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Financial Literacy

7 Reasons why you need to start getting thrifty

By growing your savings, you can have a comfortable life whilst working towards financial freedom and an early retirement.

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10 ways to save and make more investments

Do you earn a comfortable salary? If yes, then yay! Life’s good.

But even a Warren Buffet or a Jeff Bezos still knows the value of being thrifty. It is a sure way of staying worry and stress free, regardless of any financial crises that might take you unawares in the future.

READ: How to land an 8 figure job in 2021

Advantages of Thriftiness

You must understand that thrifty is not the same as stingy. Oh no. It’s something entirely different, and even more so, should be sought after.

On the one hand, stingy means being miserly, refusing to make your life easier and hoarding the resources you possess.

READ: 5 Things you must do to get a promotion in 2021

However, to be thrifty entails managing your money habits and learning to save. This could include:

  • Spending less on non-essentials.
  • Getting better value at a low cost
  • Avoiding borrowing to satisfy leisure purposes (such as buying a car, funding an extravagant wedding, going on pleasure trips, etc.)
  • Borrowing only when in dire need or for investment purposes, and so on.

READ: The best free budgeting tools to help you manage your finance

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Without much ado, let’s get right to the benefits:

1. You Become Resourceful

You develop a keen sense for accomplishing more with less – a useful trait, you might admit, in any individual, be it man or woman.  

In a world of hardship and increasing scarcity, we all must learn to value what we have and use them wisely.

As the saying goes, “He who spends his money carelessly tends not to have it for long.”

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READ: Investors’ demand for Nigerian stocks climb, as portfolio investment gains N223.4 billion in 4 months

2. You Understand What Matters and What Doesn’t

Often times, we might get carried away by what our peers are doing and try to mirror these trends.

But don’t forget to cut your coat to your size. Bother less about impressing your friends. Nor should you allow yourself to be swayed into purchasing things you don’t really need (which may even cost you more money in the long run).

READ: How to avoid debt despite economic challenges

Practicing thriftiness enables you live within your means. You analyse your lifestyle and measure your spending habits to suit your earnings.

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You give priority to more important things like taking care of your family, living a comfortable life, and investing for your future.

3. You are More Prepared in Times of Emergency

Spending wisely means you will have something to fall back on in case of an emergency. If you always empty your account and live from paycheck to paycheck due to bad money habits, you will find yourself in a prickly situation should you lose your job or face some other unforeseen event.

READ: Personal Finance Culture: The 4 Cs of Financial Success 

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4. You Have a Happier Relationship With Your Spouse

Money problems are some of the top causes of marital strains. Therefore, being financially responsible makes you better able to carter for your family and prevent getting into squabbles with your spouse.

5. You Worry Less About Incurring Debt

Spending wisely implies you won’t face the unpleasant situation of borrowing to carter for your basic needs. You sleep better at night knowing Mr. Ade won’t come banging on your door come morning, demanding you pay him back.

READ: To become a millionaire, set these benchmarks

6. You Invest More

Being thrifty helps you increase your savings, which you can then use to make profitable investments. You therefore get closer and closer towards achieving financial freedom and retiring early.

READ: Nigerians react as port haulage cost reportedly increases to N1.3 million

7. You Become More Disciplined

Managing money wisely makes you a better person all round. You may ask how. Here are a few ways:

  • You take better care of your health since you know falling sick will cost you.
  • You feed better by cooking your own meals rather than eating out.
  • You maintain your personal belongings, including cars, work tools, clothes, etc., and ensure they last longer.
  • You keep your living space tidy by not accumulating clutter – You purchase only the things you need, and sell or give away items you no longer use.
  • You are able to pay off your debts promptly and give yourself a good reputation.

READ: Christmas and budgeting: How to control your spending during this festive season

Conclusion

Being thrifty means you use your money and resources wisely. It ensures you don’t live from paycheck to paycheck and that you have something to fall back on during a rainy day.

By growing your savings, you can have a comfortable life whilst working towards financial freedom and an early retirement.

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Financial Literacy

How to invest for retirement

Planning for retirement means planning to reduce obligation in the future by investing today.

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How not to worry about money in retirement

“If you plan to retire in five years what should you be doing today?” That’s a question I got last week, and talking with the client, a lot came up which I have decided to share.

First off, What is retirement?

Nigeria’s public service has an official retirement age of 60 or thirty-five years of unbroken active working service, but in financial planning, retirement is a financial, not a chronological event. Retirement can occur when your passive income can meet your non-discretionary expenses.

You start to plan for retirement the day you start to earn an income. Your retirement plan will centre on how to generate passive income and reduce expenses. In Financial Planning, Four distinct stages are usually described in a so-called Lifecycle Chart. These are the Accumulation, Consolidation, Spending, and Gifting stages. Chart 1. Financial LifeCycle seeks to segment investing priorities, recommended asset allocation, and risk profile in a chronological timeline as the person gets older. I will take each of these stages and explain how they are linked to your retirement plan.

READ: How to choose the right Pension Fund Administrator (PFA)

Chart: Financial Life Cycle

Early years: Use Your Time and Make Money, (Accumulate)

The first stage is called the Accumulation stage. Imagine a 22-year-old who has just graduated and is a management trainee. He typically has a low credit score and assets and income are also substantially lower. What he has in abundance is time. So it’s important to deploy his time in the best way to make money. Hence in the accumulate stage, the goal is to generate cash flow either from a job, multiple jobs, working longer hours, saving, cutting unnecessary expenses, etc.

