The holiday is over! Well, at least for most of us.
And now the hysteria to set new year resolutions, lay claim to audacious goals, and start the new year on a great note is in full swing.
Productivity experts say it’s better to set your goals for the coming year in the last quarter of the preceding year i.e. 2017, but of course almost no one listens, because it is much easier to say these things than it is to do them.
So, if you’re like me and you struggle with procrastination, this is a reminder to set those goals, especially for your finances (income and expenses), for 2018 in the next few weeks.
Now this is not yet another article on how to set the right goals, Google has got you covered on that. I put in a random search on google on ‘how to set goals’ and It gave me 475m results. I don’t think there is any reason to add to all that body of knowledge.
This article is about some of my important money lessons in 2017. If you’re looking to get better with your money in 2018, you should consider going cold turkey on the following money habits in 2018.
Spending without a budget
If we all stopped to calculate how much money flows through our hands on an annual basis, most of us will discover we are millionaires and some of us multi-millionaires. In 2017, I decided to track my household expenses for a month and I couldn’t believe what I discovered; we were wasting money.
That’s what happens when you don’t have a budget. If you don’t have a budget for how you spend money, you will probably end up spending more than what you earn or can reasonably afford every month.
Setting up a budget is not an activity for corporate organizations alone, anybody can set up a personal budget to track cash inflows and cash outflows.
The simple way to create a budget is to create an amount of money for your regular categories of spend. A category of spend is a group of similar expenses or transactions. For instance, grocery shopping is a category of spend. Anything you spend on food can go in that category. Other examples include personal grooming (what you spend on your clothes and hair), eating out, utilities etc.
Once you define the categories of spend and a budget for each category, you can track your expenses over a month and compare your budget to actual spend. That way, you’ll learn how to do a mental reset once you max out your budget for a category of spend
Basically, a budget helps you stay disciplined and gives you the opportunity to make investment a bill.
What does it mean to make investment a bill? That’s our next point.
Not making investment a bill
Bills, bills, bills, we’ve all got ‘em and we’ll keep paying. The fact that you constantly have bills to pay should motivate you to work towards financial independence. Our expenses don’t stop; they keep increasing as we grow or evolve through life. But there’s a way out of the maze of bills.
The way out is to make investment a bill the same way you make what you eat and spend on electricity or transport regular bills. When you make investment a bill consistently and invest the money, you can take advantage of compound interest to grow your investment and give yourself the opportunity to plan to get out of the rat race.
You might think, ‘I can only set aside a little amount of money’. But trust me, it’s not really about the amount of money, it’s the consistency that counts. There are options for you to invest with as little as $10-$20 or N10,000 – N20,000.
What are the options for you to invest in with that amount of money? Next point
Your money in a savings account
This is related to the previous point. Whatever you do, avoid keeping your money in a savings account. Apart from the fact that most banks offer ridiculously low rates (if you live in Nigeria where we have double digit inflation, you’re earning negative returns on money in your savings account, because your money is losing value to inflation every day), you are more likely to spend it if you have easy access to it.
Instead of leaving your money in a saving account in 2018, you should take advantage of ‘low-key’ investment products of asset management companies who offer mutual funds that require a minimum investment as low as N10,000 – N20,000.
In more developed countries, financial technology companies continue to disrupt the financial industry by offering investment plans for as little as $10-$20. With this disruption, anyone can start investing and take advantage of the power of compound interest to build up your funds over time. (Check out the options in your country of residence)
Now, please note that your goal should not be to leave the money with these asset management organizations forever. Once you build up your funds up to a significant amount, you can withdraw your funds and invest in better investment opportunities with higher returns.
Check out my free 7-email course to learn how to create a basic wealth plan for your money. Click here to sign up to get it for free.
Investing in what you don’t understand
We all love the promise of crazy mind-blowing returns. The crazy rise in the value of bitcoin, and other digital currencies, in 2017 got a lot of individuals and corporate organizations racing to buy any digital currency in sight. This blind race led to many people getting scammed or losing money.
It is a fundamental principle in investing not to invest in what you don’t understand. The best approach is to get an education on how any investment opportunity earns you returns. Some questions to ask include; How exactly does the investment work? What is the risk involved? Do I stand the risk of losing all my money or just the interest returns? Am I willing to take the risk with full knowledge of what the risk entails? Can I afford to take the risk? These are some of the questions to ask before you consider any investment opportunity.
Thinking you can only invest with your own money
Finally, you don’t have to walk alone. The world of investing is as complex as it gets. You need partners you can work with and pool resources with to take advantage of investment opportunities. 5 years ago, I discovered, there was no need to wait for donkey years to make my dreams come true, if I could can get a group of friends to invest with me and take advantage of an investment opportunity sooner.
Enter Investment clubs. Investment clubs are an option to consider if you need access to more money to invest in bigger investment opportunities or need accountability partners. You can take advantage of the power of many with investment clubs to share risks and rewards.
One of the great things I enjoy about starting and operating an investment club for 5 years is the fact that I could collaborate with others to contribute funds and impact society. Sometimes it’s not just about making more money but using your money for good and seeing the impact. Sometimes, we don’t need to wait for the government to do everything. We can all contribute to funding small businesses in our own little way.
Thinking of how to make an investment club work? Click here to get my free ebook; 5 steps to a successful investment club.
Let’s make 2018 a better year for our money.