By Sylvia Juuko
We all aspire to experience a comfortable lifestyle, but can we afford it? Ideally, your net worth (assets minus liabilities) should support the kind of lifestyle you aspire to have.
In some cases, individuals with reasonable or high income suffer from a false sense of security.
Looking at your balance sheet, as opposed to your income will give you a true picture of whether your lifestyle is sustainable or not.
To put it into perspective, list all your assets (everything that puts money into your pockets) and try and convert it into cash to get an idea of its value. If you subtract all the money that you owe (liabilities) from your assets, how much are you worth? Thousands, millions or billions of Uganda shillings or US dollars?
For many of us, the scariest part is the short duration our current net worth is able to support our household’s lifestyle, if the current income was suddenly cut off. If it’s only for a few days or months, then there goes your false sense of security. However, the following can be considered to improve your personal balance sheet:
Maximise your earning capability
Earned income is tricky to use to accumulate assets because it’s highly taxed. However, efficiently managed, it can set you off to acquiring those needed assets. Your consumption preferences affect your balance sheet, therefore the lifestyle you choose matters.
There is no point in keeping up appearances by trying to attain a lifestyle that your income cannot support. Further still, if your income is not sufficient, figure out how to expand your earning capacity.
No one is going to do this homework for you. You can get general advice including reviewing your current set of skills or exploring moonlighting opportunities where applicable but the specific action point regarding increasing your earnings is your responsibility.
Focus on accumulating assets
Train on how to grow your assets by using your current income and debt where applicable. The aim is to ensure that these assets generate passive income that will surpass your earned income derived from your labour.
Your payslips or bank statements tell a lot about your choices. If they reflect huge financial obligations whose proceeds were not put to good use, it will impact your net worth and your ability to save and eventually invest.
Debt should only be used to acquire assets. Some people have liabilities that they think are assets. Remember, anything that takes money from your pocket is a liability.
To improve your net worth, work out a debt reduction strategy and begin meeting your obligations as a matter of urgency.
Anyone starting a business should avoid simply copying what their neighbour is doing. You need to understand that business favours early entrants therefore, the fact that your neighbour succeeded within a shorter learning curve may not hold true if you set up the same business in the same locality.
You are competing for limited market, which will impact on your margins. Moreover, as an employee, you are up against a competitor who is engaged in their business full time with a learning curve well ahead of yours.
Other than blindly copying, you need to consider more research and identify better methods of delivering a similar service. This will allow you to own a venture/asset that your customers pay for so that their expenditure is your income.
No magical solutions
A ‘magic wand’ approach to accumulating wealth makes you susceptible to con artists. Behind the grandeur, opulence and impressive possessions of genuinely self-made successful entrepreneurs lies hard work, delayed gratification, innovation and perseverance.
Such entrepreneurs didn’t hand their money to another party to magically multiply it.
All in all, improving your financial status to enjoy the lifestyle you can afford will largely depend on your ability to balance what you earn, save, invest, spend and borrow.
The writer works with
Bank of Uganda