Mar 22, 2007

Your salary. Is it really yours?

Before you read this post, please take a minute to read my previous post "Life Cycle of a Lagosian" available here. I'd like to say thank you to everyone who read that article and asked for a continuation through comments, mails and calls. It took me some time to get this together (especially the investment calculator). Enjoy!

If you are a employee like I am, then you probably look forward to the end of the month when you'll get paid your salary. Depending on where you work, what you do and what post you occupy, your salary will vary from several thousands to several hundreds of thousands and possibly several millions (I wish that was me!). Yeah, some are that lucky, but everyone still falls into the same category. If month end does not come, you don't get your money. But hold on, did I say "Your Money"? I think not!

The truth is that for many people, their salaries don't really belong to them. It belongs to other people. A typical employee's salary would end up belonging to several people which might include a Landlord, Car Dealer, Washman, Shopping Mall (e.g. The Palms), Market (e.g. Tejuosho), Fuel filling stations, Auto Mechanic, Nepa, and just about anybody who provides goods or services in exchange for money. Unfortunately, for many people especially Nigerians in Lagos, they think the money is theirs. Without meaning to, they unconsciously spend part of that money everyday on one expense or the other. Day in, day out, someone collects his own share of that money. Suddenly, 2 weeks after payday, they check their bank account and discover their salary is almost gone and they begin to wonder how, when, where, why ... the simple truth is this - it's not their money.

Some people do better. They put aside a certain amount every month and save. If you fall into this category, I'll congratulate you on a good initiative. However, I'll still tell you that the money does not belong to you. Saving is good, don't get me wrong, but it's not good enough. Let's take the case of a typical worker who is disciplined enough not to delve into his savings at the slightest sign of rain and he has managed to save N100000 over a year. If he saved this money in 2006 at a rate of 3% per annum (which is the best he can get from most banks), he'll have a total of N103000 at the end of the year, with a "gain" of 3000. Now, a recent analysis showed that in 2006, the inflation rate of the Naira was 13.5%. Translation: Your money has increased by 3% but it's value has decreased by 13.5%. In other words, what you used to buy for N100 now costs N113.5. Technically, he has gained N3000 through saving, but in the real world, he has lost (N13500-N3000) = N10500. Who now owns the money? The economy! - another money collector which collects it's share of our money.

What then exactly is my money? My simple definition is this "Money that belongs to you means money that's working for you". Defining "Money working for you" brings me to the subject of Investment. Many people think investment is for the stockbrokers, business owners or people with large amounts of money, they're wrong because everyone ought to be an investor. Before your money can start working for you, you have to be an investor. Now stop reading and think for a few minutes, because your next decisions might change some things in your life.

I assume you've decided to become an investor so you can have money working for you. Congratulations because that's one of the best decisions you'll make on your path to financial freedom. Like in the previous article, I'll give you some tips.

1. Start with a plan. Good investors always have a plan. Make it detailed but not too rigid. Ask yourself this question. How much will I need to survive each month if I want to live comfortably? This is the amount you'll need per month in order to be financially free. Write down your answer. I'll call this value the "break-out value".

2. How much you can invest per month?: Decide on an amount of money you can set aside from your salary every month for the purpose of investment. You are not allowed to go below this amount, however, you can exceed it. Write down your answer. I'll call this the "Monthly Contribution".

For the purposes of this article, I've created an investment calculator that can help you see the advantages of investing. Click on the button below to open the calculator in a new window. Enter your "Monthly Contribution", "Interest rate", and "duration". Finally, click calculate to get the final value and the breakout value.
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Let me illustrate with an example. If I contribute N10000 monthly to an investment that yields 20% per annum and I decide to continue contributing for 5 years, then at the end of 5 years, I'll have a total of N1071590 (roughly N1M) and I'll be making N17859 monthly for the rest of my life without have to make any more monthly contributions. (Note that this amount exceeds my initial monthly contribution). Yes ... I know you're going back to try the calculator again ... and you're probably wondering how come you didn't know this all along. Feel free to try with different values for duration and monthly contribution. The final value of N1071590 is what I call "Money working for you" to produce N17859 monthly. Simply put, you can pay yourself a salary of N17859 every month without having to work for it.

I've probably got your brain working overtime now ... just go ahead and transfer your thoughts to paper and actions. Get your plan straightened out and make sure you write them down. There's no specific format for the plan but try and make it something you'll understand easily. Note down the "monthly contribution", and when you want to break out. Include any other thing that might help you to keep to your plan. Remember the previous tips "Have a good reason" and "Have lots of determination"

Now here comes the tricky part (and the practical part). How can you find an investment that will gurantee you at least 20% per annum? Good news! There are many, each with a different level of risk and credibility. But be rest assured that it's possible to find such an investment with minimal risk. I'll talk more on that in my next article in this series. Watch out.

