Lesson 1

Dictionary Meaning: Abundance of valuable material possessions or resources

In the Context of Money: Abundance of money

In the Context of Business: Wealth is created by a business organization that provides a unique value to its environment by adding more value to its outputs than the cost of all resources used to produce those outputs.

Other Definitions:

• Abundance of items of economic value

• State of controlling or possessing such items, usually in the form of money, real estate, and personal property

Scarcity in economics refers to when the demand for a resource is greater than the supply of that resource, as resources are limited.

The process of investing in different asset classes where the investments will help in fulfilling key needs.

1. INCOME - Individuals generally consider their gross income to equal the total of their earnings in the form of wages and salaries, the return on their investments and sales of property, and other receipts.

• Gross Income - The total earnings a person receives before paying for taxes and other deductions.

• Net Income - Gross income reduced by costs incurred in producing the income.

2. EXPENSES - the cost required for something; the money spent on something.

• In the context of business: An expense is the cost of operations that a company incurs to generate revenue.

3. ASSETS - property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies; anything of value that you own that can be converted into cash.

2 KINDS:

a) Tangible - assets that are in a physical form that hold value.

Examples:

b) Intangible - an asset that lacks physical substance.

Examples:

4) LIABILITIES - a thing for which someone is responsible, especially a debt or financial obligation.

Value of knowing financial terms

Knowing finance terms is important because it can help you understand and manage your financial situation. For example, you can utilize this knowledge to make significant financial decisions, such as taking out loans, renting or buying property and planning for retirement. It can also help you stay up-to-date and aware of current economic news and events.

EMPLOYMENT

Employment is an agreement between an employer and an employee that the employee will provide certain services. In return, the employee is paid a salary or hourly wage.

Advantages:

1) Stable income: Every 15th day of the month the employee receives a salary. Overtime pays are also given as the need arises.

2) Less Risk of Financial Loss

3) Career or Professional Development: There are opportunities for growth to enhance skills and competencies.

Disadvantages:

1) Competitive: Difficult to find a job that is suitable for the applicant.

2) Lack of Security: In highly volatile markets or in a dynamic business environment, there is a high risk of layoffs.

DEPOSITS and INVESTMENTS

Deposits and Investments are those assets that make money grow without much involvement from the owner.

~ Savings and Time Deposits

• Savings Account - A savings account is a basic type of bank account that gives you a safe place to store or deposit your money and earn compounding interest.

• Time Deposit - Fixed term. It allows depositors to grow their money with higher interest rates compared to a regular savings account. When the term is over, depositors can withdraw their money or it can be renewed and held for another term.

~ Stocks

• • Investors get a portion of the firm's earnings in the form of cash dividends, but only after interest payments to creditors, taxes, and all other financial obligations have been paid.

  • Investors earn by selling stocks at a price that is higher than the price at which the shares were bought.

~ Bonds

• Treasury bills or T-bills are short-term (one year or less, 91 days at 4%) debt instruments offered by the government to investors; it basically represents what the government borrows from the investing public.

• Treasury securities (including Treasury bonds which are long-term, or up to 25 years at 10%) are considered "risk-free" only in the sense that it is impossible for the government to not be able to pay what it owes.

• Corporate bonds are riskier than government securities because it is entirely possible for corporate issuers to default on their debt and thus provide higher returns (7-10%) than Treasury securities.

~ Mutual Funds

• A type of investment where the money of several investors is pooled and invested in an actively managed portfolio of bank deposits, government securities, bonds, stocks, and other marketable instruments. Investors participate by buying "shares" or units of the fund at the current market value.

~Business or Entrepreneurship

• Entrepreneurship refers to the concept of developing and managing a business venture in order to gain profit by taking several risks.

DISADVANTAGE:

• Risky. Success depends on a lot of factors.

ADVANTAGE:

• Creates employment.

• Creates value in the form of new products or innovation.

• Unlimited income

1. Look For New Opportunities For Wealth Creation

2. Seize The Day And Set Your Career Goals High

Tip: Find out what the most successful people are doing in your chosen area and then do the same things, over and over again until you start to get the same results.

3. Chose To Become Financially Independent

Wealth Management is defined as an investment-advisory practice that incorporates elements from a variety of financial disciplines including but not limited to investor portfolio management and financial planning.

