Personal finance: From cradle to grave | Zambia Daily Mail

By SYRUS BANDA
WHEN a baby is born, mothers will tell you that it instinctively learns how to suck the breast and get a taste of the first rich drop of milk.
Some babies do so with little effort while others may struggle to have a taste of that succulent colostrum. The instinct of sucking, eating and feeding in personal financial palace could be linked to consumption.
Consumption as it turns out can be viewed as expenditure, an investment. At the extreme end of this inborn trait, is waning, being deprived of life-sustaining nourishment.
In between, the mother would have started introducing the baby to solid food. The prospect of solid food is a hash reality to the unsuspecting baby. Take a moment now as an adult and try hard to reflect on your early attitude towards money. Your early attitude towards money plays a very potent influence in your present day perception of money.
We shall follow a toddler, by way of looking at its personal financial life cycle ? through the ?cradle to the grave? model.
The personal financial life cycle describes a process where we are in our life and how it affects our financial situation. In essence, the ?cradle to the grave? model attempts to show us by way of measuring where we are now and how to get to the next stage in the personal financial life cycle.
Essentially, understanding the personal financial life cycle will at least help to avoid the here and now life style, that is the rear view mirror effect of saying: ?I wish I had done that?? or ?I wish didn?t do this??
Personal finance is derived from the world of corporate finance in that it makes use of the principles and techniques of corporate finance and applies them to an individual?s money management skills, especially the methods of allocating the financial resources.
Others have called this process financial fitness, a state of financial wellbeing.
Under personal finance, the objectives are primarily to attain financial security and independence from the parents. Some might include the cruel world.
Looking at the objectives of personal finance, with life being what it is, very few will appreciate the objectives. The anchor to this is the need to have financial literacy skills.
Financial literacy is the ability to read and be able to understand the story behind the numbers. For example, when you read the numbers on the utility bill, what story do they tell you?
Financial literacy will give you financial options which can lead you to financial security and independence.
A financial plan is a tool that is used to achieve financial success. It said that we all pass failure on our way to success so it is important to have a plan and at best written one.
Financial goals, like other goals, should be set within a structure. One should be able state exactly what they want to do with the money.
With the ban on using the dollar to settle domestic deals the amount in Kwacha terms, the financial plan should be doable. One should also know when they have arrived, at success however they have defined it.
The basic education which lacks financial literacy skills, will not prepare us to live through the personal financial life cycle?s needs and wants.
We need to understand the importance of financial independence and financial systems such as banks, stock markets and real estate.
The parents being financially savvy may opt for a savings account that compound interest. Compound interest has been proclaimed to be the eighth wonder of the world.
It works financial miracles since it has age on its side. Through the savings account, one is able to appreciate the benefit of a savings when the parents give them the pin number.
Such practical skills have a long lasting effect on a child.
When shopping, one might also consider consulting a thin note book. The shopper could be ticking the note book each time they pick up an item from the shelves. That is how a budget is born.
A budget is a financial planning tool as it shows the user where the money is coming from, where it is being expended and the balance. A balance is like food left over when you are satisfied or when you ask for more food, yet you know that the pot is empty.
The left-over is known as a surplus and the yearning for more is a deficit.
A surplus budget will enable you to meet your goals and grow. A balanced budget will live you dazzled like a rabbit blinded by the approaching head lights of a truck.
A budget deficit on the other hand tells you that you have crossed the red line. Akin to a rally driver driving dangerously, it is time to apply the brakes on spending.
Perhaps one would consider applying the now abused austerity buzz word doing the rounds in Europe in the hope that the in flow side of the budget will also improve.
Apart from the budget telling the money story, one would come out wiser by learning how to communicate and gain self-discipline of living within the budget.
With the rebasing of the Kwacha, perhaps the Bank Governor could print instructions on the new Kwacha. Until then, money will still remain as the only commodity that does not come with instructions on how to use it.
When marriage vows are exchanged, people suddenly remember the catchphrase ?for richer for poorer? and wonder why not add, financially ever after. Perhaps the fairy tale stories know better and that is why they all end with happily ever after.
During courtship, money is seldom discussed apart from mentioning what money buys such as for the last time ? talk time. Money attitudes resurface later in marriage life. The very poor attitudes which we cling to namely me-mine and not we-us of money are skin tight.
A couple that is sitting on the three S?s and has a functioning knowledge of budgets will soon learn that it is not too late to become a financial wizard.
The benefits of financial literacy are that it improves the couple?s decision making, a source of happiness and reduces the risk of money fights. The ?energy? saved from the money fights will enable the couple to look at the needs of their siblings, food, education, health, and shelter and wealth creation.
In the intervening period, the kids will be leaving the nest. An empty nest usually turns the clock backwards in time.
Meanwhile, retirement which is ever present, is given a back seat during the life long journey. In fact, retirement planning should start the day one is born.
Old age, as those who have lived through it will tell you, has its own real life drama. The life drama should not stop one from thinking of writing a will and last testament.
The very thought of writing a will evokes death, perhaps that is why so many Zambians, short of saying Africans, never write wills.
(The author is a Fellow Member of the Zambia Institute of Chartered Accountants and managing partner of SE Banda & Company Chartered Accountants with a keen interest in personal finance).

Source: http://www.daily-mail.co.zm/?p=16492

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