How to Secure Your Personal Finance
We are some weeks away from the end of 2022; this is a great time to reflect on our written and unwritten personal goals. For 2022, my goals were set around spirituality, family, health, finances, career, business, education, and relationships.
For my finances, I wanted to achieve a 30% growth in my net worth by December 2022. I decided to set this goal because I track my finances. What about you? Do you know your net worth? Do you have an employee or an investor mentality?
A person with an employee mentality works to earn a salary in order to pay expenses. Someone who has an investor mentality may also have a job to earn a salary, but why they earn a salary and what they do with it is quite different.
To secure your finances, when you start your career, the two most important areas to focus on are:
- Earning a higher salary.
- Reducing your expense to expense-to-salary ratio.
Earning A Higher Salary
According to Indeed, there are best eight strategies to deploy to earn a higher salary. You can read them here.
Reducing Your Expense-to-Salary Ratio
Aim to have a significant difference between your salary and your expenses as possible. When you earn a higher salary, do not spend it all. Earning a higher income provides the possibility of creating a large sum with which to invest. However, so many people increase their expenses to match any increase in income in the name of lifestyle upgrades.
Let me illustrate with a story. In 2015, Queen was working as an associate consultant with ₦500,000 as her starting salary. Her upkeep cost 80% of her salary, the remaining 20% was available to invest. She invested started her investment journey with treasury bills and fixed deposits. The treasury bills were yielding upto 17% coupon.
January 2015: Starting Monthly Salary
| Item | Amount | % of salary |
| Salary | ₦ 500,000 | 100% |
| Expense | ₦ 400,000 | 80% |
| Investible fund | ₦ 100,000 | 20% |
By January 2022, she was earning ₦875,000 and her expense-to-salary ratio had declined to 69%. Her financial assets have accumulated and she has diversified her investment portfolio to hedge risk.
January 2022: 75% Salary Increase
| Item | Amount | % of salary |
| Salary | ₦ 875,000 | 100% |
| Expense | ₦ 600,000 | 69% |
| Investible fund | ₦ 275,000 | 31% |
The first job of an investor whose principal source of income is salary is to minimize the expense-to-income ratio. In our case study, Queen minimized her expense-to-salary ratio. Her expense to income declined from 80% to 69% when her salary increased to 75%. Also, her investible fund increased from 20% to 31%.
As an employee with an investor mindset, Queen tracks financial assets. As of December 2021, her total assets stood at ₦17.9 million. The formula for net worth is total assets minus total debt. For Queen, her net worth equals her net total assets because she has no debt.
Queen’s Total Assets as of December 2021
| S/N | Asset | Amount | % of Total |
| 1 | Retirement Saving Account | ₦ 9,565,812 | 46% |
| 2 | Eurobond | ₦ 5,145,181 | 20% |
| 3 | Shares | ₦ 352,191 | 1% |
| 4 | Fixed income mutual fund | ₦ 2,120,961 | 8% |
| 5 | Money market mutual Fund | ₦ 1,341,648 | 5% |
| 6 | Treasury Bills | ₦ 941,748 | 3% |
| 7 | Fixed Deposit | ₦ 828,088 | 2% |
| 8 | Savings | ₦ 392,787 | 1% |
| Net worth | ₦ 20,688,416 |
