Hopeton Morrison, Contributor
CAN FINANCIAL success be defined? Perhaps the simplest definition would be one's achievement of his or her financial aspirations.
What is clear, however, is that financial success means different things to different people. For some persons all they really want is to be sure that they will not suffer or be left abandoned when they get to that stage that they are no longer able to earn a living. Their aim then becomes a financially secure retirement. There are others who want to retire by age 45. Others simply seek enough money in life to ensure that their children receive a "quality" education. If the truth be told however, most persons simply want to enjoy life in relative comfort and this is often reflected in good friends, a loving family and ample leisure moments.
Financial objectives are very rarely met unless current consumption (that is, spending on present needs and wants) is restrained. That restraint is achieved when persons put money into savings (income not spent on present consumption) and investments (income targeted at achieving significant growth towards medium to long term financial goals). Unless persons are born into wealth most will spend a lifetime saving and investing towards attaining the desired standard of living.
E. Thomas Garman and Raymond E. Forgue in their book "Personal Finance" argue the point succinctly, "an individual or group earnestly seeks and strives to attain, to maintain if attained, to preserve if threatened, and to regain if lost this plain or content of living. At any particular time, individuals experience their actual level of living but save and invest to reach their desired standard of living."
So how does an individual go about achieving his or her financial objectives? Here are five steps adapted from Garman and Fogue:
MAXIMISE YOUR
EARNINGS AND WEALTH
The first rule of wealth building is that you must spend less than you earn. So what happens when you are not earning enough to meet your most basic needs? The most logical solution to that problem is to increase and maximise your earnings by employment and/or investments.
ENGAGE IN THE PRACTICE
OF EFFICIENT CONSUMPTION
Up to 90 per cent of our earnings is sometimes used for consumption, and it therefore becomes crucial for persons to practice efficient spending. Three clear guidelines towards efficient consumption are:
Keep sound personal financial records.
Prepare a functional budget preferably at the start of the year.
Be very prudent in your use of chequing accounts and credit cards.
FIND SATISFACTION IN LIFE
Some persons equate satisfaction in life with having enough money to take care of their life's comforts. Do you, for example equate happiness with the following possessions and/or activities?
Owning your dream home.
Plenty of money stashed away for an early retirement and living well afterwards.
Living debt free.
Travel across the world at least once each year.
For some people these types of 'comforters' spell total bliss. But they are all driven by the attainment of a high material threshold in one's life. How about good health, good friends, a happy home for you and your family, liberal spare time for leisure, and spiritual growth? The truth is that these latter although not abjectly met by money do require a level of financial restraint to achieve them.
TO ATTAIN FINANCIAL SECURITY
One attains this threshold when there is that comfortable feeling that your financial resources will take care of any needs and most wants that will arise for you and your immediate family. People don't just happen into financial security. Time must be spent on crucial financial planning, incorporating the setting of long and short term financial goals which in turn will lead to prioritisation of crucial decisions in spending, investments, and recreation.
TO ACCUMULATE ENOUGH WEALTH TO RETIRE COMFORTABLY
The whole idea of spending a lifetime working is not just to live well but, even more important, to live comfortably when you can no longer earn a living. At times like this, your money must work for you. Some persons go a stage further by putting together an estate to leave for their heirs. But there is no need to be unduly worried here as many persons simply opt to give their children a good education and leave it all there.
Hopeton Morrison is general manager of St. Thomas Cooperative Credit Union Ltd. and lecturer in the School of Business Administration at the University of Technology. Please send comments and questions to: hmorrison@stccu.com
