Start by doing what's necessary; then do what's possible; and suddenly you are doing the impossible - Francis of Assisi.
This is one quote that triggered a change in my mindset and more importantly, my approach to my finances.
The mistake I initially made was trying to do what was possible before what was necessary.
I had the whole setup upside down and it didn’t work. It took me a while but I eventually had to go back and restart.
You know how the “Crypto Craze” a couple of weeks back had everybody wanting a piece of the cake including someone who is just starting to pay attention to his finances, and the next thing you know, he is buying one meme coin.
That is not how and where to start and this is why knowledge is important.
The moment you decide to fix your personal finances, and you are committed to the task, the concept of savings and investments begins to sound very interesting to you and you get eager to do it all but if you are not careful you can start off wrong.
You can have the right intentions but the wrong approach.
You can save money, leave it idle and allow inflation to eat all of it.
You can be investing money in the wrong asset class for you.
You may be trying to invest when you have a pile of debt breathing down your neck
You can be saving too much, not leaving enough for your basic expenses
This is why, doing the necessary first is very key.
WHAT IS NECESSARY?
1. Get Knowledge
I think it all starts from here, you need to know what you are doing.
Knowledge transforms your mind and helps you see money for what it is, a tool.
You need to understand how money is made and how to grow it.
You need to learn how to make money your ally, send it on errands and not wonder where it always goes.
Now I don’t necessarily mean you have to get a master's degree in finance or read a big 1000-page book.
I mean simple basics about money, personal finance, debt, savings, investment, interest rates, dividends, asset classes etc.
A simple Google search can help you
AI can help you
There are loads of videos on the internet – Instagram, and YouTube shorts.
So many people have written so many things on social media and if you prefer books, some really interesting and short books cover the basics.
If you don’t want to read the entire books, there are summaries online, there are audiobooks, podcasts, just name it.
You just have to check for them.
I can recommend some if you’re interested.
2. Build an Emergency Fund
This is a very necessary thing to do!
Your savings and investment journey should start with building an emergency fund.
Think of it as a cushion to give you a soft landing just incase you hit a snag in the near future.
Life happens and that should not kill your momentum. You don’t want to liquidate your investments just because of a faulty gearbox in your car, a little need in your business, a temporary setback at your job or some little emergency at home.
A fully funded emergency fund should be around 3-6 months' worth of your basic expenses, enough money to cover your feeding, transportation, housing, healthcare, and utilities until you figure something else out.
This money should be kept in near-cash investments, that you can have immediate access to if there is a real emergency and it is relatively safe.
You can use savings platforms, open money market accounts or buy treasury bills.
You have to decide and be disciplined enough to only make withdrawals when they are actual emergencies.
BUYING A BIRTHDAY GIFT FOR A LOVED ONE OR UPGRADING YOUR CAR IS NOT AN EMERGENCY!
3. Get out of Unproductive Debt
In this part of the world, our credit system is not very popular, and it's definitely not baked into our finance culture. Apparently, a lot of commercial banks in Nigeria offer credit cards, but I personally have not seen anybody with one, what you mostly see are debit cards.
Ideally, not a lot of Nigerians think of a bank loan first to finance things like travel, essentials like food and transportation, housing, household appliances, cars, etc. A lot of people would rather not take a bank loan for business even though, this falls under productive debt.
The rise of easy loan applications have made access to credit much easier with some small loans not needing collateral but the fear of getting a call from a relative after one missed payment keeps a lot of people away.
That being said, if you have some form of debt, particularly one that is not productive – you didn’t use it for something that will generate income one way or another, you should work actively and urgently to clear all of it off.
“Your income is your greatest wealth-building tool”, I learnt that one from Dave Ramsey.
You should free up enough space in your income to be able to save and invest better.
AS YOU GET OUT OF DEBT, DON’T GO BACK IN!
These are some of the things I consider necessary, and if you can do these 3 things, you won’t believe how much ahead you will be in terms of handling your finances.
What will you consider necessary?
I think they're perfectly ordered and very true, particularly that quote from Dave Ramsey.
Because, if all you earn goes into debt repayment and servicing loans, how then do we build wealth?
Very profound Sir Heritage!🙌🏽
Thank you very much for this piece.