Personal Finance with Edirin - 5: 2021, where the money resides

Where the money resides

For the New Year, I am working towards a more automated approach to handling my money.

I am one of those people who ABSOLUTELY loves the smell of NEW things, and a new year is no exception.

I like how a new year offers a renewed sense of hope; a willingness to go after things we may not have attained, or, you know, just a new burst of energy to reach for things we previously believed to be out of reach. Either way, I LOVE new years.

Besides the new energy a new year brings with it, it allows me to look back on what I spent money on in the last year (QUACKTAILS); how much I spent on clothes in the whole year (N68,840, which I’m happy about because I had a 100k annual limit last year), how much I earned from my investments (redacted), and how much I re-invested from my passive earnings (80%). I’m not sure if you can tell but I am pretty pleased with my money performance. Last year saw me switch careers and I still somehow managed to keep both eyes on my personal financial journey.

For the New Year, I am working towards a more automated approach to handling my money. I am approaching a decade of work experience and almost 5 years straight of tracking my expenses, so I am making two major changes to in my personal finance journey for 2021:

1. Optimizing the process of tracking my expenses

2. Diversifying my investments at a more granular level

Previously I had a standing meeting with my trusty excel sheet and all my account statements weekly, but this year I am leveraging technology and making it a monthly appointment. I will be moving my expense account from GTbank to Kuda bank where their banking app allows you to categorize your spending and pre-groups it so when you download the bank statement, it is already pre categorized. Hence copy and paste into my excel sheet- I can’t wait to see how this is going to work out but I am confident that by the second month it will be smooth sailing.

The granular level focus for my investments will involve me looking into the US index funds, specifically the Vanguard VTI. For foreign investments, I had previously just used specific investment vehicles via trusted parties, but this year I want to get into the US stock market. Never Nigeria because inflation erodes all the possible gains. I am looking to leverage the magic of compound interest and constant dividends from the index funds that have historically returned an average of 13% per annum in the last ten years.  Nothing too crazy but since the rule of 72 shows that it will take approximately 6 years to double whatever I invest; I’m hoping for a nice dollar nest once I turn 40.

The one thing I love more than the energy of the new year is a year that you have created with good financial decisions in prior years. This article https://www.economist.com/finance-and-economics/2020/10/20/wall-street-will-soon-have-to-take-millennial-investors-seriously quotes BOA research that says that Millennials are about to enter the peak earning years of their careers, and their earning power will jump by almost 75% in this decade (AMEN?!). Millennials are born between 1981 and 1996, so if you are reading this, E FIT BE YOU. A new year allows you to plan a life and future that you want, and the best way to predict this future is to create it with a financial road map that you will follow, tweak and trust that it will get you there in one piece.

Look, if 2020 was bad for you money-wise, that’s fine- let it go because it’s gone. You are here at the precipice of a new year and endless possibilities lay before you to create your new future. If you think this is going to take time, I want to encourage you to do it anyway because the time will pass. The year will come to an end and 2022 will come. Let this year be the year that you sit with your money and figure it out, I am rooting for you to be victorious. Do not be afraid to have BOLD money plans but remember to break them down into bite-sized steps that will not overwhelm you. Remember, the confidence from small wins compounds and snowballs into concrete trust in ourselves, assuring us that we are making the right decisions for our money, for ourselves, and our future(s).

In the words of my favorite December 2020 meme,

In 2021, I’m going to be where the money resides!

Happy new year my darlings!

Ps: If you are overwhelmed with planning your financial 2021, send me an email at contact@peermentorcircles.com and I will send you a copy of a money workbook I think will be a decent guide to create an annual plan.

Personal Finance with Edirin - 4: Emergency Funds

Emergency Funds

An emergency fund is at its core, a stash of cash for the rainy day.

I feel like before I get into what an emergency fund is and what constitutes Financial emergencies, I need to applaud you guys for doing the thankless but oh so rewarding work of getting a grip on your personal finances.

So well done and congratulations on doing getting your house in order and getting really cozy with your numbers.

