’m feeling funky, I can play around with the ₦100k in Call Deposit accounts to take advantage of the marginally higher rate they pay over traditional savings account.
- Investing: I think I’m the only one in my house who does not have some sort of investment. Everyone says you just have to start no matter how little you are putting in so, there will be an investing item in the next budget! Starting very very very small with shares in quoted companies. I will be doing a combination of Growth, Income and Value investing and blogging all about the experience here. I hope we can all contribute to the conversation. I’m especially interested in the reasons why people my age (20-something and fabulous) don’t invest as much as they ought. Perhaps they are just not seen to do so? Let me know in the comments or take my survey here. As I grow the pot, I’ll be diversifying into other areas of investing: Real Estate, SME investing (big area of interest for me) and other non-traditional investment vehicles.
- Side hustle like you just don’t care: I swear it feels like everybody and their grandmother is on one hustle or the other in this town. I used to be low-key jealous because a babe had zero ideas but since focusing on Operation Leave The Rat Race – unofficial name – I’m coming up with ideas like the world is coming to an end at 6 o’clock. I’m treating my finances like I’m running a business at the moment because training will out. To turn a profit in business, you either increase revenue, cut overheads/expenses or both. I’m taking the “or both” path. Part of the cost cutting measures involves meal planning to reduce having to eat out (L), saying no to aso ebi for people I’m not close to (this aso ebi epidemic need to die a quick death) among other things. On the income side, I started an SME consultancy at the beginning of the year. Ecclesiastes 11: 1-6 is all the expo you need on this. If you are not Christian, don’t vex. Just read it sha. Solomon had mad paper so he must know what he’s on about right? Right.
Shameless plug: If you need business advisory and/or accounting services for your SME, give me a shout via the contact form and we’ll take it from there.
To stay on top of everything, I’ll be tracking my numbers monthly because that’s how my spreadsheet is set up but I’ll probably blog about overall changes at the end of the year with a summary of the strategy for the upcoming year. All the gory details of the process will, of course, be on here. After all, “the journey is the destination”.
Phew! That was longer than I expected. To answer the question at the start. If cash is king, then net worth is the vehicle that ensures a steady stream of cash. Hashtag winning.
So, what are your thoughts? Do you save? Do you invest? Click through to participate in my survey on the saving and investing habits of the Nigerian millennial.
Have a wonderful weekend!