Our Inability To Achieve Financial Freedom


July 23, 2007 @ 6.51p.m. – Written by January

Categories: Financial Independence, Saving

The desire to achieve financial freedom early in life is driven by several factors. Such desires can arise from our background (read my article on Our Parents Financial Mistakes-Are We Repeating Them?), habits, our needs vs. wants, peer pressure and a whole lot of other issues. I desire early financial freedom to pursue the following interests:

  • International Travel
  • Art School
  • Photography School
  • The financial ability to support my unborn children if they choose to attend top rated graduate school.

 However, these goals can suffer a setback if I do not apply the principles of frugal living on a daily basis. At different occasions, I have tried to teach my friends this principle without coming across as a ‘know it all’ kind of individual. One thing I have learnt is without financial discipline, the road to financial freedom is a long way off.

 For instance, some of my friends may never achieve financial freedom based on their daily choices. Choices ranging from savings and investment to frugal living. A large percentage of my friends keep their money in the bank even after the funds have passed the limit of emergencies. I read in the papers a few days ago that the current inflationary rate is 6.4% due to the recent increase in fuel and the few days of 10% VAT increase. What this means for an individual with N1mn and above in the bank is that what N1mn could buy at the beginning of this year, such an amount cannot purchase the same item.

 Inflation has eroded the time value of money. Investing such an amount in a mutual fund or stocks would prevent time value erosion. When individuals win or become major beneficiaries of huge amounts of money, the tendency to spend the money on frivolities is very high. A friend of mine invested N345,000 in one of this finance/investment houses in Ibadan (pennywise, wealth solution e.t.c.) and received N1.2mn as pay off for his investment. He actually bought three slots with three different organizations and made the same amount of money totaling N3.6mn. He immediately purchased a round trip ticket to England for the entire family setting him back by N0.6mn without taking into consideration the cost of shopping for three kids, himself and his wife. At the end of the day, he will be spending nothing less than N1mn on the entire trip. So what was his actual return on investment? It’s N1,565,000mn.

Our penchant for using ATM’s apart from the bank we patronize gradually removes more money from our wallets over time. For instance, if Miss .B uses a GTM debit card at Zenith Bank’s terminal three times a week, to withdraw or transfer varying sums of money. At the end of the week, a total of N600 will be deducted as service charge. Over the period of a month, that sum will rise to N2,400. You might say ‘that’s not a lot of money’ but the picture changes if these random withdrawals occur over the period of a year. That would be a total of N28,800. Imbibing financial discipline can be a Herculean task at the initial stage but our net worth will be better as soon as it becomes part of our daily existence.

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