We are living in unusually uncertain times where most events are regarded as unprecedented. There is extensive volatility in politics, global (and local) economies, around climate change and many more. These events take me back in time to the early 19th century where, when a ship was about to enter rough seas, the captain would order the crew to batten down the hatches. The crew would close all the hatches (doors) on the ship’s decks and use lengths of batten (rods) to secure the hatches in the closed position. So, this begs the question: is there financial success in these tumultuous times? How do you batten down the hatches in this environment?
This is no time to panic or fret. In this article I will be demonstrating that there can be financial success in these tumultuous times. I will argue against the common prevailing notion that financial success is completely out of reach for most people.
What does financial success mean?
The definition of financial success is unique and different from one individual to the next. To some, financial success might mean freedom from debt. To others, it might mean full financial independence. How do you measure your ‘financial shape’? It really depends on what your individual goals are.
One prudent measure is to determine your net worth. If you add up the value of all the things you own and subtract from it all your debts, what’s that number? Ideally, that number should be higher than it was a year ago. If it’s higher, then you are achieving financial success. If it’s not, then you are making some missteps and not achieving financial success, especially if this pattern keeps repeating itself.
That level of financial success is obtainable for virtually every South African. There is almost no one in a situation where it would be impossible for them to improve their net worth over the course of the next year, if they chose to take action to do so.
Assuming that there’s no change in a person’s spending or professional income and assuming that they are spending less than they earn and doing something productive with the saved amount, their net worth should start to accelerate over a long period of time. As that person pays off their debt, they will be able to devote more money each month to paying off the balance of their debts and less to paying off interest on the debts. Eventually the debt will be gone and the freed up amount can go towards savings and investments that will start growing on their own as the returns on investments are compounded.
What is hindering us from becoming financially successful?
The problem is that most people are defining success in terms of what other people are achieving. The only fair way to judge success is by using yourself as a measuring stick. Have you taken steps to put yourself in a better situation than you were in before? That’s all that matters.
For example it would be unrealistic to compare your financial state to someone who has received a huge inheritance. The only race worth running is against your prior behavior. When you strip away the advantages (and disadvantages) that other people have, you are left with nothing but yourself. Can you do better than you did yesterday? I am therefore a proponent of defining financial success based on whether you have improved your net worth relative to prior year(s)
It is prudent not to judge your own success by the circumstances of someone else’s life. It will either make you frustrated or complacent. Instead, use your own past as the metric for success.
As indicated earlier on, we are indeed in precarious times. It is important to separate the noise from the facts and stick to your strategy. You may alter your position only during major changes in your life, for example job changes, marriage, divorce and so on. It is also important to ignore the temptation to take unnecessary debt during these tumultuous times.
Final thoughts
Effort is the single key ingredient in financial success, or any kind of success. If you work hard and don’t find success, you either need to look more carefully at where your effort is going or reconsider your definition of success despite the economic or financial turmoil.
Created by: Sydney Sekese, CFP®
Old Mutual
Find a Financial Professional @ https://fpimymoney123.co.za/find-a-financial-planner/
