For the longest time I had a really weird relationship with money, and I chalk it up to a mix of ignorance, fear and luck.
On one hand, I’ve always been able to make money through sheer grit and hard work. I’ve earned an income since my first year of uni.
On the other hand, I was never able to keep or grow money. My mum taught us to save, but it never became a habit for me. My mum taught us to invest, but the paltry dividends from the NSE were never attractive.
And so until recently, “making money” seemed out of my reach. I’d often tell people I was good with work but not with money. I also felt a bit of fear — like thinking about money would corrupt me.
My philosophy was not to deep it too much: focus on doing great work and the money will come. And it worked, so I never had to change.
The most I ever earned without work was in 2018 when I bought $700 worth of ETH and it became $23k literally overnight. But I learnt nothing about investing from this experience. Instead, I bought a BMW.
I now believe people really only start to think about money when there’s a forcing function.
For some, that function is the condition of their birth. Maybe you grow up having to fend for yourself or your family. Or maybe you grow up around wealthy people who intentionally shape your mentality.
For others, that function is growing up. Maybe you move to a new city with a higher cost of living. Or maybe, like me, you get a windfall, spend it down to a fraction, and then start to worry about not being able to afford your new quality of life.
In hindsight, one thing is clear to me: if you’re lucky enough to not have to worry about money, don’t wait until your forcing function.
In July, I reached out to a bunch of friends who I felt understood money to advise me on what to do with the rest of my payout.
Everything they taught me is easy to find on the internet and in books, but there’s something about hearing it from your friends.
My new philosophy, shaped by their advice, boils down to this:
- Money is many things, but most importantly a life skill. Refusing to think practically about it just delays the inevitable.
- It’s less about how much I have in the moment and more about how I think about it. Having a good mental model is crucial.
- Like any other subject, I need practice to get better at money. I read widely but things didn’t make sense until I started trying them out.
- Time is the most important ingredient in building wealth. Compound interest is designed to reward patience.
- Cash is often the least productive form of money. Securities are a better way to hold value, especially when I don’t need it.
Spending
In the money equation, the easiest variable to control is spending, which makes it the most important. A good money system requires you to be on top of your spending. Businesses understand this more than people.
My first lesson was to separate my income from my expenses, thinking about “how much I need to spend” differently from “how much I can make” and bridging them with “how do I use my income”.
In the first half of the year, I moved back to Lagos and cut down on extraneous and impulsive spending. In the second half, I tightened things up by delegating a separate expense account. Having to move money to spend it has improved my consciousness.
Princess and I also started setting weekly spending limits, unrealistic at first. Setting these limits has been a good way to figure out how much I really need to spend. In the past, my budget was not based on any real science so I often inflated my needs. Doing this with her also makes me more accountable, which is important to any form of self control.
This gets exponentially more difficult when you have dependants, so I bet it’s better to build this habit earlier than later.
Income
My old philosophy of money over-indexed on labor: to make more money, do more (or more lucrative) work.
While this worked, the problem with relying entirely on grit for making money is that it robs me of time — to be, to play. It means that most of my waking hours have to be commercially productive.
My job has been my sole source of income since 2016, and the Stripe payouts have been a significant stream. So I’ve had reasonable capital for some time, but I only just learnt to use it this year.
“Why not invest the money you have and spend the interest you make on top of it?” sounds like common sense. But until now, it wasn’t an option for me. Investing felt like such a complex topic that I felt better not thinking about it at all. Again, ignorance and fear.
Short term, I need to continue to improve my income (payouts don’t last forever except you work in the Nigerian government). But long-term I want to earn enough interest that I don’t need to spend from my income.
Investing
ETFs.
Everyone I asked said the same thing: the best thing to invest in as a noob is either Treasury Bonds or Exchange Traded (Index) Funds. These securities work best for new investors because they’re least risky. Treasury Bonds are government-issued; ETFs are a basket of stocks.
Investing is basically betting on entities (companies, governments). The higher the risk, the higher the potential reward (or loss).
I started with index funds and gradually increased my risk. With the more volatile securities like single stocks and crypto, I invested small amounts over time to be more efficient (dollar-cost averaging).
Buying these assets made me realise just how little access I have to the global financial system as a Nigerian passport holder. The new wave of investment apps that make it possible to invest in US stocks, real estate and crypto make such a huge difference.
Results
It’s been six months now, and my average rate of return is 25%. The short term luck is encouraging.
I invested simply: US and global index funds, a real estate mutual fund, semiconductor stocks and infrastructure crypto projects. I chose things that made sense to me and bet with the long term in mind.
With these buckets I now have a clearer sense of where any extra income should go. I also need to improve my cash holdings by finding a higher yield savings account.
Investing is a long term game and I can lose just as much as I’ve earned, but the initial results have been great.
Making money is not so scary after all, ba?
