Poverty Is Necessary 2- Wealth and environment
Our wealth as individuals is intricately tied to our environment. The sooner we realize this, the better for us. In our last instalment, we established that humans do “default to the truth” with an anecdotal account of the Bernie Madoff scandal.
If you are reading this, it is either you are a HENRY (High Earners Not Rich Yet) or on the way to becoming one. If you are not or don’t aspire to be one, it could be that your “village people are calling you”. Wealth is built intentionally and progressively, you must start from somewhere. Our earlier assumption as it relates to income categorization still stands (earners of 2 to 10 million naira per annum are classified as HENRYs).
There are so many ways to build wealth; the first is through the principle of compound interest-arguably one of the most powerful but underrated tools for building wealth. Ceteris Paribus, if you save religiously and consistently over a period of time and you could build wealth. For example, let’s say you save 5,000 naira every month at 5% per annum for 20 years. This would amount to N1,983,957.24, that’s quite a lot of money if you ask me- that’s the mystery of compound interest. Simple, but yet very powerful and true. Compound interest doesn’t only apply to wealth but knowledge and competence as well.
The second way to build wealth would be “leverage”. We must learn to optimise our leverage. Peter Thiel in “Zero to One” wrote about the power of “network effects”, mostly applied to businesses but I believe it can be applied to our personal lives.
Network effects simply refer to the impact that the number of users of a platform has on the value created for each user. How does this apply to our individual lives? Our value quotient grows the more people can perceive our value thereby attracting more people to our perceived value. This determines how much we get paid to render a service or our assumed worth in the eyes of the public.
The chief locus for wealth creation as earlier stated is mostly environmental. The limiting factors in our environment can drown the noblest of dreams but with every ineffectual system comes an opportunity. Identify, maximise and optimise your leverage, everybody has one. The inefficiencies that inherently exist in our market structure is an opportunity. I am a firm believer of “beauty in chaos”.
Finally, access to information and the speed of execution. My years working in one of our nation’s apex banks has made me realize information is powerful, most importantly, the right information. As a result of currency risk, HNIs (High Networth Individuals) and UNHIs (Ultra High Networth Individuals) for years have been saving a portion of their income in dollar-denominated bonds even before it became a fad. Today, with the recession on the horizons, most already have economic buffers.
There is nothing new on the face of the earth. Investment vehicles over the centuries have evolved but the basic tenets of money-making remain the same. Create and identify value, then sell that value. Poverty might be necessary if we fail to realize how the world works. Money flows to where the value is. Financial education like all other forms of education must be studied and related to our lived reality.
We can’t explain away our inadequacies to lack of comprehensive due diligence or limited financial education. At least if you are putting away money, do the hard work, find out how the investment vehicle operates and why the investment requires your funds. Invest in value, not hype. Always follow the money.
Don’t make poverty a necessary evil in your life.