Before you consider making more money, you have to first of all be a good steward of your current income. Apart from having an efficient system of personal financial management that leaves you richer each month rather than poorer, you also need to become your banker of first resort. By maintaining a healthy cash reserve through prudent saving, you can fund your dreams rather than go from bank to bank, telling the story of your life and getting turned down in the process.
Before you start to invest, invest in your personal financial education. Invest in knowing what you are doing before you do it. If you know what you are doing, you become empowered to take the right decisions. If you do not know what you are doing, you may think that what you need is more money. If you cannot control your current expenses, you will remain perpetually in trouble no matter how much your income increases. Your expenditure will increase to catch up and overtake your income. It is like trying to fill up a bucket with gaping holes. If the rate of water outflow is greater than inflow, the level of water in the bucket will keep going down despite the inflow.
The same principle plays out in your personal finance. If your cash outflow exceeds your cash inflow, your savings (if you have any), keeps going down until you run on empty. Basic common sense dictates that you spend less than you earn. The only acceptable reason to break this law is when you are investing in assets; assets that will increase your cash inflow, and eventually pay for itself.
The best source of capital for your business start up is your savings. This is within your control. Approaching friends and family for a loan is not tidy, and in some cases jeopardises relationships. Friendship and borrowing don’t mix. It is a recipe for heartbreak and recriminations. Most people nowadays do not borrow amounts higher than what they can give away or afford to lose. You gather enough courage to go tell an acquaintance the story of your dreams, and ask for a N200K loan for example. After you are done, he offers to chip in N10K as a gift. He is saying that he does not want the hassle of being owed, with the likelihood of not seeing his money again. He has had his fingers burnt so many times, he has become credit shy. To show his support by the way, here is N10K. Besides, he has his own business plan too. He did not come to Lagos to admire the flyovers.
The best place to borrow from is your savings, followed by the banks. We are all familiar with the story of borrowing from banks, even before the global credit squeeze. They withhold credit when you need it most, and beg you to have some, when you don’t need it anymore. They are just being cautious. Bad loans is a nightmare to banks, so when your track record is not known, yes comes very slowly.
To be able to save, you have to control your expenses. You have to stay on top of your personal finances. You need to have a plan for your personal finance, and work towards it. You have to cut your coat according to your cloth, not according to your size. You can downsize to fit your cloth. You have to learn how to do long term planning, rather spend on impulse fuelled by peer pressure. You can also time your purchases to coincide with when the item goes on sale or are cheaper. For example, air fares are much cheaper when you purchase online months ahead, rather than some days before. You have to spend on good books that will put you through the paces. There are excellent resources on the internet too.
If you cannot control thousands and decide to shoot for millions, in the unlikely event that you make it, without the capacity to manage it, you will soon be back to square one. Get the foundation right before you start building. Invest in your personal financial education.
– Usiere Uko is editor of www.financialfreedominspiration.com and author of Practical Steps to Financial Freedom and Independence – www.amazon.com/Practical-Steps-Financial-Freedom-Independence/dp/147006832X .