Initially, I was going to speak on Debt which is the final component of the expense portion on the wealth formula we discussed in week one. The one about increasing the gap between what you earn and spend, and investing that gap. And wash rinse repeat. I even had the perfect song layout and everything, BUT THEN, something fantastic happened and I was like okay, this topic is important and for some reason feels urgent.

An emergency fund is at its core, a stash of cash for the rainy day. Keeping in theme with the sailing examples, it’s basically a lifeboat that you have available in the middle of a really bad storm when your ship hits the rocks, that takes you safely to shore. Where hopefully you find another ship that gets you back in the water.

When building emergency funds, everyone has their preferences surrounding certain aspects, such as how long it should take you to build it, in what currency you should store it, where you should store it etc, but today I’m going to suggest very adamantly the preferences that you should use when you get around to building your emergency fund ( hopefully ASAP).

Building an emergency fund is parallel to the already perfect budgetary system you have running, meaning it’s separate from it. It not going into your monthly expenses, It’s a target outside of the realistic money goals you have been setting and refining. And it certainly isn’t a loan pot for things that come up surprisingly.

In Personal Finance, emergency funds are for ONLY, ONLY, as in ONLY emergencies. And in this case, your ONLY emergency is the loss of your income source. i.e. loss of Job, shutting down a business, death of sugar daddy. You get the drift. The really really serious stuff. Your co-workers asoebi is not an emergency. Look corona is outside and who knows when the wedding will be?

Now, if you are wondering how to ascertain how much should be in your emergency fund, a good rule of thumb is three to six months of your monthly expenses stashed away in a very easy access account (by access I don’t mean ATM, I mean that it’s being kept in an account where withdrawing the funds in case of an emergency, doesn’t become a long thing) in the currency with which you settle your daily obligations.

I strongly suggest that you have a minimum of 6 months. Only you know what the amount is for you because (hopefully) you have been tracking and fine-tuning your monthly expenses, so you can comfortably multiple that number by 6. Whatever answer you get is how much you should be targeting to have in the Emergency Fund. So, for example, if all your actual monthly expenses and provisions come to N350,000, then your emergency fund should be N2,100,000. That’s it. (350,000 multiplied by 6).

I also very adamantly suggest, that you keep this money in a money market fund account, it is easily accessible, re the criteria two paragraphs above, and not in a savings account. For a myriad of reasons, but the most important is that the interest rates in Nigerian Savings accounts are abysmal. The likelihood that the cost of the text message the bank uses to notify you of the interest is greater than the value of the interest you’d have earned, tells you all you need to know about how I feel about putting your emergency fund in a local savings account.

If you do not want to use Mutual funds, please look intoPiggyVest or CowryWise - they seem to have various saving plans that have easy withdrawals.

Whatever you do, please do not put it in the bank.

Do not put it in an account that can go down in value, because you want the principal as secure as possible.

Do not put it in somewhere that you’ll be charged for taking it out.

Additionally, I know we are trying to buy and hold United States Dollars right now ( which is a great idea by the way with the wildly upwardly fluctuating exchange rate); however for your emergency fund, you need to consider how easily you’d be able to convert your dollars to Naira to access it when the need arises.

As much as we want to grow this money and be tempted to invest it, please don’t. This money is basically insurance to ensure your life can run as smoothly as possible for the next six months in the event that your major income source goes bust. This Emergency fund provides you with a breather so you can plan your next steps in getting back on track to earning income. This buffer will make the recalibration process soooo much easier knowing that you have a cushion and that you can afford to actually take your time in making the right next step.

Until next week, I leave you with the immortal words of P-Square

If I no get money, I get place to borrow.

*If you want a copy of my customised excel expense tracker please send an email to peers@peermentorcircles.comand you’ll be sent a copy along with instructions on how to use it.

Personal Finance with Edirin - 2: Tracking Your Expenses

Hello!

So, if you followed the steps, I outlined last week, you have:

• Set the time aside for your money confidential meeting

• Spent all your money from one account

• A general idea of why you want to get a hang of your personal finances

Track your expenses

The next step is to track your expenses. If this sounds daunting, please don’t be alarmed. It’s probably one of the easiest bits of personal finance, and it creates the largest framework for you to build on.

