LEVERAGING ON FINANCIAL INTELLIGENCE TO ESCAPE THE RAT RACE OF LIFE

Rat Race is a frustrating, hard-to-break circumstances of life that usually forces us to stay in jobs we don’t always enjoy due to the multitude of financial obligations hanging over us: the rent, to put food on the table, children school fees, medical bills, filling the car up with petrol, village people, groceries, and so much more.

Even those with seemingly good-paying jobs often feel very close to poverty when they’re caught in the Rat Race because more money seldom solves someone’s money problems. Financial intelligence solves money problems. I’m always surprised at how many people are just a paycheck or two away from financial ruin. As a result, they tend to stick with the same jobs for fear of being poor or broke.

The place to begin is with a PERSONAL INCOME STATEMENT and BALANCE SHEET. By the way, if you want to be financially literate, you should at least have a basic knowledge of accounting and marketing. Also to achieve this, you must be consistent in keeping records both on company and personal level.

This is where we can see the money flowing into and out of someone’s life. It’s an illuminating (and sometimes painful) method of identifying the real financial problem someone is facing. Once we find the problem, it’s so much easier to find a solution.

For our example, let’s say that every month your expenses total #100,000 naira. This is the amount of money you need to pay to cover the cost of your living expenses for the month:

So the first thing that needs to be figured out is this: how will you come up with #100,000 naira? Most people solve this problem of paying their monthly bills by getting a job. This is something we call active income.

In other words, we actively exchange our work for money. It doesn’t matter if the work is manual labor or more skilled brain work. With a job, you are relying on someone else to keep you employed so the money continues to flow into your bank account. If the job ends, so does your money. And when the money ends, you have no way to pay those monthly bills. Thus, the Rat Race begins. The moment you receives your salary (paycheck), you settle all the bills, the money evaporates ( Finishes) you start again to work to meet up for the next months obligation. You continues in that circle ( Rat race) for many years.

On the other hand, you can also cover that #100,000 total of monthly expenses with something called passive income. For our discussion here, I want to focus on the type of passive income we can generate by purchasing something called an asset.

So instead of working to create cash, we want to explore what it looks like when we purchase an asset that creates ongoing cash for us — every month, every year, for as long as it fits our desires. Some of us in business, we buy goods, sale and make profit which profits continue to multiply overtime.

When we buy an asset, we place it in the Asset column of our balance sheet. These assets can include real estate, a business, commodities such as gold or oil wells, and paper asset such as stock.There are two basic ways you can benefit from an asset:

1. VALUE APPRECIATION. When you buy an asset for #20,000 and then over time the value increases to #200,000 you have an opportunity to profit. This kind of value appreciation is called capital gain investing. A very common example of this is purchasing a piece of land or more. We know that land is one of the factors of production that appreciates in value over time. As soon as it appreciates enough for you, you can sale and make your profit.

2. CASH FLOW. You can also leverage an asset to provide you with regular cash flow. For example, you can build or buy a house and then rent it to provide you with money every month. This is the idea behind buying assets that can become money machines to work for you.

To get out of the Rat Race, we need to find a way to cover our monthly expenses without the need for active income. When our passive income is greater than our expenses, that’s when we can say that we are out of the Rat Race. This is what financial literacy and freedom is all about. To be truly free and out of the rat race, you must continue to buy income producing assets by so doing, the asset column of your balance sheet becomes very rich.

Ifeanyi Calistus
Director Of Information
DPA