Ever heard of the cheesy motivational quote, “the best time to grow a tree is 10 years ago. The second-best time is today.” Well, as cheesy as it may sound, it is all true. It is never too late to start accumulating wealth (or growing a tree, if you may).
All the financial motivation manuals out there tell you to start saving for your retirement as soon as you get your first income in your 20s. But life does not always go according to plan.
Sometimes, when you are still in your 20’s, the trade-off is between investing and putting a roof over your head. For most people, investing is not always an option early in their careers. Not because they do not want to, but because their current needs do not allow them to. It’s a hand-to-mouth struggle.
The only time you start thinking about investing is in your 30’s after making something sustainable out of your career. And that is okay! Life doesn’t come with an instruction manual.
But, where do I start now that I am ready to start investing and building wealth? If this is you, this article is meant for you. It will give you the basics of what you need to do to start your wealth accumulation on the right foot.
You need to save, to invest.
And the truth is, no matter how much you earn, it is not easy to save unless you intentionally save. So aim to live within your means — better still, live below your means.
You will be tempted to get a bigger, flashier car because your colleagues can’t stop making fun of your Toyota Corolla, 2001 model. You will also feel like your current neighborhood is not fit for your current level- after all, most of your colleagues have now moved to Kileleshwa.
However, keep in mind that your sacrifices today will pay back tenfold later. Creating a low-profile, low-maintenance, low-overhead lifestyle is the key to saving more and investing more for your future.
Yes, even in a crazy, gotta-have-a-gimmick world, turbocharged by peer influence, you should be very careful how you spend every shilling that comes your way.
Believe it or not, Warren Buffett, one of the wealthiest people in the world, still lives in a stucco house he bought in 1957 for $31,500. He could afford a 100 million dollar house, but he chose not to.
A prudent person will not take all the wealth they have now and spend it on their present selves. For the future, you have to forgo owning many things we would like — toys, cars, vacations, furniture, art, jewelry, clothes, etc.
The first and the most critical step into financial freedom is knowing where your money is going. If you like to live the ‘soft life’ at the start of the month when salary hits the account but struggle to make ends meet by the time it is mind month, it is time to review your money decisions.
If you want to win with your money, you have to change your money strategy. The best way to do this is to draw up a budget and stick to it. A budget is like a roadmap for every shilling that comes your way.
After creating a budget, ensure to record your expenses. Every day! Yes! This will help you keep an eye on areas that you tend to overspend on.
Here are tips on how to track every expenditure and keep your head on top of the game.
Formal education today doesn't yet give much emphasis to money management courses. So it is not surprising that many of us might not be very informed about investments and money management in general.
However, this is not the time to cry foul. It is time to take it upon yourself and learn as much as you can as quickly as possible.
Thankfully, there are unlimited resources out there to get you to a Ph.D. level before you even realize it, from investment books to online investment courses and everything in between.
If you prefer visual learning, there are a great deal of instructed online courses for you to pick and choose - some with real instructors you can engage with. Choose courses that benefit you as an individual and allow you to learn at your own pace.
The current society forces us to own the latest and most expensive everything - otherwise, we are labeled losers. In the struggle to keep up with the trend and the need to upgrade to the newest iPhone model, we find ourselves deep in unnecessary debts.
Hence we find ourselves diving in the opposite direction. Instead of building our future, we end up eating into our future today. This is why you should consciously make the decision not to borrow to finance a lifestyle you can not afford.
Are your friends booking a get-together vacation to Dubai when you are not able to afford it? Then take a raincheck. If they do not understand why you can not attend, then they are not worthy friends.
Don’t expect to go big overnight. When drawing your investment plan, ensure that you break down the long-term goals into small manageable short-term goals.
For example, if your goal is to build rentals in a prime location, break down this goal into mini-monthly goals. This might mean that you start putting aside a certain amount every month to raise the downpayment for the land first before you can even think about building.
If your goal is to buy 10,000 Safaricom shares, don’t wait until you have Ksh. 0.5M to start the process. Start by buying, let say, ten shares every month. Before you know it, the investment will add up to a significant amount.
Investing is all about taking calculated risks. If you are someone who does not do very well in situations that are not guaranteed, then serious investing will be an uphill task.
However, there is a difference between taking risks and taking calculated risks when it comes to investment. As professor Leonard C. Green once said, "Entrepreneurs are not risk-takers. They are calculated risk-takers."
So learn to be comfortable with taking risks and ensure you take calculated risks. This means that you do not just put in your money at every opportunity because you are comfortable taking risks. Before you do, take your time and analyze each new opportunity to ensure that there is a high chance of success.
Money lying in the bank is generally regarded as dead money. One of the most efficient ways to stay on top of your game when it comes to money management and investing is to predict a surplus and efficiently plan for it.
If you are like me, idle money quickly invites a multitude of new and unnecessary needs. With a ‘ka150k’ lying in the bank, you will start to notice that your car would look cooler with ‘those cute silver rims’ you saw the other day. Or that your fridge suddenly seems too small for a family of five.
So the trick is always to know what to do with every extra shilling that comes in. Do you have a stock portfolio? Then have an elaborate plan to pump in every extra coin that you get. This way, your wealth will grow even before you notice it.
The future is uncertain - life itself is uncertain. So do not put all your eggs in one basket. Even the most seasoned investors will tell you that you need to spread the risk across different investments to increase your investing odds.
This is the same saying: since all the players look like they have the same strength and are unsure who will win, why not bet on everyone.
Diversifying doesn’t mean you won’t suffer any losses if one of your investments goes wrong, but it will reduce the burden. Here are some of the main benefits of diversifying your investment portfolio:
It is never too late to start investing. However, it is crucial to ensure that you start on the right foot.
So once you decide that you are finally in a position to start making progress on your wealth accumulation journey, the points discussed above will help give you the foundation you need and point you in the right direction for success.