In this blog post, I will be sharing with you some of the financial advice I learnt in 2023 from reading good books, watching finance podcast and becoming more financial aware than before which made me see some loopholes in my finance in the previous year.
All these together have influenced my quest in making more right financial decisions in 2024.
So, I will be sharing with you these tips and advice for you to be on the right course concerning your personal finance this year too.
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Your savings should be “YOUR PERCENT”
One of the most searched questions on personal finance on Google is “how many percent of my savings should I save?
I am sure you must have come across different advice like save 10%, or 20%, but I will gladly tell you that it is unrealistic because of two reasons.
First, they assume that income is relatively stable over time and that people of all income levels have the ability to save at the same rate.
An average person person income in a month is not always stable and a research made by Nick Magguili ( a finance expert) in his excerpt posit that people of high class tend to save more than people of the lower class.
Considering these factors, it will be therefore wrong to put out a defined saving quota for everyone.
The best answer to this question is to “save what you can”, that is, your saving quota should be decided while considering your income and expenditure to experience less stress and happiness.
Savings= Income- Expenditure
(You decide your savings only when you have subtracted your expenses from your income)
This formula do not give room for complacency with your personal finance, but it is a realistic guideline that can be adopted by a wide range of people.
So, when you have the ability to save more you should do that and when you can’t, you save less.
Never Put Your Lifestyle Above Your Savings
It is so easy to forget the importance of saving or investing when one make a major breakthrough in our business or work (promotion which come with increase with salary, increase in sales etc).
Most people after witnessing a growth in their finance , they are focused on “upgrading” their lifestyle.
They feel they are on a new level, therefore their lifestyle should be revamped also. This revamping is mostly associated with frivolous spending instead of saving for the rainy days.
When things are good, we seem to forget that they can also get bad.
It is therefore important to put the task of upgrading our lifestyle below our decision to save.
Risk and Luck:
I know most people wont tell you that every financial decision is affected these two factors- Risk and Luck
Due to the difficulty in measuring it, it tends to be ignored and it wont even sound rude to attribute someone else success to it. In fact , after the Enligthment period, virtually everything that is not receptive to our senses or can’t be measured is not considered as knowledge.
A person who bought a stock which later rise and the person who bought a stock who diminished both make a financial decision ( in fact, a good in this sense because instead of unnecessary spending they both decided to invest)
The latter might have a made a decision that had a 80% chance of making money and just happened to end up at the unfortunate 20%. It could also be that he made a bad decision in the first place. But the question is “which is which”
I know you might be wondering what I am driving at or thinking I am trying to justify bad financial decision.
Well this is it. While recognising the role of luck in financial success ( be careful who you look up to or look down on rather focus on broad case studies) , we should also recognise the role of risk (we should forgive ourselves when we find ourself on the 20% side).
This will enable us to get back on track when things don’t go the way it should be and keep playing ( making right financial decision) until the odds falls in your favour.
Time factor in investing:
There might be several financial books, blogs telling you the best income producing asset to buy, the right stock to purchase or when to purchase it, or how different billionaires made their wealth.
But what is common to all of this is the ‘TIME FACTOR”. It takes consistent right financial decision in investing for a considerable period before you could start reaping the outcome
I know you might say that saving 10,000 naira monthly or “Your Percent” after receiving your income will not make you a millionaire. But do you know that constant bad financial decision will ruin your finance no matter how much income you make.
It will also interest you that blogs, magazines, podcast etc will always plaster your phone screen on the net worth of billionaires like Warren Buffet.
One thing that most of them wont tell you is that he started investing as early as 10 years old. His skill might be investing, but his secret is time.
So if you get 1 percent better everyday by getting right financial information and practicing it ( living below your income, saving consistently, reducing impulsive buying etc) you will get end up 37 times better by the end of the year with making good financial decision. ( 1.01356 = 37.78)
On the other hand, if you get 1 percent worse in your financial decision (impulsive buying, Diderot effect, living above your income etc), your financial state will decline nearly down to zero. (0.99365 = 00.03)
Give rooms for errors.
It is important to recognise that things might not go the way it was planned while making your investment plan.
Over the course of years, there have been financial booms and decline in every investment sectors ( the bitcoin reached an all time high in 2021- over 68000 usd according to Investopedia and it dip again to 18,0000 usd by Dec 18,2022).
For instance, I might predict that if I invest a certain amount, it might increase by 7% over the course of some of month, but I will also recognise the fact that things might not go that way and I could see up to only a 3% percent increase but I am still okay with that.
For an individual to stay afloat, one has to combine both optimism and pessimism when making a financial plan.
Watch out for Diderot effect:
Have you ever felt the need to get a new possession after you just get a new item. Well it is called the Diderot Effect.
For instance, you might get a new dress, then you might think of getting a new shoe. Suddenly you remember you need a watch to match an outfit, and so on like that. Sounds familiar?
When I started taking proactive action concerning my personal finance, I noticed my Diderot effect usually kick in when I read reviews of product and when I move out with some set of my friends.
Sometimes we make all these bad decisions without even knowing it because we lack self-awareness.
Believe it or not, I am frugal by nature, but I noticed that when I move out with some set of my friends , I tend to spend more than I planned to.
They have a way of convincing me to get a new item when we go out. Before I know it, my debit card is out and I am buying one item after another one.
Also, I noticed that when I go through gadget reviews on blogs, podcast, vlogs, etc I feel a need to get a better gadget even though I have on that is working perfectly.
If I see a little improvement in that gadget compared to my own, I will start planning subconsciously on how to buy one.
Your Diderot effect might be triggered by other factors so, you have to sit down to depict what triggers your Diderot effect in order for you to curb it.
This is what I did to curb my own Diderot effect; any time I go out with those friends, I make sure I change my payment authentication from pin to a token and leave my token and card at home.
I would only take with me the amount in cash I planned on spending at that place we planned on going to.
Also, I reduce watching or reading gadget reviews, in fact anytime I get a new gadget I will make sure I don’t watch reviews for a month.
Find what triggers your Diderot effect so that you could find a suitable solution to curb it.