How to expand your means
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- Category: SME toolkit
- Written by Bridget Olotu
- Hits: 747
For a few years when I began to grow my financial intelligence, I was exposed to information and literature that canvassed that if one wanted to be rich and wealthy, one should save more and reduce one’s lifestyle. This is obviously what many people who want to be rich do. They save and invest more, while they reduce their lifestyle and live below their means. While this is good and commendable, my mentor Robert Kiyosaki says it differently. To be wealthy, you can still save and invest more while not living below your means. How do you do this? Simple, expand your means!
By expanding your means, you can still save and invest, while living your dreams. This brings us to two vital concepts: Budget Deficit and Budget Surplus. A budget simply is a plan for the coordination of resources and expenditure. Your budget as a plan can make you to become poor or middle class or it can make you rich and wealthy. Most people operate their lives on a budget deficit rather than a budget surplus. Instead of working to create a budget surplus, many people work to live below their means, which often means creating a budget deficit.
Budget deficit
Budget deficit is excess of spending over income, for a government, corporation or individual. Spending more than you make is the cause of a budget deficit. The reason many people operate on a budget deficit is because it’s so much easier to spend money than to make money. When faced with a crippling budget deficit, most people choose to cut back on their spending. Instead of cutting back on spending, Robert’s Rich dad recommended increasing your income. For him, increasing income is a smarter way to expanding your means.
For many businesses and individuals, increasing income is very hard. For businesses that cannot sell, it is easier to cut expenses, increase debt (liabilities) or sell assets. The problem with cutting expenses, increasing debt, and selling assets is that it usually makes the situation worse. However, if a business or individual can sell, he/she or it can increase income. Nevertheless, if there are frivolous and non-productive debts, such should be eliminated. Budget deficit also happens when individuals lack financial intelligence and only rely on their earned income.
Budget surplus
Budget surplus is an excess of income over spending for a government, corporation or individual over a particular period of time. This is where I want to push a new argument or thinking in this financial intelligence series. Many people are living below their means because they don’t have excess income over spending. Their income is limited and therefore they cram their expenses within this limited income. But if the guy who earns N20,000 a month, gets a side business that fetches him another N10,000, his income has gradually increased to N30,000. His spending can also increase. If this same guy manages to increase his passive income to N20,000 or N30,000 a month, that would place his total monthly earnings between N40-N50,000.
Although a reduction in spending will mean living below your means, my concern is that we can expand our means by increasing our income. However, the mistake people make when they experience budget surplus or increase in income is that they increase spending and debt and reduce investment.
If you want to be rich therefore, choose budget surplus and create one by increasing income, not reducing expenses. In other words, you can still keep your car, productive assets especially, live your dreams and deserved lifestyle when you go for more income to meet your obligations and investment interests. Now, in order to maximise your budget surplus, you need to consider the following:
1. Treat your budget surplus as an expense.
In your expense, make savings, tithing (or charity) and investing your first priority. For instance, if you make more money, then put the excess into income-yielding assets, tithes (or charity) and savings while maintaining your current level of obligations. You know why? By the time you maintain this process for a long time, your assets would have multiplied so much to produce streams of income that can deliver much more money and quality of life to you.
To make a surplus, reprioritise your spending habits. Let savings, tithing (or charity) and investing come first, followed by other expenses. While your savings and investments are making you stronger financially, your tithes or charity is helping you to honour God and to help other people too.
2. Treat your expense statement as a crystal ball.
What you spend your money on will define your financial future. Like Robert’s Rich dad noted, “You can tell a person’s future by looking at what they spend their time and money on.” Take for instance, some people make more money and what they do is spend it on living expenses, savings, investments, charity, seminars, books, more education, productive assets, etc. While some other persons make more money and all they do is spend it on much beer, items of extravagant clothing, excessive jewellery, more household items, more toys, much outdoor eating and merry-making, and some other pleasures that leave them morally and financially emptier than when they made that money.