Personal financial management has to do with your ability to know where you are financially at the moment and what you can do to make the most out of your income in order to plan for a better future. This involves gaining control over your present financial situation so that you can organize your daily expenses to match your plans and expectations for the future.

The questions you need to answer are these:

• What if you lose your paying job today?

• How far can you go before you get another job?

It is important to have some money kept aside that could save you from emergencies.

As you grow in life, your responsibilities will grow to catch up with you. Planning for your family's security is an essential part of money management, therefore you need to know what are the particular financial needs at every stage of your life:

Stage one: Building a financial foundation

This is when the only source of income is your salary or earnings provided by your active participation in terms of time and talent. Young adults face the task of learning how to manage to spend and save within the constraints of their income levels. Developing sound financial habits is critical.

Tips:

• Track your spending habits to identify ways to save.

• Prepare a household budget.

• Set aside 3-6 months of expenses as emergency reserves in a savings account.

• Establish a saving pattern.

• Make sure you have adequate insurance coverage to protect your family and assets.

Stage two: During your prime earning years

This is often a time when your income is rising as well as expenses. Nicer homes, nicer cars, and children can easily consume your increasing income. This is also the time when the financial decisions you make will have the greatest impact on the financial lifestyle you will enjoy during retirement. By now, you should have developed some savings and the expertise to make sound choices.

Tips:

• Start early to save for children's college expenses.

• Take full advantage of employer offered retirement plans.

• Invest wisely. Consider an asset allocation strategy that matches your time horizon and risk tolerance.

• Be sure your insurance protection has kept pace with your needs. Having adequate life insurance to protect your family, in case of your untimely death, is critical.

• Prepare an estate plan to minimize taxes and to ensure that your custodial, financial and medical wishes are carried out.

Stage three: Nearing or during retirement

This is when the income from your savings and investments is your only source to support your living expenses.

Tips:

• Be sure your medical insurance is adequate. The costs of medical care continue to rise and we are living longer.

• Consider purchasing a Long-Term Care insurance policy to protect your hard-earned retirement savings.

• Be sure your estate plan is up to date.

Managing your money effectively will prepare you for investment opportunities. You will learn how to pick the right kind of investment. Having the right kinds of investments will help you meet your growing needs in the future. Without proper management, you may not have enough to meet your present needs.

Are you happy with your present living standard? Everyone for sure would like to enjoy a better living standard in the future for yourself and your family. You want to own your own home, or at least a better one. You want to go on vacation with your loved ones to distant places.

The good thing about financial planning is that it exposes you to higher financial knowledge. When you start saving and making plans for the future, you will need the services of financial advisors. As you plan and work closely with these experts, your financial intelligence will increase. Make sure you build a relationship with financial advisors that you can trust. Trusted advisors will be transparent and willing to share their knowledge with you. Over time, you may find that you are beginning to take investment decisions on your own.

It is easy to spend most of your money on irrelevant purchases if you don't have a budget. Making unnecessary purchases will affect your savings and leave you disappointed at the end of each month. You can get it right by making a proper budget. Map out different areas you want to allocate your money. As you allocate money for your daily expenses, also allocate money for your long-term goals such as investments. There are no rules of the thumb here. You should identify a budgeting plan that is most suitable for you.

Examples of Budgeting Methods:

50/30/20 Budgeting Method

A school of thought suggested a budgeting method known as 50/30/20.

A breakdown of this method goes like this:

• Assign 50% of your income after taxes to essential living expenses such as rent, groceries, utilities, and transport.

• Assign 30% to casual expenses such as wear, vacation, recreation, and charity (if you like).

• Assign 20% to future plans such as savings, investment, and retirement plans.

10-20-20-50 Budgeting Method

Similar to 50/30/20 budgeting method but with a different breakdown.

A breakdown of this method goes like this:

• 10%- Tithes

• 20%- Savings/investment

• 20%- Wants

• 50%- Expenses, bills, etc.

Five Envelopes or Funds System

The moment you receive your salaries, divide them into five envelopes.

• First Envelope: Tithe Fund

Tithes - tenth part of something paid as a voluntary contribution or as a tax, especially for the support of a religious establishment

This is not mandatory, you may or may not give tithes. Also, the 10% may not be followed, you give to church or charity with any amount as long as it is given from the heart.

