Financial Strategy · Next Level Life · Personal Finance

TEN levels

Image result for 10 stepsThere is now a number to Financial Independence and experts have placed it at 25 times of one’s annual expenditure. Yes, you read right, 25 times! This means that if your monthly (family) expenditure is KSh15,000 ($150) per month, you need to have KSh4,500,000 ($45,000) in savings to safely say that you and yours are financially independent. I haven’t done the math neither do I have the courage to do it even though Resolution 316 (see previous post) alludes to that. I am busy, however, trying to figure out my ‘real’ monthly expenditure. It’s an exercise I haven’t done in years but reckon that if I monitored every detail, I could be able to find and repair areas of leakage.

AndroMoney. I am so glad I came across this personal finance tool available on mobile and web platforms that helps individuals manage their finances. It is simple to use, has accounting fundamentals built within it and most importantly generates reports. Can you imagine getting your cash flows displayed on bar graphs, pie charts and trend analyses in amazing colours and all for free? With the current raw data of two months, my spending patterns are being revealed, red flags are already up and it is becoming easier to say no to chocolate – which by the way – I track independently. Dentist’s orders! 🙂

Tracking expenditure on a daily basis is no joke. It takes a lot of willpower but so does any struggle for independence. What excites me about this subject of financial independence is that it has now been broken down in levels. This makes it easy for journeyers to identify where they are at with their money and find ways of getting out of negative situations or moving into better positions.

  1. Financial Dependency is where living expenses and / or debt payments exceed income. Am I living beyond my means? What do I need to do to bring down my expenditure? Or how can I make more to ably meet my (family’s) needs?
  2. Financial Solvency is where one is current on all debt payments and bills without depending on anyone else. The use of budgets (however simple) cannot be overemphasized in making this possible
  3. Financial Stability is similar to financial solvency but also includes having 3 – 6 months in emergency savings. Building such a fund is not easy but stashing away the cash in an interest-bearing facility – with time – makes the journey meaningful
  4. Debt Freedom. In this level, one is either completely free of debt or free of high interest debt or has paid all debts except mortgage. I think this is the hardest stage to leave, but if other people have left it, then anyone else can
  5. Freedom from Employer is the ability to move from a higher paying, stressful, less satisfying job to a lower paying, less stressful, more satisfying job without affecting your retirement benefits. Frugality makes this possible
  6. Financial Security. In this phase, one leans on cashflows from investments to meet annual basic needs and can survive for some time until another employment is secured. It is therefore imperative to begin to think of investments from the Financial Dependency level. I stumbled upon David Bach the other day and he says one of the reasons why people don’t invest is because they feel they don’t have enough to start. “If you can buy a cup of coffee for $5,” he argues “then you can invest”. KSh300 ($3), for example, will allow you to purchase from the Nairobi Securities Exchange 100 Mumias Sugar Company Shares. Bach strongly advocates for participation in real estate
  7. Financial Flexibility is the halfway point to full financial independence i.e. you have 12½ time of your annual expenses in savings. Can you imagine your emergency fund growing to this size?
  8. Financial Independence is the level with which this article begun with and you may wanna scroll up to take it in once more 😉
  9. Financial Freedom. Next Level Life YouTube series, from which these levels of Financial Independence have been drawn, describe this level as having more than 25 times in cashflows from investments. Perhaps 50 times!
  10. Financial Abundance. In this level, one has more than they will ever need and even if the economy plummets, life will go on as usual. I bet philanthropists lie in this level. That doesn’t mean we cannot give. I think giving is a virtue we can all pursue in all seasons of life

EASY? Even after reading this stuff for a second or third time, I find some of the concepts (especially the latter ones) quite difficult to actualize. Baby steps! Baby steps. It is also very easy to get fixated with getting to Level 10… But remember the Lord your God, for it is He who gives you the ability to produce wealth, and so confirms His covenant, which He swore to your ancestors, as it is today. ~ Deuteronomy 8:18

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Emergencies · Financial Strategy · Personal Finance

RAINY days

A couple of months ago I attended a personal finance workshop that challenged us to set aside 18 to 24 months in emergency savings. 18 months was too much an ask and my mind settled for the renowned standard of 3 to 6 months. Today’s market realities, however, reveal that desired work and business opportunities do not come as easily as it was during the Industrial Age. It can take longer than 6 months to get re-absorbed into the employment sector or land that big-ticket client after a major customer exit. Rainy days may easily turn to extended periods of heavy storm and unprecedented fog. Building a 24-month fund – in light of this – sounds decent but what about the attractive investment opportunities one would like to take advantage of or the pressing financial obligations requiring attention? Perhaps a longer term personal finance strategy would go a long way in managing financial exigencies.

Let’s consider the example of large corporations who as part of their occupational health and safety policies have documented guidance to prepare for and respond to all emergencies. Their commitment is towards the safety and well-being of it’s people and communities, the timely resolution of emergency situations and the protection of company and personal properties. Underpinning this practice is the Emergency Management Cycle model that allows organizations and individuals alike to anticipate disasters likely to affect them and think of ways of reducing impact or preventing the disasters altogether. A personal finance lens would probably describe the phases in the cycle as follows:Emergency Management Cycle

  1. Mitigation: How can financial emergencies or their damaging effects be prevented? Budgeting is a financial discipline that goes a long way in averting unnecessary financial pressures. Another mitigation strategy would be to annually take out medical, property and / or life insurance for meeting regular and adverse circumstances
  2. Preparedness: How can we prepare to handle financial emergencies? Core to financial preparedness is financial literacy which empowers individuals to make informed and effective spending, earning, saving / investment, protection and borrowing decisions. Individuals with a basic or advanced grasp of financial concepts manage money better
  3. Response: What actions should be undertaken during financial emergencies? Anxiety can make the brain lock either temporarily or for abnormally long periods of time. Defining – in advance – possible emergencies that could occur and their corresponding responses (including reaching out to family or friends for help) can quickly avert further devastation. Another culprit to inaction is wanting to keep up appearances.  Whilst responding to financial distress can be a very humbling experience, the resulting benefits make the process all worth it
  4. Recovery: What actions should I take to return to (a safer) normal? Restoring one’s physical, emotional, economic and social well-being is the goal of this final stage. Severe debt or financial loss can cause depression and even suicide. Part of a successful personal strategy is being open to counselling, psychotherapy and other professionally prescribed assistance. These medical approaches will not only calm the body, mind and spirit but also bring fresh and exciting alternatives to living

EASY? When I begun this blog and up-to the time of conceptualizing this series, I did not foresee any emergencies. All views were from the simple-heart of a personal finance enthusiast. I  am currently dealing with an uneasy situation and relieved to have one or two things in place. Still, I am anxious. Researching for this article has helped me appreciate that disasters exist through time and I need not beat myself up or anyone else for that matter. I choose to respond in faith that God will bring everything to a new and peaceful normal. That said, I can’t think of a better closing for this piece than “By faith Noah, being warned by God concerning events as yet unseen, in reverent fear constructed an ark for the saving of his household…” ~ Hebrews 11:7a

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