Money Is Like A Plant, It Needs Watering
By James Emp)
A popular columnist in one of the local dailies in Kenya recently wrote: “I sometimes think that half the problems in this world would disappear if the most of us took up the gentle art of gardening. There is something very humbling about trying to make plants do what you want them to do because, although they don’t seem to think or talk, plants have a mind of their own.”
Could this statement be true of money? We all own money and use it to survive, but for some people, it seems to grow, and they become wealthy. For others, it only grows wings and flies away, and leaves behind a trail of misery, regret, and gnashing of teeth.
Could it be true that some people treat their money as they do a plant, tending to it and watering it to grow, forming a beautiful canopy that will cover them from the effects of the hot sun and protecting them from the effects of the strong winds? Do they get the benefit of good fresh air (well oxygenated environment) from the well-watered plants?
This week, schools open in Kenya. One thing is clear in my mind. The dollar in flow from abroad will substantially increase; as Kenyans in Diaspora will be remitting funds home to support the education of their loved ones, family members and siblings. It has since independence been perceived that the only way to a white collar well paying job is through the formal education route. Education has therefore been the single largest beneficiary of the government’s budget, and at the household level, the family budget is first apportioned to education expenses.
This background takes us to understanding the human life cycle and its implications on financial planning. The lifecycle of an individual can be divided into childhood, young unmarried, young married; young married with children, married with older children, pre – retirement (post family) and retirement.
Each individual’s financial needs will vary with the stage of the life cycle they are at. Individual resources will also differ as will their circumstances. For effective financial planning, a careful assessment of each individual’s circumstances and of the available resources is the key.
Childhood is a period of dependency, which usually lasts until children finish their full time education. The child’s financial needs are met by the parents or other relatives and even in societies where children start work at a young age, the child’s income rarely provides financial independence.
However, it is useful to look at the financial needs provided by the parents or guardians of the children. The children have to be provided with food, shelter, clothing, medical care and education as a minimum. As they grow older, they will require personal spending money, money for school and social activities, and finally the expenses of higher education, possibly, away from home or even overseas. The total cost of bringing up and educating a child is very considerable.
To make them financially independent in the future, education becomes the most important need to address, and is probably the most expensive. Most parents and guardians do therefore start insurance linked investment plans to build up funds to provide for the education needs of the children.
Most of the basic requirements of children will be met from the income of parents or relatives. However, most people who want their children or grandchildren to have more privileged opportunities will have to start investing for this purpose while the children are very young.
Apart from medical cover, children are very unlikely to have protection needs. These (protection) needs will be provided by their parents. Parents will therefore arrange insurance policies that will provide family income in the event of the parent’s premature death and disability.
Having reviewed the first stage of the life cycle, its financial needs and planning, it is important to examine how individuals handle their cash, and how this may lead to financial success or failure. To avoid financial failure, you have to water your plant!
What you do with your money is much more important than how much you earn. It is important to identify your spending habits and to find out how these habits will lead you towards financial security or distress. As already highlighted, the education needs of your children and dependants can be the most demanding financial obligation on you. In all your spending habits, you must take this into account.
Are you a happy go lucky kind of a person? One who has no financial plans in place, and does not save any part of your income apart from the compulsory saving schemes such as occupation pension scheme. This person spends all his or her income till it is finished, and will always postpone the need to address long-term financial goals indefinitely. Goals such as education and medical bills will always find he or she totally unprepared. The natural consequence is that this individual will regret his or her reckless spending habit of the early days of his or her income generating life – a wasted opportunity.
The next class of persons is those who may be defined as financially myopic. They set only short term financial goals aimed at short term survival. They are concerned with their current expenses such as rent, school fees, household expenses and current lifestyle needs. These individuals never build enough resources to take care of their long-term financial needs, never get to buy their own homes, have difficulties financing their children’s college education and do not have retirement income plans in place.
The third group is immobilized by fear. They lack ambition and do always avoid taking financial risks. They do not invest, do not change jobs and therefore do not improve their income over time. In the long-term, they do not achieve financial security. Unfortunately for this unadventurous group, they do tend to have many children, which worsen their financial situation, believing in the primitive social security benefits of a larger family.
Then there is the risk happy undiscerning individuals who will invest their money in very high return promising investment vehicles without doing the necessary risk assessment. These are the type of individuals who are happy to invest in pyramid schemes and multi level marketing schemes. Some very lucky individuals make money in these schemes, but the vast majority loses.
The group that amazes me most are those who spend their income when they receive it like there will be no tomorrow. They buy things they do not need, to please people they do not know, using money they do not have. They can buy endless rounds of drinks in a bar even for strangers, and worse still, use their credit cards to settle the bills. In the end they are left with no money, no savings, with large debts and a family that requires expensive education and medical care.
Your guess is as good as mine – who achieves financial security in the end. Is it not the individual who waters his “plant”? What is it that you need to do now with your current income to attain a secure financial future, and to ensure that your children and siblings have a firm foundation as they move to the next stages of the life cycle: – the young unmarried, and then to the young married stages?
(The writer is a personal financial planning adviser with one of the leading banks.)
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