 The Pitfalls of poor
financial planning
by Vincent Obiro Orute
Have you ever asked yourself why you are always broke? Why you
always keep visiting shylocks to borrow money to make up the difference? This
may come as a surprise to many, but neither your low income nor the high cost of
living are to blame.
By and large, the cause of our financial predicaments is
actually poor financial planning. Ignorance is more hazardous to your financial
welfare than a small income or high prices of goods and services. There are
people today, who in the past had modest financial backgrounds, but have ended
up in totally different financial circumstances.
Today some people drive sleek cars while others are so poor to
an extent that they can not even own a bicycle. Some people educate their
children comfortably while others are unable to do so but keep on struggling
with life. Yet the more comfortable of the two may not be as well endowed
intellectually as the other.
The story of the most foolish boy in class ending up rich
while the bookworms and hotshots suffer financial distress is well known.
If you observe closely how the really comfortable, ethical
individuals lead their lives, you will notice some traits worth emulating.
No matter how little your income is, you have to ensure your
expenditure is pared down to a minimum. If you ignore this basic rule, you will
end up in a continuous downward spiral of money problems. You will find yourself
running up so many huge debts that you may not be able to settle. You will also
find yourself entangled in a series of money problems that you may not be able
to solve. When you do this, you end up straining your relationship with friends
and even neighbours.
Living within your means requires a realistic look at your
income desires and needs. Today most people want more than they can
realistically have. What we need to do is to get our priorities in order or
right and give up the wants that can not be accommodated. When you go through
this exercise, do not forget important long term issues like retirement, home
ownership and children’s college and university education. This applies even if
you think they are too far off to worry about. In fact, the best time to plan
for your children’s future and go through it painlessly is when they are still
very young and in primary or nursery school.
Even if you do live within your means, you must understand the
difference between looking prosperous and actually being prosperous. A
prosperous person first ensures he or she has some money saved for emergencies,
adequate insurance protection and investments for the future then rewards
himself with a few luxuries safely and without jeopardising his family’s
financial security.
The unwise person has his priorities upside down. He starts
with the most visible and expensive luxuries and a high cost lifestyle. What
this means is that he or she ends up borrowing to finance luxuries and high
credit card balances. He or she keeps on accumulating debts from one card to
another card. When you do this, you end up in all sorts of financial
predicaments. You also end up living on debts. Such people relegate, emergency
savings, insurance and investment to some period in the future.
Should anything happen to your job or your business, your
family ends up suffering a major
and painful drop in their standard of living.
In order to succeed financially, one has to expand his or her
mental horizons. Today, many people fail because they think of only what they
can do today. I don’t have the money for a downfall payment on a house where I
am expected to get? Rather this person should think: if I save Tsh.60,000
monthly, in seven years, I will have the down payment". Saving and investing a
little money every month can enable you to have a lot of money in the long term.
This is because the earnings also earn and your money grows at
an ever increasing rate. This is called compounding. You should always seek
advice from professionals in the relevant fields.
Information about stocks should be sought from a stock broker,
about your estate planning from a lawyer, general financial planning from a
personal financial planner or banker and so on. Basing financial decisions that
are important to your family on the advice of an unqualified friend or relative
is irresponsible.
If you drift through life without thinking about the future,
you end up bumping into situations for which you are not prepared and you may
not be able to solve. One has to be pro-active rather that reactive with his or
her finances. The problem with being reactive with your finances is that it
inevitably breeds poverty. We should always plan how we are going to take care
of our future needs rather than scramble around at the last minute trying to
fight off disaster.
It is regrettable that some people end up suffering financial
difficulties the whole of their life on earth mainly because they cannot plan
what to do with their hard earned money. Let us learn how to manage our money
and this knowledge will see us to financial freedom.
Vincent Obiro Orute is a seasoned banker and micro finance
expert
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