Your spending choices have financial consequences

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Author of Practical steps to financial independence and personal finance coach, Mr. Usiere Uko, writes about the financial consequences of our spending choices

The first time I came across the statement “poverty is a choice,” I thought what a cruel thing to say! How can someone have the choice to be rich but rather choose suffering and poverty? Nobody does that, except maybe a monk or nun. It was later that I realised that each time we spend, we are making a choice. Many are clueless as to what choices they are making. They make conscious choices that will make them end up in the poor house. By making those spending choices, they sign up for the consequences that will show up down the road. There are also some who, with both eyes wide open, sign up for a Ponzi scheme. Humans are a very interesting species.

If I were to study your spending pattern closely for about three months, I could ‘prophesy’ where you will end up financially by the time you turned 60. Of course, I do not need the gift of prophecy to predict where you will end up financially in the future. The clue as to where you are heading financially, irrespective of your level of income is hidden, within your daily spending patterns and habits. You are setting a certain direction by the way you handle money today. You are heading somewhere financially whether you are aware of the fact or not.

Everything we do has a consequence, whether we see it coming or not.  This includes how we spend. Every time money gets into your hands, it is decision time. You are at the polling booth and there are three candidates vying for your votes. You are voting for a certain financial future – to be poor, middle class or rich. In this poll, every vote counts. The poor and middle-class candidates promise instant gratification. You can have it and have it now. Do not worry, more money is coming. You can save then. With every naira you spend, you are either voting to become poor, middle class or rich.

You took a certain road to arrive at where you are today financially. Where you will get to tomorrow depends on the road you are taking today.  If you don’t like where you are now and would like a different result in future, you need to change what you are doing now.

Delayed consequences

The main challenge with consequences is that it does not show up immediately, hence we often fail to recognise it when it does show up. You keep voting, not realising that your votes created the reality you are complaining about.

Most of us think in the short term. We are only concerned about the here and now. The reality is that most consequences show up further down the road. Since it does not manifest immediately, we are unable to link the consequences of our actions a while back, hence we look for excuses to explain why life is giving us a tough time financially today. That time delay between actions and consequences makes us feel we have gotten away with our financial recklessness whereas the consequences are waiting like a timed bomb to explode. This is the main reason we do not consider the consequences when we take actions – we think there is none. It is very easy to fall into this trap when we make dumb choices and seem to get away with it. When the consequence is not swift, we tend to continue doing the wrong things.

Many people have challenges realising that where they are today is as a result of their actions in the past. They want better luck, more favour, more money, something to happen on the outside to make things better.

We spend most of our money on stuff, things that are here today, gone tomorrow. Buying stuff makes us feel good, lifts our spirits (retail therapy), make us feel we are in step with current trends. The latest phones, gizmos, fashion, latest cars etc. We hardly stop to consider the impact of our spending five to 10 years down the road.

Strategic thinking

In a fast-paced age, we want to fly before we learn to crawl. Saving and investing are boring business. The results are predictable and can be tabulated on a spreadsheet. A N10,000 monthly saving at 10 per cent (assuming a money market mutual fund rate) will yield N83 in the first month. That is nothing to write home about. Most decide they rather enjoy their money. However, if you save N10,000 a month and keep adding to it and roll over your interest, you will be amazed what it will become in 10 years only (without increasing your savings rate). A simple calculation shows that by December of the first year, your interest per month will come to more than N1,000 while your principal will be almost N126,000. At the end of 10 years, your monthly interest will be more than N16,700 while your principal will be more than N2m.

Now, that is simply by saving N10,000 of your income every month at a rate of 10 per cent.  Now, the income in the first year looks insulting while ten years looks like forever. So, what do we do? We look for instant gratification and promise ourselves to save and invest tomorrow when we have enough money for savings to make sense.

The best way to escape this trap is to adopt strategic thinking – think long term, think ahead, expand your planning horizons to 10 years, 20 years and beyond. See beyond your nose, lift up your eyes and look further down the road. Develop short term and long term financial goals. Have a plan and save to invest in assets (to generate cash flow). This means the more assets you accumulate the stronger your cash flow. With multiple sources of income, you are on the fast track to financial independence.

Taking a long-term view allows you to make better choices, weighing the consequences and its impact on your expected outcomes. If you have a one year and 5 year financial goals and plan, it is easy to see whether you are on track or veering off. We get bombarded with demands and pressures from all sides. Unless you stop to consider the opportunity cost, you give in easily and keep going with the flow as dictated by peer pressure.

When we don’t think through our choices, we leave the outcome to chance. It takes discipline and courage to say “no,” delay gratification and follow our plan. There are financial consequences for every spend decision we make. We are voting each time we spend. The question is, what future are you voting for?

For questions, comments or enquiries you can contact him at [email protected], www.financialfreedominspiration.com. Follow me on twitter @usiere, BBM C002B2697

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