Dear Paul,
Be grateful for making it through 2024 in relatively good
order. But we are back on the tread mill and yet another year is ahead of us.
You had a good year in 2024, despite being retired and the
trick now is not to rest on our laurels (we may do that in 10 years’ time) but maintain
commitment to our financial discipline. We have got to keep at the fore of our
mind that our financial health in coming years will depend on the balance
between consumption and savings/investment. The process should see you
consuming less and less, while investing more and more of your income. That
will be your measure of success.
At the risk of sounding like a broken record, here is what
you should be doing in the New Year to ensure we end it on a high, like we did
last year.
1.
It is not how much you make but how much you
keep
We all want to be paid. Being paid is always sweet. But what
will improve our financial fortunes is how much we keep of our income through
saving and investing than how good we look spending our money. Easier said than
done. They say save your money today so it can save you in the future.
Saving 50 percent and investing 25 percent of all your
income is a good start. We should maintain that discipline with a view to pushing
up your investing ratio in 2025 to between 30 - 40 percent. We will only be
able to do that if we stay the course in 2024.
2.
Shed your
ego
There is no amount too small to save or invest. Us “corporates”
we dream of investing big numbers and therefore miss the chance to build over
time. No wonder we are so corrupt. We are waiting for the big deal. Hence the story
of the big boss and his driver, who when they were both retired, the driver was
well off because he was not afraid to put aside a bag of cement when he could.
A bag of cement is not even drinking money for the big boss. But because of not
taking care of the cents through his career the big boss finds himself with few
shillings from his investments, with huge expenses built up during the good old
days.
3.
When you see risk, seek knowledge
Everything you do will come with risk. In the face of risk
you can choose to back off and not give yourself a chance at good returns or
research the deal before you turn it away. Knowledge is the greatest mitigant
against risk. Money is being made everyday in this economy. The ones who are
making the money are silent, allowing the ones not making money to be the
loudest. But if you paused and looked harder
there is opportunity everywhere. The problem is that when you are not in the
deal, you don’t know the deal, and think everyone is gnashing their teeth like
you.
But about risk. You would think nothing of driving from home
to town – you have been driving for 30 years, the risk is minimized by your
knowledge and experience. How much riskier does the same trip look if you had
the car keys to your ten year old child?
Go further than copying your neighbor in researching new
opportunity.
4.
Don’t overestimate what you can achieve in a
year
The cliché that the race to your financial freedom is a
marathon not a sprint, bears repeating. This time next year you should be
better off than you are now or not. But expect to be only marginally better. But
seen against the rest of your life, that small gain will be the foundation for
the gains of the next 20 years. Stick to the process, the results will take
care of themselves. If you can grow your portfolio just 10 percent a year, at
the end of 20 years it would have grown nearly sevenfold and the ensuing income
with it. Think about that. You need to be in bed with compounding rather than
at war with it.
5.
Guard against lifestyle creep
Maybe I should have started with this. With increased income
the temptation to consume more will be your biggest battle. If you are consuming
25 percent of your income now, let it remain at that percentage but preferably
lower as your income increases. A wise man once said he makes ten shillings
eats one and reinvest nine, repeat until rich.
We have talked about this before all of the above is simple
but not easy to do. No enterprise of real value is easy. The battle is really with
yourself. We are seduced by complexity but its really simple and we should not
be suspicious because the process is simple.
Low income, bad investment environment, your friends
blasting while you are lying low like an envelope, are all outside your
control. You can only control your attitude and effort. Focus on that.
Otherwise Happy New Year, wish you the best and see you on the other side.
Sincerely
$