• Second Envelope: Expense Fund

This is what you spend for your daily needs.

• Third Envelope: Support Fund

Send this for the daily need of your families.

• Fourth Envelope: Emergency Fund

When emergencies come up, you have another fund to use or send back home.

• Fifth Envelope: Retirement Fund

The importance of a Business Budget

A business budget is a spending plan for your business based on your income and expenses. It identifies your available capital, estimates your spending, and helps you predict revenue.

A budget can help you plan your business activities and can act as a yardstick for setting up financial goals. It can help you tackle both short-term obstacles and long-term planning.

Creating a budget helps you understand how much money you have, how much you have spent, and how much money you will need in the future. A budget can drive important business decisions like cutting down on unwanted expenses, increasing staff, or purchasing new equipment. If you end up with insufficient money, the budget can guide you in altering your business plan or prioritizing your spending on activities.

Operating the right bank accounts is necessary to successfully manage your finances. You can set up checking, saving, and investment accounts. Your checking account should hold the money you use for your regular purchases. You should not leave your savings in a checking account. Keep your savings in a separate account designed for that purpose. If not, you could constantly interfere with your savings and squander themon unplanned purchases.

One thing about life is that unexpected expenses show up from time to time. What happens if you weren’t prepared for it?

You should set money aside for unexpected situations such as the loss of a job and save up money in your emergency fund that should last you up to 6 months assuming you lost your job. Your emergency fund should also hold funds for situations such as medical bills, major house repairs, or a huge car repair.

For Businesses

If 2020 has taught us nothing else, it’s certainly taught us how important an emergency fund for your business can be. Fires, floods, riots, and a pandemic are just a few of the things that business owners have had to deal with in 2020. Disasters, social unrest, and pandemics don’t care if you do everything right. But some things are in your control, including your response to the emergency and the availability of emergency funds. No matter how successful, every business can use an emergency fund.

You must check in with your finances daily. Dedicate 5-10 minutes of your time to it daily and you will be good. Enter your spending into an excel sheet or the budgeting app you are using. That way, you will know when you start spending above your budget.

Debt could be a major hindrance when you start working to achieve your financial goals. The first step you should take is to identify the recurrent debts that you have and start with the biggest ones. If you have many accumulated debts, then you may have to set up a debt repayment plan. Allocate a good chunk of your income to paying up these debts and aim at clearing them as soon as possible. You can take it up one after the other. Start with the biggest ones, and then the next, until you have them all cleaned up. When you are done paying off your outstanding debts, avoid getting into new debts.

Here are some tips that could help you clear up your debts faster.

• Set up a side hustle – If your current income cannot pay off your debts quickly, you may consider starting a side hustle. A side hustle will not only bring in extra cash that you need at the moment, but it will also position you to reach your future financial goals faster.

You can go online and research available work-from-home jobs that you can do in your spare time.

You can start with freelance jobs, drop shipping, or affiliate marketing.

Who knows, your side hustle could grow to become a major source of income for you.

• Get a second job – A second job will be handy to help you clear up your debts. This may require some sacrifices on your part, but you have to do whatever it will take to come out of debt and become financially free.

• Sell off idle items in your home – If you look around your home, you could find unused or unwanted items lying idle. Put them up for sale on online marketplaces. There could be someone out there searching for that exact item and willing to pay for it.

• Cut down your budget in some places – Go back to your budget. Look through your listed items. You may find some things you can do without. Take them off the list or at least cut down your budget for them. That way, you could find extra cash to pay your debts faster.

Wealth creation is a process of investing in multiple asset classes that eventually help in meeting one’s livelihood needs. Therefore, wealth creation as an investment strategy plays a significant role.

No one really knows what the future holds for them. Hence, it is better to start planning for the future from the beginning. Starting investments early will help in creating wealth in the long term. Short term investments will not always create wealth.

Each one of us will reach a point where we are unable to work any longer or earn an income. Planning for a safe and secure livelihood in the future is what wealth creation is all about.

“I can't afford it' shut down your brain. It didn't have to think anymore. Besides, it also brings up sadness. A helplessness that leads to despondency and often depression.

'How can I afford it?' opened up the brain. forced it to think and search foranswers. it also opens up possibilities, excitement, and dreams and created a stronger mind and dynamic spirit.”

― Robert Kiyosaki, Rich Dad Poor Dad