Sunday, September 2, 2012

Personal Financial Management Part 2

More on passive income:
  • Money working for you - Investment earnings from financial instruments (stocks, bonds, T-bills, money markets, mutual funds, owning mortgages and other assets that can be liquidated for cash
  • Business working for you – Generating income from businesses where you do not have to be personally involved (rental real estate, network marketing (e.g. Forever Living Products among others), royalties (e.g. books and music), licensing your ideas, becoming a franchisor, owning storage units, coin operated machines i.e. any business that is systematized to work without you.
Without savings, it impossible to invest, and opportunities come and pass (Ecc. 9:11). Even if you are going to leverage funds, most financiers require you first put down your commitment (e.g. 30 %) before they can lend to you. So, despite the amount involved, it is good to develop this habit. Open a separate bank account (Let's call it Purse Fattening Account (PFA) or Financial Freedom Account - FFA) and put there at least 10% of all money you receive (wage, gift or whatever income). This money can only be invested, never spent! For a Christian, it is good to tithe (also 10 %) as worship to God, for his work and to support the Great commission (Mal. 3:8), meaning you have only 80 % to live on. This means you have to simplify your life by living below your means. The more you can save in the PFA/FFA account e.g. 30 % instead of 10 %, the more funds you will have to invest (Ecc. 11:2). If you are in debt, 20 % should go to repaying debts, and never at the expense of the 10 % supposed to go to PFA/FFA. Getting out of debt is not easy and often requires a fight, but the freedom that comes with it is so worth it (Ps 37:21; Prov. 22:7). Mortgage payment should not exceed 35 % of your income. Budget Allocations – Depends on individual, it is up to you to customize to your situation. But do not compromise. Remember, the habit is more important than the amount.

How we have been Programmed/Conditioned in life about money determines how we think. How we Think, determines how we Feel, Act and thus the Results we get. In other words, the Roots determine the Fruits in a cause and effect relationship. The Fruits are the financial situations we find ourselves in.

God has given every one of us potential at birth in the mind to create, manage and grow things that you desire - including wealth. We exist in 3 forms [Spirit, Soul (mind) and Body]. Before you can achieve anything in the physical world, you have to design and create it in the mind. Spiritually speaking, God has already blessed us with all that we need to succeed in life in the Spirit, and it takes faith (James 2:17) to get these things to manifest in the physical, i.e. praying and acting in faith in God the Creator, The Master Designer, The Intelligent Being! But do not be cheated, God will not do things that man (yourself) are supposed to do. He (God) is rather waiting on you to change your attitude, think and act by faith in spite of fear or the appearance of the situation, and you will get the results you desire. But, if you keep mismanaging your finances with a Spenders motto of “It is only money” and “What goes round comes round”, choosing immediate gratification instead of long-term balance and same time keep on praying, trusting and waiting on God for financial breakthrough, I can tell you without a doubt, you will wait forever. This is where most Christians are mistaken and no wonder many are ignorant, because they lack understanding of God's principles (Hos. 4:6). God do not contradict his word. Miracles happen where the ability of man reaches limit. So do not sit and wait for God to budget your income, track your expenses and balance your books. You have to do it yourself. If you lack wisdom, ask him (James 1:5). Note that, wisdom is application of knowledge, with understanding (Prov. 4:4-9). 

We are creatures of habit. The habit of managing money is more important that the amount (Luke 16:10). So, one should be disciplined and persistent with the above plan and percentages despite the amount. Do not compromise even with 100 Euros/Shillings - put 10 Euros/Shillings to your PFA/FFA. If only you saved and invested at least 10% of all the money you received over the last 1 month? What of the past year, decade? Do the Maths yourself!

Nowadays we have technology like M-SHWARI (mobile saving and credit), M-PESA (mobile money transfer) and M-KESHO (mobile banking) in Kenya for example which we can utilise to make our financial management more efficient. We can also utilise free software like Excel templates, dsBudget and among others.

Where attention goes, the energy flows and the results shows. Focus on the four factors of Net worth: Income, Savings, Investing, and Simplification. Learn, Act and you will get Results.

Do not risk your principal, invest it in secure places under the wise council of those who are wise in handling money (Prov. 21:5; 15:22), and not the allure of tricksters in get-rich quick schemes or establishing a business you are not skilled in.

Money is a big part of life, and when you learn how to get your finances under control, all areas of your life will soar - confidence, happiness, relationships and even health. Either you control money, or it will control you.

Learn how to budget your income and track your expenses. This is fun for an individual and for a couple. Discussing finances openly as couples, making it fun tracking your net worth and strategising on how to minimise expenses, increase savings, where to invest so as to maximise your passive income enhances your communication and your relationship flourish. Many marriages are breaking because of financial disagreements. Two cannot walk together unless they agree (Amos 3:3). Harmonise your goals and strategise how to achieve them. Be accountable to each other. You will be surprised how much you can achieve in one year together (Ecc. 4:9) when you start doing things following these principles. 

Above all, put your trust in God who gave you life, health and strength, and trust him to supply all your needs (Phil. 4:19; Matt. 6:33). Do your part, prepare your land for the rain and plant your seeds on time, then leave the rest to him!

In the next post, we shall look at the three important tools of personal finance

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