Let me tell you why…

Well for one, what you do not measure you cannot grow. When you do not track your expenses, you give assumptions liberty to enter the group chat and if there is anyone you do not want in the group chat when dealing with your money, it’s assumptions.

When you track your money, you can see CLEARLY what you use your money to do. It’s fascinating because you might be thinking, “I do not eat out that much'“, but when you track your expenses, you can put a number to “that much” and usually that number is outside of the ballpark of whatever number you had previously assumed to be “that much”. See why we have to remove assumptions from the money confidential group chat?

What does tracking do for you?

Tracking your money provides also clarity on your likes and dislikes. It lets you know what you like, love, hate and couldn’t care less for. Honestly, you track your expenses and realise that as much as you enjoy getting your nails done, you aren’t doing it that often, meaning you may not like it as much as you tell yourself. Or, on the other hand, you may be telling yourself how much you absolutely hate movies and you never watch TV, but your expenses show you paying for monthly DSTV, Netflix and weekly visits to the cinema.

Beloved, the numbers do not ever lie.

In addition to the above, tracking your expenses gives you the ability to have a bird’s eye view of your lifestyle and allows you to build a personal budget that you’ll be more likely to follow since all the data you will be using comes from your actual real-life current expenses. Instead of a budget based on some arbitrary ratio that doesn’t take into account the realities of your actual lifestyle.

An added advantage of tracking expenditure is that it cures the delusions surrounding the idea of how much we can cut out of our expenses when we start getting serious with our savings. It gives the most realistic snapshot of what your spending is like, and then you can personally identify what you can do without because you know what you are spending your money on and the why behind that certain expenditure. Think of it like this: what is the point of saying you are going to put aside X amount into a savings pot, and by the 10th of the month you dip into your X pot because Y came up reducing it to Z? Now you are upset with yourself because you did not stick to your plans.

Tracking your expenses saves you from making unrealistic money plans and helps you follow through with the real ones.

How do you track your expenses?

So, how do we track our expenses? By simply writing out all the money we have spent and what we spent it on. Some people use good ol’ paper and biro in a little notepad they carry everywhere with them, so they don’t miss any bit. Some use digital banks and personal finance apps such as “Monzo” (in the UK), and “Mint” (if you’re US-based). The Kuda bank app (for those of us in Nigeria) apparently helps you group and by default track your expenses too.

Since all your spending has come from one account in the last week, the probability of missing out on any expenses has been reduced to ZERO. This means you have the most complete picture of all the money you have spent since July 1. This means that you have removed an extra barrier to tracking your expenses. At your money confidential meeting this week, I implore you to open that banking app, download your bank statement for the last two weeks. Then launch preferred means of tracking your expenses and begin to transfer and populate.

Where can you find expense-tracking tools? 

Personally, I use spreadsheets (Microsoft Excel/Google Sheets are both fine), for a number of reasons, top of which is, it requires little to no effort to utilise on my part, it’s very easy to manipulate and I can customise my tracked data. I mean, I can literally tell you how much I spent on Tollgate fees for the whole of 2018**. It is also super easy to replicate for other people. If you want a copy of my customised excel expense tracker please send an email to peers@peermentorcircles.comand you’ll be sent a copy along with instructions on how to use it. If you’d rather not, a cursory google search should present tons of excel expense tracking templates.

How do you get past your spending tracking hang-ups?

While the concept of tracking expenses may excite some people, others might be apprehensive when they have to look at the numbers or view the results. All I’ll say is while money innately has value, it is by nature, amoral, i.e. it’s neither good nor bad - it’s simply money. All it does is serve the purpose you have given to it. Tracking your expenses lets you see what purpose your money is serving; it lets you course correct as realistically as possible while giving you an aerial view of the journey your money is on. So, think of tracking your expenses as using a compass on your journey to financial freedom.

Till next time, I leave you with the immortal words of Jermaine Dupri

“Money ain’t a thang”

Jermaine Dupri

Edirin

** NGN 60,800- if anyone is interested.  Also good ol' days of N120 toll gate or what? The 2019 number is making dizzy.