Smart Money with Arese: Stay In Your Lane

 

 By Arese Ugwu

I heard the most intriguing story this weekend that made me question the impact social media has on our finances.

Sade: I need a favor. Please can I borrow N200, 000? I’ll pay you back with interest in 2 months.
Tolu: What do you need the money for?
Sade: Remember the Celine bag (N484, 000) I bought in February? I borrowed some of the money from Ngozi. Now she’s hounding me everyday. I need the money to pay her back.

Tolu: Why did you buy the bag if you can’t afford it?
Sade: Abeg don’t insult me o! Who told you I can’t afford it? I saw Lara’s blue one on Instagram in December. We are the same age, we are both working. So what makes you think she can afford it and I can’t?
Tolu: Look at you! Be following Lara! Don’t you know she’s an ‘Aristo’ girl.

Something is wrong with this picture, no?

I am a self-confessed Instagram addict! It gets me through many boring activities, but unfortunately, it has become the source of emotional and financial distress for a lot of people.

Instagram is only a collection of snap shots that make up a small part of people’s lives. So don’t let someone’s Instagram reel confuse your financial reality; create your own financial lane and stay there. There’s no shame in living on your own terms and saying, I can’t afford this right now. Instead of speculating on how other people are making their money, focus on building your own assets to the point that you can sustainably afford the things you want.

Here are 3 tips to help you get started.

Treat Your Life Like It’s a Balance Sheet
Sade and Tolu monthly salary: N300,000 p/m each

BALANCE SHEET	Sade	Tolu
ASSETS
Land/property	0	5,000,000
Stock portfolio	0	2,000,000
Cash in bank	200,000	500,000
TOTAL ASSETS	200,000	7,500,000
LIABILITIES
Rent		1,000,000
Food	50,000	300,000
School fees		300,000
Loans	400,000	400,000
TOTAL LIABILITIES	450,000	2,000,000
NET WORTH	-250,000	5,500,000

A common mistake many people make is to measure their financial success based on their salary instead of their net worth, which gives them a false sense of financial security.

For example Tolu and Sade earn the same monthly salary but Tolu has clearly made better financial decisions over the years. It is obvious that she has invested and saved towards growing her assets, which means that even though she has 4x Sade’s liabilities, her net worth is over 2x Sade’s.

It is important to clarify that although liabilities and expenses are both costs they are slightly different. Liabilities are obligations you have already committed to and MUST pay while expenses are a choice. i.e. Tolu has to pay her rent while Sade chose to borrow to buy a Celine bag. Note, that not all debt is bad debt. If she were incurring debt that is proportionate to her income to buy an asset that provides a passive income that would demonstrate some financial intelligence.

Unfortunately, like Sade many people with decent incomes end up with equally large expenses that do not allow them to save and grow their assets.

Establish your net worth and determine what needs to be done to increase its value: Define and set a goal to increase it by i.e 15% p.a.

Build Multiple Streams of Income
Increase your assets by finding creative ways to augment your income, find a ‘side hustle’. This could be anything from becoming a House of Tara representative, selling Forever Living products or investing 15% of your income in building an investment portfolio of stocks and fixed income products that will give a good return as well appreciate in value over time.

We are always looking for quick fixes, everybody wants to hit the big time but very few people want to work for it. There is absolutely nothing wrong with wanting to ‘blow’, but while you are waiting find avenues to create sustainable and consistent passive income, no matter how small because over time it makes a difference. In the words of Lil Wayne, ‘ slow money is better than no money’.

So while you are speculating on how many Aristos Ngozi has, Solape is making an extra N300,000 aside from her salary selling forever-living products and Soji is collecting dividends and bonuses from his stock portfolio.

Get Your Priorities Right
Some people are more intent on looking like money than actually having it. All fingers are not equal so decide what expenses are most important. For example, If you write down everything you spend your money on for the next 3 months, will you find that you’ve bought Aso Ebi 6 times @ 25,000 each in 3 months?

Breaking news! That’s N150, 000 that could have been spent buying Dangote Cement shares, on Aso Ebi that you will most likely never wear again. If your income can support this expenditure and you are investing at least 3x what you are spending, go for it!

(NB if you bought N150, 000 worth of Dangote Cement stock in October 2013 by April 2014, with capital appreciation + N 7 dividend you would have gained approximately N44, 330 on your investment) *although stock could also depreciate, in comparison to Aso Ebi, this is still a better investment*

However, if you have to borrow and beg to pay for Aso Ebi over the next 3 months clearly financial freedom is not in your immediate future. It’s important to support your friends but if you can’t afford it, you can’t afford it. Learn to say No. Be unique; wear your OBSIDIAN or F’N’R oleku that you can ‘re-rock’ in a few months. There’s no shame in your game.

There are always going to be people who have more or less than you. This is not your concern. Everybody’s path in the journey to success is different. The people who have the most sustainable financial success are those who are sufficiently focused on improving and building their own lives that they don’t have the time or energy to keep up with the Lagbajas or make negative comments about how other people made their money.

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Arese is the Head of Wealth Management at Partnership Investment Plc, and is responsible for building the company’s wealth management division, through business development and growing existing client relationships. Arese holds an M.S.C in Urban Economic Development from University College London (UCL) and a B.S.C in Business and Management from Aston Business School.Her other interests include, world travel, reading, playing tennis and squash.