Yours in the race,
Tayo

22 comments:

aloted said...

Ok, am really beginning to enjoy your articles on financial breakthrough.
There's so much to digest in this piece so I'll have to come back when I take a break from this draggy "rat race" to ponder on this powerful article.
THANK YOU.
You are blessed!!! :)

truth said...

Totally great post.I especially like how you used the "my money, your money" factoid to engineer the body of the discussion.I hope many people get glued to this topic. I am.

Calabar Gal said...

That investment calculator really has my brain working overtime. LOL!!

I'll be watching out for ur next post.

Tayo said...

Hey guys, thanks for the comments.
@Aloted, make sure you come back sharp sharp!
@Truth, I hope so too... thanks
@Calabar Gal, thanks for dropping by. I hope the next post won't take as long as this did... I'm looking for inspiration...

The Life of a Stranger called me said...

gosh I do feel that 'your money' thing and is true what you say concerning investments, its pointless now waiting for end month salary that ultimately doesnt belong to you and find avenues where the more does belong to you.

Believer said...

Thank God for people like you who are are being used to inspire and challenge we young people to think about our financial status. Please keep the posts coming. I am escpecially interested in what investment opportunities there are because saving simply aint enough! Have a blessed weekend.

Tayo said...

Thanks for reading, and thanks for your comments. I really wish more and more people will realise that it doesn't make sense to have just one source of income. I'm starting work on the next article. May God give me inspiration.

DiAmOnD hawk said...

nice nice nice....
definitely in season...
keep it coming!

BabsBETA said...

Oga money lecturer, your own salary belongs to me so, you berra send it down naw! naw!

Niyi said...

Tayo,
Absolutely brilliant! I like how your constructed this 'thought-provoking' article.

Hmmm "Money working for you"- I like that. Bishop Jakes mentioned this a couple of weeks ago: You want streams of income(investments) that are making money for you while you are sleeping'- assets that appreciate.

Great job, captain, financial guru-otherwise known as Tayo..

Tayo said...

@Diamond hawk, thanks a lot. I'll keep trying
@Babsbeta, Ole!!!
@Niyi, thanks ... We'll all get there some day. I hope very soon.

Vera Ezimora said...

Tayo, I personally do not see why u even need this money. If I were you, I would send it to me. Wetin u need money 4 sef?? You strike me as one who does not know how 2 utilize his benefits; I mean u are next to gala and u don't even take advantage of them!

Hmmph!!

Tayo said...

Vera, you no serious! Don't worry, I've already made an order for 10 Cartons of Gala ... to be delivered to you before Easter.

Mr.Fineboy said...

Great post! Your blog is NECESSARY! Well done bro...

Philomena Ojikutu said...

Tayo,

This is refreshingly different. I am thrilled to see a true disciple of the 'Richest man in Babylon', in your financial and investment theory.

My advice 4 u is to remain consistent with original content and your blog would go places you have never dreamt of.

My brother, the Lord would propel you to fuilfillment of your dreams including that of your blogging goals.

keep up the spirit.

Tayo said...

@Mr fine boy, thanks a lot.
@Philomena, thanks a lot for your prayers and advice. I say a big AMEN.

jen said...

first time visitin ur blog. i think its cool!

Segedoo said...

hi tayo,
great blog.

check me out on www.thinkandimagine.blogspot.com

DEBOLA said...

This is a good read. It makes u think of all the money spent on call cards and the palms and u wonder how much u would have made.
This is the first of the articles i am reading and i sure am going to read all the others. Just make sure u are not "unavailable" at any point in time.

Toni Payne said...

interesting read, u just made me realize something.. we always complain about bills but when u think about it, its not that much different in naija..

Anonymous said...

This is the first time am at your blogg but am very impresed at the issues I saw.

It shows what you are made of and please try and mentain the tempo please.

Its nice to know someone who is realy thinking abouth makeing our tomorrow well. This is what most of my generations don't know. I strongly believe that we will get there soon.

This is Nice.

Anonymous said...

This is a very inspiring article. one worth following religiously. And so are your other numerous posts.I wish i had earlier access to your posts but i have been in china for close to two years now and believe it or not, practically every web address with the term "blog" in it is blocked(Welcome to china). Web sites like wikipedia.org,blogspot and a host of other information sites are not allowed usually for fear of political content that may polarize the views of the chinese netizens (my opinion). Even youtube was blocked for at least a week recently due to the tibet crisis. Anyway, how i got to finally (and creatively if not craftily) access blogspot is a different matter and it doesnt involve a browser. I will try to stay intouch with your articles.