NairaLifeLesson: What You Earn Is Not A Reliable Measure Of Wealth

#NairaLifeLesson: What You Earn Is Not A Reliable Measure Of Wealth

In this week’s #NairaLife by Zikoko, a message that I’ve always preached on this blog comes with an astonishing example.

She’s a project manager (I will call her Cynthia) and earns about N42m per year or $110,000. Yet, she only has a paltry in terms of net worth. It’s been balling and Insha Allah for her for the past 10 years of her working experience.

The good thing, she’s now on her path to financial freedom and wealth accumulation.

3 lessons from her story

You can earn millions of money and still have money problems

Many of us like to think more money will solve our money problem. And maybe it will solve some kind of problem. But never some.

Problems it will solve would be your spending problem. More money will give you room to spend more. You can travel to the US 4 times a year, maintain a high standard of life, make your parents happy, buy, buy and buy even more. That’s the problem that more money will solve. Outside that, nothing more.

In Cynthia’s story, we saw how she could buy a property of N33m, a car of $21k and lived larger than life for the past 10 years.

The problem more money won’t solve can only be solved by the money you did not spend.

After 10 years of living large, Cynthia began self-talk that revealed a more damning problem than she’d ever faced in her financial life. She has not been thinking of savings, investment, financial freedom and retirement.

She listened to some podcasts, read some books and heard people in their 60s and 70s recounting how life is difficult because they also didn’t consider investment when they were young. That opened up her eyes to a problem that needs fixing immediately. 

To fix that problem though, she needs to stop spending not to spend more. Yes, savings, investment, financial freedom and retirement are problems that can only be solved by not spending.

This problem doesn’t require more money, it only requires more discipline and plan. It requires not spending. So whatever stage of life that one may be in, they can begin to solve this problem. Starting small is one of the most important ways to learn to solve this.

I remember how I will save 7k out of the 70k from my first job. It was difficult but I know if I make excuses then, I will make more excuses later on.

Wealth is what you don’t see and it gives you peace of mind

Anyone who knows Cynthia for the past 10 years will wish for her kind of life. Unfortunately, she doesn’t wish it for herself and she even has regrets.

You will wish for it because it’s full of signals of wealth. Who doesn’t want to travel to the US 4 times a year? Who does want to earn $95k per year? Who doesn’t want to have the means to buy a property of N33m for their parents? I guess you don’t want to drive a car that costs $21k.

You see I’ve written here before that all those things are not a pointer of wealth but only a signal of wealth. And like I noted in the article, the problem with optimizing for signals of wealth is that it conditions you to consumerism. You will be pushed to look away from the real wealth and optimize for what will make people perceive you as wealthy.

Don’t fall for it. Wealth is what you don’t see. Not the flashy cars or the latest iPhone. Now, Cynthia understands that and she’s aggressively optimizing for real wealth.

She’s building her retirement account, saving for an emergency, investing in stocks and getting professional money advice. These are things you won’t see outside. Yes, if you want to judge someone’s wealth those are things that are not visible to the eyes. But those are things that give real wealth. And they give peace of mind. If you read the Zikoko article, you will feel the sense of peace that surrounds Cynthia now that she’s building up her investment portfolio and money habits. 

That’s it, wealth gives you peace of mind. Signals of wealth are just vibes and Insha Allah. Nothing more.

Don’t wish for or optimise for signals of wealth. Wish for real wealth and aggressively optimize for it.

Debt is wealth killer, take it only on conditions

Cynthia earns $110k per year but she feels the weight of her debt more than the joy of earning more than most of her pairs.

Just a few days ago as recounted by Cynthia, she had $15k in her emergency fund. But when she looked at her debt profile, it took a toll on her and she could bare having so much debt again. So she paid $10k just to clear a portion of the debt.

Imagine what $10k compounded over the next 20 years at an annual rate of 10% would have been. That’s $67k. Left for 30 years when she will be about 70 years old, the $10k would have grown to $175k. Alas, all that is gone.

And she’s not free yet. She still has a student loan of more than $50k to pay.

Student loan is one of the things that a lot of us may have to take at a point in time. It is sometimes a worthy investment. However, keeping it to the barest minimum possible is wisdom. While at that, please don’t take on more loans through your credit cards. It always comes back to bite.

See how the US is always debating policy stances on student loans. It’s not so bad but it’s not so good as well.

Debt generally should be avoided. However, there are occasions when debt is good or the only available option. A case in point is student loans. You can only get some opportunities if you have an advanced degree from a reputable institution. And that usually comes at a cost that one can’t afford. So taking a loan is the way out. And we take such a loan because we believe it will pay itself. That is, you make enough income to pay it off comfortably.

Other times when it is good is also when you believe it will pay for itself. If you used the loan to invest or booster a business venture. In this case, taking a loan is good.

It will also be good if you need it to survive but have a clear path to repay it. I wouldn’t have had education if not for the loans that my mama took to pay my school fees, feed me and buy me textbooks. So I understand this angle as well. One thing my mama is reputable for though is that she will always repay the loan. Don’t make excuses for not repaying a loan. It’s not free money.

Except for these conditions, loans will deprive you of wealth and take peace away from you.

Wealth is what you don’t see. A reliable measure of your wealth is not in the abundance of what you spend but what you didn’t spend out of what you make. That portion, invested in computing assets over the years will make you wealthy and give you peace of mind. A loan is only to be taken on conditions that it can pay back for itself or necessary for survival.