Humans at every point in time aspire to have pockets deep enough to foot bills and enjoy a little bit more luxury. Even though this aspiration depends on a number of factors to come to fruition, personal finance still trumps them all as a foundation for financial freedom.
We invited a Personal Finance Advocate and Financial Analyst, UgoDre – Obi Chukwu, to share his thoughts on personal finance in our last Twitter Tuesday Session.
If you are new to this, Twitter Tuesday is a 2-hour session where jobseekers, employers and career professionals alike all convene to share ideas, ask questions, build professional networks and open up their world to new insights and opportunities. Twitter Tuesday has hosted big-wigs like Tosyn Bucknor, Tolu Ogunlesi and Oluyemi Oloyede; going by the name, it happens on Twitter every Tuesday between 2pm and 4pm.
See excerpts below:
Q: How would you define personal finance?
A: Personal Finance is basically the management of an individual’s finances – in other words; your taxes, budgeting, saving, investments, pensions, house ownership etc. By managing your personal finances effectively, you face lesser financial stress no matter your income. Financial Freedom to me is next to Godliness. And you can attain that by owing less and owning more.
Q: How do you think people should approach investment?
A: People should approach investments in a diversified form. Do not put all your eggs in a basket – chanelling all your finances into the stock market is plain silly; invest in Real Estate, Treasury Bills and also (most importantly) in yourself.
Q: If you have a business idea, how can you guarantee your potential market will love your product?
A: The only way you can find out is to actually sell that product. However, your initial sale should be a test sale after which you make better decisions with whatever reasonable and measurable feedback you get.
Q: Is it advisable to start a business with your personal finance and what are the possible ways of financing a start-up?
A: Most startups are actually financed through personal finance. At some point, you just have to open your wallet to your business.
A brief guide though:
1. Prepare a budget for your startup
2. Identify your periodic cash outflows
3. Align it with your disposable income (DI). Remember your disposable income is that part of your income you can spend on non-essentials and as an addition to your essentials like food, rent, clothing, bills etc.
Typically, your DI is your take-home pay minus your essentials. As an individual, you get taxed in mainly two ways – Personal Income Tax and Value Added Tax (VAT). Employees are taxed under the Pay-as-you-earn scheme – PAYE. So if you earn N100k as salary for example, it is assumed your annual salary is N1.2m. The tax authority grants you a relief equal to 20% of your salary plus N200k, deduct that relief from your salary to arrive at your Gross taxable income; then deduct your monthly pension and NHF contribution from your Gross taxable income to arrive at your taxable income.
Q: Is there any idea ratio for the investments in a good portfolio?
A: There really isn’t one straight jacket idea. Depending on your risk appetite, how you allocate investments in your portfolio might vary slightly or largely from your spouse’s preferences.
Q: Kindly advise job seekers on how to manage their finance and the best way to save.
A: Here are a few simple steps I learned how to manage my personal finance. I believe everyone should spend wisely, save diligently and invest wisely.
1. Make sure your rent is no more than 30% of your take home.
2. Invest monthly no matter how little.
3. Rich people hardly watch TV but poor people do. So reduce the amount of time you spend watching TV. Read personal finance blogs and learn about investing. Read inspirational books and biographies of rich people.
4. Cash is king, so buying a house doesn’t guarantee financial independence. Being liquid does.
5. Never buy insurance for an asset you can easily replace, e.g a car or a TV or laptop.
6. Always look out for the best deals, they exist everywhere.
Edited and condensed for reader suitability: read full interview here
UgoDre is a Financial Analyst and Personal Finance Advocate. He blogs at Ugometrics where he shares free financial advice, investment and money savings tips. Follow him on Twitter @UgoDre
Follow us on Twitter @JobbermanDotCom and join us next week Tuesday with your questions using the hashtag #jobbermantips.