Guest Post: How to be Financially Independent in Nigeria

Today's guest post is from someone I have lots of respect for and who wishes to be anonymous. Someone who has been there since before my life took a drastic turn -- even provided help when GTBank wanted to ruin me in 2014.

Enjoy!

image: smallbankmanager.com

There is no social security system in our dear country Nigeria. If you lose your job, lose your ability to hustle or get a terrible disease and you have no family to take care of you, you are basically screwed. For this reason we must self-insure by becoming financially independent. This does not mean all unforeseen disaster is 100% covered – war could break out, stock markets could crash, governments could fail etc. However, one can at least reduce risk to as low as reasonably possible by becoming financially independent. Everyone can become financially independent. Some will have an easier path than others: those in the middle class and above.

The first step is to save 50% of your income. This is a minimum savings rate. No buts, no ifs, no excuses. There are several sites that show how fast one will achieve financial independence as a function of the savings rate. In case you haven't come across one, check out this one here. This savings rate does not depend on your actual income. So whether you earn N20,000 or N200,000 or N2,000,000, the same minimum savings rate should apply. There are people who live on less than N10,000 per month. Do whatever it will take to live on only half of your income. Refer to the book “The richest man in Babylon” if you have any reason why you think this will not work for low incomes.

Max out your pension contribution. The law in the Nigeria is that employees contribute as a minimum, 8% of their earnings to a pension scheme with a minimum employer match of 10%. If you are self-employed, contribute 18% of your earnings to a pension scheme. It is very easy to open a pension account. Additional contributions over the 18% are tax deductible as long as you make no withdrawals within 5 years of making the contribution however since Dec 1 2017, it is no longer withdrawable tax free. Retirement age is 50 years.

Invest your savings. Invest in what you know and understand. I prefer real estate, self-owned business, low cost index funds and money market instruments (e.g. treasury bills, bonds). Diversification is key. Put your eggs in many baskets. Don’t fall for quick money making schemes. Invest in low risk instruments if you do not have the appetite for high risk investments. Invest with a focus on generating alternate income. Re-invest the income generated until you retire and wish to begin withdrawal. Your withdrawal rate must be lower than your investment growth rate after accounting for inflation. Being in Nigeria makes accounting for inflation a herculean task but it is still possible to do so.

Give out a minimum of 10% of your income. You may give to relatives, the less privileged, church, charities etc. The main concept here is to give to those less privileged and not to keep 100% of your income to yourself. Controversially, I will say, if your church owns a private jet, best to focus your giving directly to the poor. This is a personal opinion. As you mature in your quest for financial independence, you may increase this percentage.

The wealthiest people today are all entrepreneurs or inherited their wealth from their entrepreneurial parents. Stir up the entrepreneur in you if your parents aren’t multimillionaires.

Ensure you have a will so that your immediate family is taken care of if anything happens to you. I cannot over emphasize this.

Good luck!