This was one of my first articles and is reproduced here for your benefit. It is a long but worthwhile reading.
At the beginning of 2018 I decided to take charge of my personal finances by becoming my own personal CFO (Chief Financial Officer). This was because I felt like I was not making enough money as I was constantly struggling to finish the month with some cash left behind. Despite being fairly paid well things were quite tight. This is despite the fact that my salary has significantly increased since I started formally working over 10 years ago. Moreover I am fairly educated and knowledgeable and yet I could not figure out how to manage my money. This was rather embarrassing given that part of my job entails developing and implementing financial strategies for businesses. Someone once told me that if you are lucky to have a job in Uganda there is no valid excuse for being broke. If I were the CFO of any company and managed the company’s finances the way I managed my personal finances I would have been fired a long time ago.
I didn’t have any clear financial goals. I could not explain to anyone how I spent my money. I was heavily in debt. I didn’t have any emergency fund! I didn’t have any savings to last me even a single month. I didn’t have any sensible savings and investment strategy. I had one primary source of income. I didn’t have any records on my expenses. Yet every Sunday I was praying to God for financial breakthroughs and blessings. So I decided to become my own personal CFO. If a company in financial trouble hires you as a CFO the first thing you need to do is figure out what the hell is going on! This requires data and information. I didn’t have any. So I decided to start recording each and everything relating to my finances.
First I reconstructed my personal balance sheet. A balance sheet shows your assets and your liabilities. The difference between your assets and liabilities is your net worth! Typical assets might include long term assets like your house, land, and any other property. It would also include your NSSF balances if you are lucky to have one. The short term assets might include cash and any short term savings like unit trusts or insurance products. Investments in your other businesses will also typically form part of your assets. Your car is really not an asset as it rapidly depreciates so I would not recommend that you include it as an asset.
Your liabilities will include any money you owe including salary/business loans, credit cards, unpaid bills, etc. After reconstructing my personal balance sheet I noticed some interesting things! Luckily my net worth was positive. This was a good sign! This means I had more assets than liabilities. If your liabilities are more than your assets, my brother/sister, you are in big trouble! Technically you are insolvent or bankrupt! Even though my net worth was positive my short term assets were less than my short term liabilities. Basically I didn’t have enough cash or liquidity to pay my monthly bills. When this happens in a business we say there is no working capital and businesses will usually borrow to cover the shortfall. Because of this I decided to immediately start saving a portion of my salary before even spending it and also start paying off the loans. This way I gradually began to improve my liquidity position.
I also noticed that I had so many loans! I had a credit card loan, a salary loan from work, another salary loan from a commercial bank, and another loan from a SACCO. I also had a salary advance from work just to top it off. Actually last year I spent 30% of my income after taxes on loan repayments!!!! Basically I had heavily borrowed to buy long term assets like land which didn’t have any positive cash flows in the short term. I was then using my salary to pay off the loans. Ideally if you invest in any venture, the venture should be able to pay off its own loans. Interesting to note that since I started working over 10 years ago I have always had some kind of loan facility. The interest on these loans was killing me. I think it says somewhere in the bible that the borrower is slave to the lender. So I decided to start paying off these loans starting with the smallest ones and gradually building momentum to clear the rest. I also immediately halted any further borrowing and decided to live within my means. If I can’t pay cash for anything then I simply don’t buy it.
Next I put together a monthly budget which I was determined to follow. The budget is basically your vision of what you earn and how you plan to spend it. I think it says somewhere in the bible that my people perish for lack of a vision. I was clearly perishing for lack of a vision for my finances! My budget now became my Vision for my personal finances. I also began to educate myself on personal finances by reading various books and listening to podcasts. Being a professional accountant or holding a degree does not mean you know how to manage money. To reduce on household food expenses I started a backyard urban farm where we grow fish, vegetables, chicken, and bananas at home. This has significantly reduced the household feeding expenses.
Next I needed to determine my financial goals. The key questions I had in mind were; how much should I save monthly? How should my income grow to meet my financial goals? How much do I need to save and invest in 3 years? How much will I earn in the next 3 years? How much should I spend in the next 3 years? Where should I invest my money? How much debt should I hold? What are the key financial risks and what is my plan to address them. See if you are a serious CFO for any business you must have the answers to these questions on your finger tips or else someone is going to fire you soon!
So I put in place a personal monthly cash flow forecast for the next 3 years. A cash flow simply shows what you will earn, spend and save over a period of time. I can now comfortably answer all the previous questions. I fairly know how much I am going to earn in the next 3 years. I have a good idea what my level of expenditure will be. I know how much I will spend on fuel. I know how much I will spend on home expenses like water bills. I know how much and when I will spend on school fees. School fees will no longer be an emergency at the beginning of each term! I know exactly how much I am going to save in the next 3 years. I know how much I will invest. I know the additional income I will make from my investments. I have a plan to address financial risks like loss of a job or emergency expenditure.
To make sure I was clearly following the budget I tracked and recorded my expenditure daily throughout 2018. I installed a simple app on my phone and each time I spend money I record the expenditure and take a picture of the receipt. This has given me several months worth of data on my spending habits. I now clearly know my spending habits and I have gradually adjusted them to meet my financial goals. After reviewing my expenses, it is interesting to note the many people I gave/paid my hard earned money last year! I gave a lot of money to my bank in interest and bank charges. I gave a lot of money to Shell petrol station. I gave a lot of money to Umeme in Yaka purchases. I gave a lot of money to my family and relatives. I gave a lot of money to MTN for all those data bundles which I never used. I gave a lot of cash to cafe Javas. I gave lot of money to Game stores. I even gave some money to Maurice Kirya for some concert we attended. I paid a lot of money to URA. I hardly paid any money to myself! So I decided to start paying myself first by saving 30% of my money consistently on a monthly basis.
After managing my personal finances like a CFO for almost two years things have begun to slowly get back on track. I have paid off all my loan and I am currently debt free. I closed one bank account which was costing me 70k a month for the privilege of being a prestige customer. I really don’t need prestige banking anyway since I now use mobile banking! I paid off and cancelled that bloody credit card! I was paying over 30% in interest on that stupid credit card. I automatically save/invest over 30% of my income after taxes. My gross savings ratio is over 30% (that is savings/gross pay). I have set up standing orders with my bank so everything happens without my intervention. I have a standing order from my salary account to my savings account for savings. I have a standing order to buy Bank of Uganda treasury bills every month. I have a standing order to buy a 10 year education insurance product every month for my daughters’ education. I have a standing order to invest in specific unit trusts. I have diversified my investments into manufacturing and agriculture.
I now feel like I finally have some control over my personal finances. I have a vision for my finances. I know where each shilling goes. I have cleared all my debt. I have a clear saving and investment strategy. I know when my money will start making more money than I need to live and thrive on. At that point I will not really need to work in a formal job to survive. Even though no plan is full proof, it is better to have a plan than none at all. It won’t be easy getting there but the journey will truly be worthwhile.
I hope in sharing this experience that someone out there who might be struggling financially will be inspired to make some drastic changes and take action to turn around their situation.