Financial illiteracy and recklessness, are we all guilty?

There are many definitions for financial literacy, but the only one relevant to this piece is the one that engenders financial stability. Being financial stable affords individuals the luxury of coping with the unexpected without breaking a sweat. When individuals that live from paycheck to paycheck encounter a disaster such as job loss, illness or other unforeseen expenses, the effects are immediate. The lack of social safety net in Nigeria makes money management skills a necessity every individual should acquire. So if you have an effective spending budget, continuously build savings, avoid debts that are not precursor to financial success, and have an active financial plan, in our summation, you are financially literate.

It was in the spirit of financial literacy that I woke up, feeling upbeat over the Easter holidays, notwithstanding that the nature of my job ill affords me holidays in the real sense of the word, and in my state of ebullience, decided to take stock of my career progression and render account of the reward earned for my hard labor over the last 15 odd productive years. That also led to me beaming the searchlight on my level of preparedness for retirement that is eerily creeping up on me after each and every calendar month. Of my career path and progression, I have no complaints, and of the attendant remuneration, this has been pretty decent. The realization that I’m far from my retirement goals, however, got my alarm bells ringing. Thankfully, I’m still about 30 years away from the official retirement age, but my dream of retiring early and comfortable will remain a dream unless drastic financial prudence measures are implemented.

So what am I getting wrong in my financial plan and what changes need to be made? Do I have a budget and is it effective? I actually do have a monthly budget, but it is far from being effective. Why isn’t it effective, you may wonder? Well, since I got married about 16 months ago, I have been trying so hard to embrace the transition from a bachelor’s budget to a family budget. Our helpmates and homemakers, God bless them, will buy things to beautify our homes whenever they come across them, not minding that they aren’t on the budget or that you feel the house needs to be decongested already. As long as the price is reasonable, they automatically find their way into the budget. Some unplanned expenses also go into ‘being our brother’s keeper’. 

So how do we solve these twin budget evils? We now have two categories of budgets – a joint budget that takes care of all the monthly needs which is executed by my wife, and miscellaneous budgets – each party has own allowance for sundry expenses. For the unplanned ‘philanthropic’ expenses, they will henceforth be rolled over into the next budget cycle as long as they aren’t life and death issues. Thankfully, we both do not have ferocious appetite for overspending, which ensures we do not live beyond our means.

What is our long-term financial plan? How do we ensure we always have enough savings and investment in the nest to tide us over the rough patches, and have us retire in comfort? As a rule of thumb, we are to have as emergency fund, an equivalent of 12 months household expenses. This will serve as our own ‘excess crude account’. A significant percentage of our monthly earnings will also go into different asset classes as investment. This portfolio will be actively managed by me – this is due to my background in economics and finance. 

So how do you know if you have been financially reckless, despite all your financial knowledge, and most likely to retire poor? As an individual, if you do not have a realistic budget and you habitually overspend, having to rely on a credit line each month, you are unlikely to retire in comfort. Blowing all your money each month is not a realistic pathway to wealth. If you do not have a definite, clearly defined plan, this will solidify your excuses for overspending. If you borrow at high interest rates to fund your consumption habits, then your debt is likely to be alive long after you are dead and buried. If you are in the habit of selling your assets to buy liabilities, you certainly are guilty of financial recklessness. Assets will likely appreciate, while liabilities depreciate, and liabilities usually incur attendant maintenance cost. 

As a government, if your debt is growing faster than your revenue, then financial ruin is only a matter of time. If government officials are flying private jets, and yet the same government cannot pay a paltry minimum wage, then your priorities are misplaced. You should not live more comfortably than your average citizen. If your recurrent expenditure is about 75 percent, and your debt servicing cost is about 15 percent of total budget, then you are not building a nation for the future. 

Together, we can build a society of financially literate citizens. We can raise awareness for financial prudence, and make savings and investment habits. It’s never too late to start saving and investing, and no amount is too little to start with, there is strength in compounded interests. Parents, please, plan for your future and retirement, and endeavor to raise financially literate children. I desire a future with a bit more oomph, and power over my financial position. It all starts now. 

Olugbenga A. Olufeagba