Roadmap to My Financial Freedom

It is every person’s dream to become wealthy and achieve financial independence, at least that’s what I have been taught since childhood. Having been raised by accountants, the subject of money has never failed to come across in most conversations, whether it’s how much balance remained after buying bread and milk (toddler stage) or giving a detailed budget on what my pocket money would be spent on (high school) and even talks on how I should negotiate for the ‘best salary’ once completing my first degree (university). Essentially, my mind gradually grew into being conscious about anything that revolved around money and coincidentally, I even ended up doing a financial engineering degree because well, my brain was already wired to love finance. Given this ‘finance environment’ that I grew up in, one would think that am great at managing my personal finances. Well, to be honest, am not but I would consider myself to be a work in progress.

At the beginning of this year, I set out to alter and improve on certain money habits that had become part of me. The reason for this action was triggered by a self-realization of not being financially independent when I was almost leaving the care and financial support of my parents and starting an independent life. This coupled with the fact that I had quite an abundance of finance knowledge on investment opportunities which I had not taken time to research and act upon to create wealth. Thus, I resolved to creating a one-year financial plan (an annual activity) that would help me kick start a journey of wealth creation for my future and attaining financial independence. In this article I briefly write about this plan that captures four ways that I have been implementing in managing my personal finances.

1. Cultivating a saving culture

Putting aside a portion of my pocket money and any money I earned/received had been difficult for the better part of my high school and university years. Honestly, there was no motivation then because having the latest phone, going out and buying movies was the craze. Regardless of my parents’ advice on saving money, I would often find myself spending my savings on unnecessary material items. The level of spending reduced as I grew older but saving still proved to be difficult. However, this all changed after sitting with my father who showed me how his savings had grown over the years and earned him money due to the finance concept of compounding.

As much as saving is a cliché concept, I set out to be saving half of what I received, regardless of the source of income. Of course, the initial days proved difficult, but I now believe am much more disciplined and consistent. To grow this discipline, I enrolled in a SACCO and subscribed to safaricom’s lock savings account where I do my best to commit to this goal. Occasionally, I think of how much I’ve saved so far and even though little, it fuels my drive in cultivating a saving culture. Furthermore, the importance of saving has been magnified during this global pandemic when due to a reduction in revenues, companies and individuals with enough savings have been able to support their crucial daily operations and demands.

Given how difficult it has been thus far to earn income during this pandemic, I have become more aggressive in saving any money that I earn, aware of the future that beckons.

2. Budgeting and reducing expenses

As initially mentioned, I had already come across the importance of budgeting in my high school years and taught in an accounting class the concept of budgets. Again, as platitude as it may sound, jotting down monthly expenses is such an effective tool in managing one’s finances. During this covid period, it has been much easier to spend less because of the glaring reality that I will still need money for the uncertain days ahead. In addition, having parents who are supportive in making essential purchases has contributed greatly to reduced spending. However, with what I have, I have become disciplined in making sure that what I spend on is budgeted for and is a necessary expenditure. I read in an article that this act helps a person live below their means. It’s a thin balance of not being too thrifty and being extremely extravagant.

3. Avoiding debt

In the world we live in today, debt has become the most common tool to finance almost all projects and expenses. When used strategically to generate cash flow, debt is a such a great financing resource. However, when misused, debt becomes a chain that holds one in a deadly trap of unending interest payments. As statistics reveal, most youths in our country have been trapped by the web of ‘cheap mobile loans’, and once upon a time I was a victim.

In managing my personal finances, I decided to avoid taking on debt unless it is for financing a well thought out and viable project. However, during this unprecedented pandemic, it is difficult for most families to support themselves unless they borrow from different financial institutions, which in my opinion is understandable. Nevertheless, borrowing should be driven by the need to generate cash flows when available financing funds are not enough and for individuals (especially us the youth), debt consumption should be done with the careful awareness that one should be able to pay back.

4. Wealth creation

As a soon to be finance graduate, there is so much knowledge that I have been exposed to regarding wealth creation. However, as mentioned earlier, I have not honored this abundance of information in terms of implementation. Thus, for the past few months and during this stay at home period, I have been spending time learning about how to diversify my resources in different asset classes to create wealth.

I have figured that in addition to saving, investing is paramount to becoming financially independent and wealthy. Investing is about realizing one’s financial goals and even though it takes time to learn about the many investment opportunities, it’s a worthwhile initiative. So far I’ve been conservative in investing my money due to the national and global economic outlook. However, I’ve taken the opportunity to research on existing investment opportunities so as to leverage on them later on.

Conclusion

These four concepts have been my go-to strategies so far this year, especially during these difficult economic times. While they are not cast on stone financial management tools, I believe they are helping me handle my finances much better with the ultimate goal of creating wealth for myself now and in the future.