If you want to have budget surplus and for a long time, watch what you spend your money on. Make sure they enhance your financial and lifestyle objectives.
3. Get assets that can pay for your liabilities.
Never think I am asking you to live cheap. I don’t live cheap either. But what my mentor tells me and I want you too to embrace if you want is that whenever you want a necessary or luxurious liability, get assets that can give you the income to acquire that liability. For instance, my mentor wanted a Bentley car worth $200,000. He had this cash but didn’t want to spend that cash on it. So he called up his broker, who converted his gold and silver shares into $200,000 cash for him and invested it for 8 months to generate $450,000 out of which $200,000 was used to buy the Bentley, $50,000 was used to offset taxes on the capital gains and the Commission paid to the broker, while he still had his cash of $200,000.
Now how do we make that happen in Nigeria? It’s going to be hard work. This is why you have to grow your financial intelligence by coming up with a side business or investment that you are comfortable with and that can help you meet your financial objectives.
There is nothing wrong with enjoying liabilities as long as you continue to pay yourself first and purchase them through the income generated by your assets. What you are comfortable to buy as assets is up to you. It could be real estate, stocks, gold, silver, currency, businesses, etc.
4. Spend to get rich.
When the going gets tough, most people cut back on spending. This is one reason so many people fail to acquire and maintain wealth. For instance, in the world of business, when a company’s sales begin to drop, accountants cut back on spending on advertising and promotion.
With less advertising and promotion, sales further drop and the problem gets worse. One sign of financial intelligence is knowing when to spend and when to cut back. When you know you need to make more money, you need to spend more time, money and energy increasing your income.
Let me summarise using the words of my mentor: “Budgeting is a very important process to learn and be smart at. Take the process one day at a time. Instead of fighting about money, Kim (my wife) and I used the process to discuss and learn more about money and ourselves. Positive things did not happen overnight, but they did happen. If you will sincerely work at creating a budget surplus, your life will become richer. That is what budgeting is about – using what you have, even if what you have is no money, to make you better, stronger and richer.”
Articles
How to expand your means
Category: SME toolkit Written by Bridget Olotu Hits: 747
For a few years when I began to grow my financial intelligence, I was exposed to information and literature that canvassed that if one wanted to be rich and wealthy, one should save more and reduce one’s lifestyle. This is obviously what many people who want to be rich do. They save and invest more, while they reduce their lifestyle and live below their means. While this is good and commendable, my mentor Robert Kiyosaki says it differently. To be wealthy, you can still save and invest more while not living below your means. How do you do this? Simple, expand your means!
By expanding your means, you can still save and invest, while living your dreams. This brings us to two vital concepts: Budget Deficit and Budget Surplus. A budget simply is a plan for the coordination of resources and expenditure. Your budget as a plan can make you to become poor or middle class or it can make you rich and wealthy. Most people operate their lives on a budget deficit rather than a budget surplus. Instead of working to create a budget surplus, many people work to live below their means, which often means creating a budget deficit.
Budget deficit
Budget deficit is excess of spending over income, for a government, corporation or individual. Spending more than you make is the cause of a budget deficit. The reason many people operate on a budget deficit is because it’s so much easier to spend money than to make money. When faced with a crippling budget deficit, most people choose to cut back on their spending. Instead of cutting back on spending, Robert’s Rich dad recommended increasing your income. For him, increasing income is a smarter way to expanding your means.
For many businesses and individuals, increasing income is very hard. For businesses that cannot sell, it is easier to cut expenses, increase debt (liabilities) or sell assets. The problem with cutting expenses, increasing debt, and selling assets is that it usually makes the situation worse. However, if a business or individual can sell, he/she or it can increase income. Nevertheless, if there are frivolous and non-productive debts, such should be eliminated. Budget deficit also happens when individuals lack financial intelligence and only rely on their earned income.
