Transforming financial thinking
Published On December 21, 2022 » 1767 Views» By Times Reporter » Features
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IN life, we all want money as a safety net and this is the reason why people have different ways of earning money. Others opt to have formal/ informal employment or start a business.
Very few people appreciate a deeper understanding of financial matters when it comes to planning for the future.
While people have their own views on how to be financially independent, we all have to make decisions on how to plan our finances.
Being a financial analyst or guru does not mean that you know it all.
Sometimes experts make wrong decisions when it comes to savings, insurance and investments including experts in other fields.
No one is perfect in this imperfect world.
This is because the financial problems that we face in our lifetime is complex and sometimes it even goes beyond the capacity of our brains to solve them unless with proper guidance.
The article for this week highlights decisions that many make to safeguard their futures.
Economists would advise people to have more options of having money, investing in less risky ventures and living a better life.
We all want that but how to get around this makes it complicated because it is easier said than done.
To achieve these three things, there is always a controversy around keeping liquid cash (saving),treasury bills, government bonds or investing in assets(properties), investing in business.
To have a tentative financial plan, you ought to weigh the options that suit your needs.
Many people are securing their futures by opting to have liquid cash which may always be available when there is always a need, unlike investing in assets which may take long to sell when there is an emergency.
However, such preferences often yield very little interest unless where funds are invested in treasury bills and bonds for a long time, then the interest is much better.
Others prefer to invest entirely in assets such as properties in which they collect rental income which may be sustainable depending on the volumes of transactions or sell off some of their assets when faced with a financial difficulty.
Alternatively, many are opting to balance in all areas in terms of savings, investments in assets, business as well as ensuring that their assets and families are insured in case of any emergencies in the future.
The latter option may prove to be expensive but is a sure way of securing and balancing one’s life and living a comfortable life.
However, there is no clear theory of how people should invest, save and insure because it’s not a simple thing to predict the future.
When wrong investment decisions are made and things fall apart, they blame themselves and wonder whether they saved enough, bought enough insurance, chose the right career or took too much debt?
In the past, many theories around financial decisions such as Irving Fisher and behavioural finance were made to help individuals to devote to them and be financially literate, control their spending and saving behaviours to avoid making wrong decisions.
Economists thought that by adhering to these theories, everything would be perfect.
Some people prefer to devote all their time and energy focusing on being enterprising and from the proceeds, they save, invest, insure and continue to expand their businesses.
On the other hand, there are those who prefer to have formal employment where they dedicate eight hours of duty and are assured of a salary all so that they can save and invest from the same.
To have a clear direction, we have to put aside how much to spend, save and invest in assets over time depending on the cash flows.
This helps eliminate the risk of putting all eggs in one basket.
The best alternative is to have at least many alternative sources of income.
A side hustle is a must to subsidise any regular income.
Besides that, owning at least one home can reduce the risk of reducing your finances from paying rent.
Some prefer to do business at home and reduce on paying rent on any business premises.
Financial understanding, planning and management are key issues, be it in business or at a personal level.
The author is a seasoned banker.
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