The key measure in the accumulation stage is the Savings Rate which is essentially how much of income earned or generated has not been spent. On average, the participants in the accumulation stage have fewer dependents and maintenance needs which should theoretically make it easier to save.

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READ: This thread exposed everything that’s wrong with Nigeria’s VAT

Mid Years Use Your Money To Buy Assets (Consolidation)

In the consolidation stage the focus shifts from saving to investing. At this stage, the income earned and credit scores have improved. This is when the talk of buying a home or starting a business takes concrete shape because, at this stage, those dreams can be funded. Hence capacity to take on debt is improved, and debt is used to invest in assets like a home. Remember debt is simply front-loaded consumption, which means we are taking our future income to invest today, intending to repay with future income generated from today investment.

The key measure in the consolidation stage is the Rate of Return which is essentially how much has been generated from the investments made.

READ: How to choose the right Pension Fund Administrator (PFA)

Spending & Gifting Phase; Use Your Assets To Generate Cash Flow and Time (Spending and Gifting)

Why is it called the spending phase? Because that’s what the individual is doing, spending down accumulated investments. The spending will include buying annuities or perhaps relocating to another city, your dependant’s college needs, etc. At this stage, typically very few are still earning “new” income but are rather spending from the return of prior investments.

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The key measure in the spending stage is the Withdrawal Rate which is essentially how much of investment can be withdrawn as cash annually to ensure we do not outlive our investments.

READ: How interest rates impact your wallet

Retirement is All About Passive Income

Passive income, which is the income we are making from investing from the accumulation and consolidation stage is now sufficient to generate income and reduce expenses to meet our expenses in the spending/gifting stage.

To give an example, assume we took a mortgage to buy a house in the Consolidation Stage, in the Spending stage, we pay no rent, thus we save cash, which reduces our Non-Discretionary Expenses. In essence, retirement is planning to eliminate your future expenses to the point where you need less income when you retire.

What Should You Invest In Before Retirement Or In Retirement?

Our objective is simple, Income. In retirement, we invest solely to make income to meet our spending needs, Risk profile is also very low because there are fewer recovery options if your investments sink.

The retirement portfolio is an income-generating portfolio that will be overweight in fixed income products. First, determine what the risk-free rate is. In Nigeria, we can take the yield on a ten-year FGN bond as a guide, this means we can have a target of 10% as our huddle rate for the long term. Thus I will recommend an 80/20 portfolio with 80% going to Fixed Income consisting of long term bonds, REITs, and other top-grade commercial paper.

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However what happens if we lock in our funds for 10 years at 10% and rates jump to 20%, meaning a loss to our portfolio.  To avoid this risk we can create a bond ladder, where we break down the bulk sum and duration of our total bond investment outlay. Let us assume we have N10m in cash to invest, instead of one single lot investment of N10m, we split into 5 equal investments of N2m and place for 6, 7, 8, 9, and ten-year maturities. This means by the 5th year the first N2m will mature, if rates are higher, reinvest, if rates have fallen then reevaluate.

READ: 10 Side gigs to venture into while working a full-time job

What about Equities

Yes, equities also pay a dividend. In buying equities, we must ensure we are only buying stocks that pay a dividend above our huddle rate of 10% which is the 10-year FGN bond rate. Which Nigerian stock meet that huddle rate?

  • Lasaco
  • Zenith
  • GT bank
  • United cap

In closing, let us summarize. Retirement is not chronological age. The event occurs when our passive income pays our bills. Planning for retirement means planning to reduce obligation in the future by investing today. Investing in retirement is income-based with a huddle.

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Financial Literacy

Steps to take to bag international scholarships

Here are the steps you should take if interested in pursuing international scholarships.

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United Kingdom opens window of job opportunities for international students

Studying abroad gives you exposure among many other things, and that is precisely why many Nigerians have been looking for ways to study abroad. However, not everybody is privileged with the resources to study overseas and this is where the international scholarship option comes in.

If you are interested in studying abroad and don’t have enough funds, you should consider applying for international scholarships. This article lists the steps you can take to bag international scholarships but before delving into that, here are some types of scholarships available to you as an international student:

  • Location-based scholarships
  • Course or program-based scholarships
  • Sports-related scholarships
  • Research-based scholarships
  • University-funded scholarships
  • Organization-funded scholarships
  • Government-funded scholarships

Having discovered the types of international scholarships available to you, here are the steps you should take to bag any of these international scholarships.

Research: Research is vital if you don’t want to miss out on good opportunities or make mistakes during your application. Research scholarship opportunities available in your prospective college or location and be on the lookout for hidden scholarships.

Check your eligibility: Having done thorough research and discovered the available scholarship opportunities, check to see if you are eligible for them. Many international scholarships have their criteria and requirement, so you should confirm that you are the right fit first.

Get the required documents: After confirming your eligibility, you should get the necessary documents. If the scholarship requires you to write an exam, prepare for the exam, write a good statement of purpose and prepare all other documents.

Start your admission process: Some international scholarships require that you start your admission process and probably get the admission before starting your scholarship application.

Contact past scholarship winners: You might want to contact the previous scholarship winners to know what they did right and how you can learn from them.

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Apply for the available scholarships: The last step is to apply to every available scholarship.

The best way to get funds for your undergraduate, postgraduate, or PhD pursuits abroad is by applying for international scholarships. If you do thorough research, you can find fully funded scholarships that won’t require you to pay any amount. One of the essential steps to getting an international scholarship as a Nigerian is staying abreast of current information and this will require you to network with others.

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