Budget surplus
Budget surplus is an excess of income over spending for a government, corporation or individual over a particular period of time. This is where I want to push a new argument or thinking in this financial intelligence series. Many people are living below their means because they don’t have excess income over spending. Their income is limited and therefore they cram their expenses within this limited income. But if the guy who earns N20,000 a month, gets a side business that fetches him another N10,000, his income has gradually increased to N30,000. His spending can also increase. If this same guy manages to increase his passive income to N20,000 or N30,000 a month, that would place his total monthly earnings between N40-N50,000.
Although a reduction in spending will mean living below your means, my concern is that we can expand our means by increasing our income. However, the mistake people make when they experience budget surplus or increase in income is that they increase spending and debt and reduce investment.
If you want to be rich therefore, choose budget surplus and create one by increasing income, not reducing expenses. In other words, you can still keep your car, productive assets especially, live your dreams and deserved lifestyle when you go for more income to meet your obligations and investment interests. Now, in order to maximise your budget surplus, you need to consider the following:
1. Treat your budget surplus as an expense.
In your expense, make savings, tithing (or charity) and investing your first priority. For instance, if you make more money, then put the excess into income-yielding assets, tithes (or charity) and savings while maintaining your current level of obligations. You know why? By the time you maintain this process for a long time, your assets would have multiplied so much to produce streams of income that can deliver much more money and quality of life to you.
To make a surplus, reprioritise your spending habits. Let savings, tithing (or charity) and investing come first, followed by other expenses. While your savings and investments are making you stronger financially, your tithes or charity is helping you to honour God and to help other people too.
2. Treat your expense statement as a crystal ball.
What you spend your money on will define your financial future. Like Robert’s Rich dad noted, “You can tell a person’s future by looking at what they spend their time and money on.” Take for instance, some people make more money and what they do is spend it on living expenses, savings, investments, charity, seminars, books, more education, productive assets, etc. While some other persons make more money and all they do is spend it on much beer, items of extravagant clothing, excessive jewellery, more household items, more toys, much outdoor eating and merry-making, and some other pleasures that leave them morally and financially emptier than when they made that money.
If you want to have budget surplus and for a long time, watch what you spend your money on. Make sure they enhance your financial and lifestyle objectives.
3. Get assets that can pay for your liabilities.
Never think I am asking you to live cheap. I don’t live cheap either. But what my mentor tells me and I want you too to embrace if you want is that whenever you want a necessary or luxurious liability, get assets that can give you the income to acquire that liability. For instance, my mentor wanted a Bentley car worth $200,000. He had this cash but didn’t want to spend that cash on it. So he called up his broker, who converted his gold and silver shares into $200,000 cash for him and invested it for 8 months to generate $450,000 out of which $200,000 was used to buy the Bentley, $50,000 was used to offset taxes on the capital gains and the Commission paid to the broker, while he still had his cash of $200,000.
Now how do we make that happen in Nigeria? It’s going to be hard work. This is why you have to grow your financial intelligence by coming up with a side business or investment that you are comfortable with and that can help you meet your financial objectives.
There is nothing wrong with enjoying liabilities as long as you continue to pay yourself first and purchase them through the income generated by your assets. What you are comfortable to buy as assets is up to you. It could be real estate, stocks, gold, silver, currency, businesses, etc.
4. Spend to get rich.
When the going gets tough, most people cut back on spending. This is one reason so many people fail to acquire and maintain wealth. For instance, in the world of business, when a company’s sales begin to drop, accountants cut back on spending on advertising and promotion.
With less advertising and promotion, sales further drop and the problem gets worse. One sign of financial intelligence is knowing when to spend and when to cut back. When you know you need to make more money, you need to spend more time, money and energy increasing your income.
Let me summarise using the words of my mentor: “Budgeting is a very important process to learn and be smart at. Take the process one day at a time. Instead of fighting about money, Kim (my wife) and I used the process to discuss and learn more about money and ourselves. Positive things did not happen overnight, but they did happen. If you will sincerely work at creating a budget surplus, your life will become richer. That is what budgeting is about – using what you have, even if what you have is no money, to make you better, stronger and richer.”