Do you understand how to build wealth?

Interestingly, many have found themselves in varied finance classes mentored by self-acclaimed finance experts; but still unable to grasp the base level of their finances? In the business world, we do not celebrate effort but result. We are not interested in the number of sleepless nights to develop the proposal but the state of the contract – was it signed or not?

From time immemorial till now, we sought ways to increase our asset portfolio and minimize our liabilities. How has this lecture helped us? Taking a step forward, we saw assets divided into fixed and current assets and liabilities split into current and long-term liabilities. In general, we cannot develop robust financial models for our personal lives, small and medium-scale businesses.

With the recent surge in the desire to acquire land and intense marketing strides from real estate companies, I could have purchased some properties without doing due diligence on my finance. For example, how do I maintain a positive cash flow while waiting on my land investment to pay off, assuming a fixed salary and a rising inflation rate? This is just one of many questions that could be raised in this scenario. 

However, a recent class in corporate financial accounting stopped me dead in my tracks. I learned that assets are either income-generating or non-income generating and liabilities grouped as risk funds and non-risk funds as well as interest-bearing and non-interest bearing. This is brand-new knowledge! I stood up while the lecture was still on as I needed a minute to process this new knowledge.

I went back to review my finance according to this new model I learned and discovered that I was piling up non-interest generating assets as a majority of my portfolio. I avidly made some changes and even made another discovery – life insurance. I could use this as an interest-generating asset and collateralize it if needed. By nature, I am not selfish, I led a few of my friends with a shared sense of financial responsibility in this review and I must comment – it was awesome! If you are yet to find yourself in the company o financially responsible friends, you are missing; hurry up and join one now. You are the only person remaining in your village to join one.

How about the liabilities you may ask? Well the only immediate change I could make was to reduce my risk funds in crypto-currency and liquidate all my existing loans with interest rates higher than that offered by my preferred life insurance partner. The rest we can conclude are in the pipeline. When completed, you will be the first to know.

Now you have seen the light as I did, what will you do about it? Ignore it or act on it – the ball is in your court. Nonetheless, I recommend you start now with what you have and where you are. Start now! Build a rock-solid financial model for yourself.

Light, Love, and Life

#CFA #MMBA4