“ Trying to go without one (a budget) is like
trying to find your way out of a wilderness area without a map-
you don’t know where you are ,
where you’re going, or what lies ahead “
-Rich Brott
Tope and Nonso are interns at Diamond bank. Both earn N100,000 each at the end of every month. Tope doesn’t spend a lot of time thinking about managing his money because he enjoys having freedom. He is also content having enough money to spend on thrills he enjoys. On the other hand, Nonso allocates 20% of his income to his savings, 20% to his education account , 10% into his investment account, and pays 10% as his tithe. He then creates a budget for the remainder of his income . If you were to choose, who would you say is a better manager of money? It is clear that Nonso is a better manager of money, as he allocates his finances intentionally..
…And this brings us to the point of this post. The money management habit you must adopt in 2019 is to allocate your income to various accounts every month.
In T. Harv Eker’s entertaining book, Secrets of the Millionaire mind, he explains the 6 accounts one should have to achieve financial freedom. According to Harv, one should allocate:
- 10% to an education account
- 50% to a necessities (food, shelter etc) account
- 10% for the giving account
- 10% for the long-term savings for spending account
- 10% to the financial freedom account (for investing purposes)
- 10% for playing (this should spent be extravagantly every month no matter what)
Why does it work?
A monthly allocation of your income ensures you don’t get sidetracked from achieving your goal of financial independence. This method of money management works because it creates balance. For instance, If you were spend all your income you will eventually be in a situation where you don’t necessarily enjoy what you’ve spent your money on. On the other hand, focusing all your efforts on saving and investing without spending could create a situation where your fun- seeking side rebels and sabotages your results.
Need to Know
| Money management | Money management refers to how you handle all aspects of your finances, from making a budget for where each pay-check goes to setting long-term goals to picking investments that will help you to reach those goals |
| Financial independence | The state of having sufficient personal wealth to live, without having to work actively for basic necessities. Financially independent people have assets that generate income that is greater than their expenses |
| Budget | A budget is a financial plan that compiles and compares a person’s income against all of his/her expenses in order to analyse spending and meet personal goals |
source: Google
Consciously adopting the habit of managing your money means sticking to a plan. And if there’s anything you’ve learnt by now, it’s that not having a plan for your money is saying your money is free to go anywhere it likes. No one has ever achieved financial freedom in this manner. Money management is not just about saying “no” to any purchase, but developing a plan that allows you to say “yes” to the things that are most important to you.
It is worth remembering that no one is born knowing how to manage money. However, the key is to adopt the habit of managing your money immediately you recognise it was something you lacked.
Start allocating your income monthly in an organised manner (if you haven’t already). It will help you move to a new level in your quest for financial independence. Last but not least, Happy new year 2019! I wish you all the financial success you deserve and even better than that: fulfillment.
Key takeaways:
- To succeed at managing your money requires a balance between investing in your future and spending now
- Plan your money: Create 6 accounts to allocate your monthly income (see above for allocation)
- Review your allocation twice a year to see if your habit is still on track
If you have started allocating your monthly income already, don’t stop there;
- Think to yourself, “ how can i improve money management this year?”
- Review your account balances at the end of 2018. Ask yourself, what money mistakes did I make in 2018, that I must not repeat this year?
- Make a game of it: Commit to making sure that the balances of each account closes higher this year than they did in 2018
- Review your big picture vision for your finances to make sure you’re still on track. After all, that beach-house you’re dream of owning isn’t going to buy itself. i.e. connect the life you dream about with the way you are actively managing your finances
Dig deeper:
For some more ideas on money management, Watch the video “ How to Properly Manage Your Money Like the Rich” by Tom Ferry. Click here
Read: “ The secrets of the millionaire mind “ by T. Harv Eker. Harv is really funny, so expect to laugh a lot when reading this. There are a lot of gems in this book about getting your mind right in order to attract wealth. Also listen to him here.
Read “ Rich dad poor dad” by Robert Kiyosaki. I read this for the first time many years back based on the recommendation of a friend who knew I was spending way too much money. This book is a classic that opened the eyes of many to what it takes achieve financial freedom. You can listen to Robert here.