Climbing the wealth ladder, beyond Nigiina

By Vision Reporter

A 320-member women’s merry-go round group, (Nigiina), is in the process of transforming itself into a Savings & Credit Cooperative <br>(SACCO). The group started five years ago as a gift-giving group. <br>

By Paul Busharizi

A 320-member women’s merry-go round group, (Nigiina), is in the process of transforming itself into a Savings & Credit Cooperative

The group started five years ago as a gift-giving group.

Every week, they would come together, deposit money or gifts in a pool and give it to a member. But as the group grew, the members had the good sense to realise their business model had limitations.

For starters, the bigger the group grew, the longer the intervals between gifting for a member. Secondly, it was only a matter of time before differences of opinion about how to employ the monies tore the group apart.

In a SACCO, there are well laid out rules and procedures for how surpluses are created and spent.

The encouraging thing about the Bukesa Kwagalana Cooperative Savings & Credit – and I hope more women’s groups are doing it, is that with this initiative, they have moved a step up the financial food chain.

At the top of the financial food chain are the rich – owners of businesses whose income can sustain them without working another day in their lives. Then the middle class – these have paying jobs, small businesses or professional practices that put food on the table. This group might have a few token assets but income from these assets can not sustain them. They live an illusory life thinking they have made it, in constant denial about how close they are to poverty. The poor, rely on hand-outs, which they dutifully consume, making no effort to save or invest – “we earn too little to save,” is their excuse.

The difference between the kings/queens and the worms of the financial food chain is not measured in money, but in the way they think about money.

The most distinct difference is that the kings/queens of the pile are always keen to exchange money – which loses value with time, for assets, which appreciate with time. This calls for delayed gratification and often to the extent that a man/woman can delay gratification and invest his money well, is the extent of his wealth.

The worms on the other hand consume everything they earn and are forever tempted by status symbols, the good life and get-rich-quick schemes.

In a seminal study that provided the raw material for the book, “Millionaire Next Door,” it was found that the average American millionaire only consumes 7% of his net worth annually.

Of course this figure is much lower for a higher net worth. For example, there is no way Bill Gates whose net worth tops $50b spends $3.5b a year on himself!!

This suggests that the people atop the food chain, compared to their net worth, continue to live well below their means in sharp contrast to their less wealthy but flashier worm relatives.

But looking deeper, this hints at an advanced level of delayed gratification. In building their wealth, the rich often prioritised expanding their asset base over consumption.

The women of Bukesa have climbed a rung on the financial food chain. They are now savers and barring any accidents, they will graduate to the ultimate rung - investors.

An investor is a person who deploys money in search of long-term returns.

And if the money is deployed in a good investment, the returns over the long-term far outstrip the initial investment. The investor takes advantage of compound interest.

To illustrate this, given a choice between getting sh100m after 30 days or being given the results of a shilling which will double every day for the same 30 days, it would be easy to take the sh100m deal. A big blunder.

After 30 days, the initial shilling will have grown to sh1.1b and by taking the sh100m, you will have forgone a billion shillings!

That is the power of compound interest.

All durable fortunes have been built on a foundation of time and compound interest.

Climbing the wealth ladder, beyond Nigiina