By Nkeiru Ikonne
Our list is consistent with the consensus of commonly made financial mistakes, though it may not exactly align with Wall Street, State Street, Fidelity Financial, Prudential Investments, or any other investment company’s lists of financial mistakes. In coming up with this list, we considered the culture and behavior of Nigerians in the United States. For example, while the investment companies above may advise against spending too much on buying a house or buying a second home, we would advise against building a lavish country home in Nigeria.
10 Planning to Fail
In the world of business analysis, the quote “failing to plan is planning to fail” has been used to capture the importance of planning. But the quote is just as applicable in the financial world. Most Nigerians in the United States spend countless hours making money but won’t spend two hours a week planning their finances. Without a concrete plan, most of us are oblivious of where we are and where are going financially. Spending time to plan your finances should be a financial priority.
9 Not Enough Investment
Many Nigerians do not have their money working for them in the markets or in any other income-producing investment. Most Nigerians do not have the patience required for long-term investment or the acumen to understand the market. Yet, comfortable retirement requires substantial investment, like taking advantage of tax-deferred retirement accounts that are available through employer-sponsored plans. To invest wisely, it is important to consult a certified financial planner who can match your plan with your goals.
8 Mortgaging Your Mortgage
When you refinance your house and take out cash, essentially, you are mortgaging your mortgage. In other words, you are giving away ownership of your house to someone else, which makes it harder and takes longer for you to pay off your mortgage. Another downside to refinancing is that you will end up paying more than your home is worth. You are very likely to lose money when you are finally ready to sell your house.
7 Spending Too Much on Building A Home Away from Home
Nigerians spend large amounts of money building homes in which they may never live. Culturally, Nigerians perceive owning a huge country home in Nigeria a mark of success—even when this home comes at the expense of failing to meet other financial obligations. Even if considered a second home, unless you have a large family and return to Nigeria more than three times a year, building a 6,000-square-foot home makes very little money sense.
6 Car Loans
Nigerians are known to make big entrances. Part of that big entrance is driving expensive cars even when disposable personal income (DPI) cannot conveniently support such expenses. They get tied in a 5–6-year car loan payment of $400 to $500 a month. To make matters worse, the cost of gas for these expensive cars are not considered prior to purchase. You can trade your expensive car for a cheaper and greener one. Many Nigerians think that paying cash for these expensive cars is better. It is not. In fact, it is even worse than taking a car loan.
5 Not Having Long Term Disability Insurance
In planning your finances, an emergency fund, or “slush fund,” should not replace long-term disability insurance. We talked to a very smart Nigerian who was able to save his house through long-term disability insurance he took from his employer. Long-term disability insurance helps you endure any long-term illnesses without too much financial stress on your family. It usually pays about 60% of your normal salary. Before shopping for long-term disability insurance, check with your employer and investigate whether they offer long-term disability insurance.
4 Not Having a Budget
Most Nigerians do not have the time to sit down and budget. Yet, if you must make your money work for you, it is important to know where it is going. Everyone needs a budget that works for them. But the 50/20/30 rule can be altered to fit most situations.
The rule stipulates that:
- 50% of income goes to housing, groceries, transportation, and utilities
- 20% of income goes first to retirement, second to savings, and lastly to debt servicing
- 30% of income goes to shopping, going out, travel, and lifestyle choices
Making a budget is easy, the hard part is tracking it to make sure that you make necessary adjustments when needed.
3 Living Paycheck to Paycheck
Living paycheck to paycheck is a clear indication that something needs to change—either a change of profession or budgeting. No one can predict everything. In budgeting, it is important to create a slush fund that can cover unexpected expenses such as when your car breaks down. A slush fund provides a spending cushion that will prevent you from borrowing from other important budget areas like rent or medical expenses.
2 Not Taking Advantage to Save During Employment Period
Whether building a village mansion in Nigeria or being caught in a web of extended family handouts, Nigerians have a good number of excuses not to save money. Yet, leading financial experts warn that you should be saving money for retirement whenever you can make money. At least 20% of your income should go towards retirement. To help you do a better job at calculating for retirement, we have added this link https://smartasset.com/retirement/retirement-calculator.
Most of us work for companies that offer retirement savings programs such as a 401(K) or 403(b). If your company does not offer a 401(k) or 403(b), open an IRA account.
1 Frivolous Spending
They say great fortunes are lost one dollar at a time. Nigerians lose more than one dollar at a time. Most of the money Nigerians lose to frivolous spending is lost in the name of culture. It may seem like we are keeping to our culture when we spend $20 to $100 covering friends at parties and events—insisting on consuming high-end scotch and whiskey or buying high-end clothes (even when we can hardly afford it). But every little bit adds up—just $50 a week equals $2,600 per year; this could be a few months of car payment, rent, or even mortgage.
The truth is that many Nigerians live in denial of their financial hardship. There is an entrenched psychology that orients Nigerians toward making others see them as successful. (For example, Nigerians spend top dollar on expensive scotch and whiskeys.) Yet when confronted with unexpected financial problems we rely on the benevolence of friends and relations. Relying on friends and relations for minor financial bailouts is not inherently wrong, but when it involves major spending it creates a loop of network impoverishment. Think carefully before spending your hard-earned money. If you want to develop a working financial plan, we will connect you with a qualified and certified financial planner.