BOOK REVIEW: Dangers of making ends meet
In a move that is meant to improve your financial management skills, we bring you excerpts from Make Sense of Your Money, a personal finance management book that is written by James Abola and Phillip Karugaba. James, a graduate of statistics and his wife Joy own Akamai Global-A financial literacy and advisory company. Philip is a lawyer who is passionate about financial literacy. Make Sense of Your Money is now on sale in local book stores.
The highest financial goal of many working people is to “make ends meet”, that is to get to a point where they earn enough money to meet their expenses. Aspiring to make ends meet is the most dangerous financial fallacy that is wreaking havoc on the finances of individuals and families, and here are three reasons why.
When you use all your income to meet your expenses you do not leave any resources to prepare for the day when your earning is interrupted. Remember that employers can easily make you redundant or retrench you when the company or economy is not performing well.
That is exactly what happened in the aftermath of the 2007/8 global financial crisis: GTV a pay TV company that operated in several countries including Uganda, closed down suddenly which in turn affected the employees of GTV and GTV business agents. One foreign mission gave the sack to 67 staff working in its visa handling section, and gave the financial crisis as reason for its action.
Since the times of Joseph, as recorded in the book of Genesis in the Bible, the world goes through periods of economic booms and busts. A few people apply the wisdom of Joseph and store a portion of the boom income to help them ride through the rough bust period. The majority, however, lives as though every day will be a boom and realise that they are financially unprepared when they get sacked or retired.
Spending everything you earn does not also leave you with any cushion to take care of unexpected expenses or sudden price increments. The danger of simply “making ends meet” is that it does not prepare you for retirement when you either have no income or very low income, but still need to spend money. At the earliest opportunity, children must be taught to save and they need to learn to earn money early enough to beat the ‘no job’ mentality. Teenagers in high school should begin some form of investing so that when they enter the earning phase, they have a habit of ‘paying themselves first’ and in that way they will be financially prepared for retirement.
The meaning of wealth
One dictionary defines wealth as the state of being rich and affluent; having a plentiful supply of material goods and money. To follow this definition is like trying to reach for the clouds for people who can barely make ends meet; even those who are luckier will admit that having a plentiful supply of material goods and money is like chasing a mirage.
There is another definition of wealth, provided by Robert L. Kiyosaki, “Wealth is how long you can maintain your current or desired standard of living without working.” Wealth or the lack of it depends on three things: your cost of living; your level of savings and the amount of your non-salary income or business and investment income. You can improve your wealth by saving just like you can decrease it by taking a consumption debt. You can grow your wealth by acquiring items that put money into your pocket while another person can drain away wealth by acquiring items that take money out of their pocket. If you have no savings or income from business and investments and solely depend on a salary to pay for your cost of living then you are a pay cheque away from bankruptcy.
