Retirement – Financial planning (V)

Last week we discussed the need for persons in the first phase of their working or business career, that is from years ‘0’ to ‘10’, to always have it positively at the back of their minds that they will retire; to continuously improve on their financial literacy and finally, to have a financial plan.

The financial plan at this phase should aspire to achieve the dual purpose of meeting the peculiar challenges at that stage, discussed earlier, and to also begin taking actions towards financially securing the future. Specifically, the following should be noted:

Cut out the wastes that you think are ‘investments’! Yes, we should strive to live good and decent lives, but we must do that without jeopardising our future. At this phase in a working career, individuals should know how much they are making every month and what their living costs are. Even those running their businesses should be on defined salary/allowance that their business can afford and must not succumb to the tendency to simply take out of the business. Businesses, especially those at early developmental stages, need all the cash they may have and/or generate internally. Taking cash out of a business at these stages is a sure way of stunting its growth or killing it entirely.

Cutting out avoidable expenses and living below your means is the first practical step towards paving the way for building a secure financial future. Quite honestly one of the problems we have as a people and for many individuals at this phase is the penchant to ‘compete’ with others, who by the way, may have different income profiles and in different circumstances, or just doing stupid things. Yes, it is good to aspire and even benchmark with others, but we need to be wise and realistic about it. Spending on more cars than we need and replacing our television sets because of what others are doing, even when we may not be ready, is not the way to building a great future. Do not waste your current resources on frivolities and matters-of-moment which do not help your future. Learn to delay your gratifications.

The other side of ‘cutting waste’ is getting full value for all our spendings. Negotiate and get value for everything you buy. In our environment sadly, individuals and organisations do try to take advantage of us. We have to be alert and do what is legitimate in protecting our interests.

Just recently, I was in a city that I frequently visit. I called the manager of an otherwise good car hire company to send me a driver and a vehicle for my work. We set out on arrival of the driver and the vehicle, only for me to realise that the air-conditioning was not working. I called the manager and reported. He promised to send a replacement vehicle which they did after an hour. In the course of our work, the replacement vehicle developed a problem, and a replacement was sent after some thirty minutes. I insisted and paid a lower rate for the period we worked without the air-conditioning and absolutely nothing for the thirty minutes I waited to a second replacement. The point is that we shouldn’t pay for value that we didn’t get! If we do, the losses add up over time regardless of their quantum; We lose a sense of appreciating value even on big ticket issues; And we end up enabling businesses that fail or refuse to do the minimums they should be doing. 

Start making ‘small’ investments: Beyond helping to address current financial situations, a major component of the financial plan should be to anticipate the future and work towards it deliberately. One common error that many people in this stage make is to assume that they can only make investments in large sums which they may not necessarily have. (By investment here, we will mean buying into ‘passive’ assets such as shares as well businesses in which we may play active, part-time or inactive roles, such as setting up a travel agency).  But the truth is that people do get opportunities to begin to make investments in assets that can earn additional income and/or grow substantially over time. The opportunities might be in investing some monthly savings we have been making or applying some additional revenues from legitimate engagements.

Decades back I was a young banker earning a good salary that gave me a decent life. I got an opportunity to mediate and facilitate a transaction that was successfully concluded within two weeks. I earned as my intermediation commission a sum that was about two years’ of my annual salary! I invested some of the amount in a blue-chip stock which I later sold at a very good profit in addition to the dividend that I earned over the years that I held the stock.

Persons at this phase should not miss the opportunities to begin to make investments in ‘small’ amounts. These investments not only open our eyes to the world and processes of investing, but we will likely make mistakes and learn lessons that can be more valuable than the financial cost of losses we suffered! They will make us come across people that we otherwise may not meet. Truly, there are vast investment opportunities in our country that we should open our eyes and minds to as well as work our ways through them.

Next week, we will take up some of investment options that persons in phase one can seize.