7 CommonSense Rules For Finance & Investment by Bayo Adeyinka
Some years back, one of my mentors called me. He wanted to assist a family member but he didn’t want that person to know the funds was coming from him. He had prepared an agreement bearing a third party name providing the funds which the family member was to sign.
I was to stand in as the third party. He told me how this person had squandered previous funds provided by him in person. This time, he wanted him to take personal responsibility. He told me there is a different paradigm once people know there’s no free lunch- even in Freetown. I gained so much from that experience.
There was this very vibrant brother I knew- very devoted. He also had a flourishing business. He needed help with finance. I got involved. Why won’t I help someone I thought I knew so well? Well, it didn’t end well. A good intention doesn’t always end well.
Anytime I see people go round with a new ‘investment’ scheme, the first question I ask is ‘Do you know what they are investing in?’ In almost all instances, the answer is no. But the allure of high and quick returns make a lot of people go blind to the apparent pitfalls of such investment. They are drawn away by their own desires and enticed. That desire later conceives and gives birth to regrets.
I’ve developed guidelines for these and similar matters. These guidelines have helped me over the years in handling personal finances.
1. Don’t Lend Money To Friends and Family
Money and friends are like oil and water. They don’t mix. Most of the time, you’ll gain an enemy if you lend money to friends. That’s my experience. If you ask for the money back, they’ll accuse you of harassing them. They’ll play the victim while you’re now the aggressor. You’ll hear proverbs like, ” Ma pe paddy e lo le” ( don’t think your friend is lazy, you’re just privileged). If you report them at a family meeting, they’ll play the underdog and you’ll come out guilty. The society always support the underdog.
I usually say if I respect you too much, I can’t lend money to you. If I can’t fight you, I can’t lend money to you. That includes my pastor, customer or anyone else I hold in high regards. I’d rather give what I can. I’ve seen too many relationships ruined because of this. I treat friends and family as high risk. Don’t assume a brother or sister will handle finances well. That a man is full of faith doesn’t mean he’s not foolish about finances. Always leave a gap for disagreements. Otherwise, a loan to family is a gift to charity.
2. Investigate Before You Invest
The easiest thing to lose is money so I carry out my investigation before I invest. A fool and his money are soon parted. That’s why many fall to scams. Do your due diligence no matter how much pressure you’re under. What are they trading? What are the products or services? Who has bought before? What are the reviews? Carry out background checks. Do they have a physical office or traceable address? What’s their antecedents? Too much pressure is a red flag for me. If I don’t understand the investment, I won’t go ahead. Don’t outsource your investigation to another. Do it yourself.
3. If A Deal Is Too Good To Be True, It’s Most Likely Too Good To Be True
The higher the risks, the higher the returns. True that. But the higher the returns, the higher the probability of loss. Don’t be sucked in by the possibility of doubling your investment in a short while. If such schemes were true, they won’t be canvassing for you to benefit from it. The natural human is very selfish. So avoid Ponzi schemes. MMM brought so many tears. Frank Hubbard said, “The safe way to double your money is to fold it over once and put it in your pocket.
Here’s how the Good Book puts it in 1 Tim 6:9 Amp : “But those who [are not financially ethical and] crave to get rich [with a compulsive, greedy longing for wealth] fall into temptation and a trap and into many foolish and harmful desires that plunge people into ruin and destruction [leading to personal misery]”. If your returns is based on another person investing, know that your money will not return to you. It’s a matter of time.
4. The Best Way To Get Rich Is To Get Rich Slowly
The best things in life take time. That includes growing your finances too. This is because the process is more important. This is why many lottery winners sooner than later return to status quo. They don’t understand how to manage money. If you jump the process, you’ll jump into fire. You need money skills.
Learn how to handle the small things first. If you can’t handle 20k, you won’t be able to handle 200k. Save money. Cut your expenses. Avoid waste. Invest consciously. Don’t try to blow overnight because you may lose everything overnight. I’d rather invest in a product that yields small to moderate returns but is consistent over a period of time.
5. If You Want To Start A Business, Start With Your Own Funds
I’ve seen many people tell me they need help financing their business. When I ask for what they’re bringing to the table, all they bring out is a business plan. No, it doesn’t work that way. You have to demonstrate that you have skin in the game. Your skin in the game will not make it easy for you to walk away when challenges rise. You won’t abandon ship and run.
When people tell me they have a capital problem, I tell them it’s more of an idea problem. Before you ask for help, show others what you have done.
Don’t get me wrong- I’m not saying one shouldn’t borrow for business expansion. But if you’re just starting out, debt is not the first thing to think about. Look inwards. What do you have? What can you do with what you have?
6. Don’t Borrow To Fund Consumption
When I got married, I had an agreement with my wife which we still keep till date. Whatever we cannot pay cash for as it relates to consumption means that we can’t afford it. We won’t go on vacation on credit. We won’t buy shirts, suits, wristwatches or wigs now and pay later. I don’t issue post-dated cheques.
Don’t live to impress anyone. According to Will Rogers, “Too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like”.
Borrowing to fund an asset however makes economic sense. That is good debt.
When we wanted to get married and I was given a long list which I couldn’t afford, we devised a means around it. I borrowed a leather box used by a friend of mine the previous month before our wedding, stuffed it with some of my wife’s clothes and locked it with the keys in my pocket.
When they wanted to open the box to check the ‘new’ clothes I bought during the traditional engagement, I joined them in looking for the key that was safely tucked away in my pocket. After the engagement, I carried part of the yams I bought back into my car. Our new family must eat also.
The wedding ceremony is just a day but the marriage is for a lifetime. So why incur debt on a wedding? No matter how much you spend on a wedding, some people will still tell you they didn’t eat. So why bother?,
7. Always Have A Budget
If nations have a budget, so should you. A budget is your personal spending plan which enables you to track your income and expenses. According to Ayn Rand, “Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver”. The major way to drive it is by the use of a budget.
List your expenses against your income. If your expenses are more than your income, then you’re living beyond your means. The goal is to ensure you live within your means. Plan your expenses. Don’t go shopping without having a list. If it’s not on your list, don’t buy it.
Budgeting helps you to control impulsive buying. Build a positive cashflow. Spend less than you earn. Dave Ramsey said, “A budget is telling your money where to go instead of wondering where it went”.
Cut your cloth-not according to your size- but according to your material.
Bayo Adeyinka, a Banker, Finance and Leadership enthusiast, writes from Lagos, Nigeria. You can visit his Facebook page and follow him on Twitter.
