LAI—LIVING ABOVE YOUR INCOME/ LWI—LIVING WITHIN YOUR INCOME

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Over the past week, I have had to answer a lot of questions from blog visitors about the three categories that I talked about in my last post, if you miss it you can get it here. I will take out time to explain in details about the three categories, starting from the LAI—Living above your Income, I must stress at this juncture that to have a grasp of our financial life,  we must be ready to take responsibility of our spending habits. Worthy of note is the fact that  we all are looking for financial liberty, freedom and stability.  Also, it is not only low income earners that need financial literacy, even the rich who have poor fund management skills do.

Living Above your Income, is simply a situation where you spend more than you earn on a monthly basis and you are left with nothing to save. In real life situation, we are to save at least 10% of our earnings. But most people deceive themselves to believe when they earn more they will save better,  forgetting that spending as well as savings are habits which needs to be cultivated over time.  So I put it to you, if you cannot save when you are earning less you will not save when you earn big. Why? Expenses grow as your income grows and it is a big pitfall that we all have the potential of falling into.

LAI people spend more than they earn. They are constantly living in debts or in and out of debts, they spend to prove a point; buy clothes and shoes of the latest fashion trends with high taste for designer brands, cars, jewelries, travel abroad etc. Just  to consciously or unconsciously inform people around that they are big boys and girls. In order to satisfy these insatiable desires you buy things on credit (both the things you need and the ones you do not need) and at the end of the month you are either broke or you risk being embarrassed for credit purchases. With this lifestyle, this category of people has no savings, but would rather have incurred debt. If you are living in this category, you cannot achieve financial freedom that you so desire.

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Another challenge with people living above their Income is COMPETITION you must deliver yourself from the competition if you want to be financially free. This is a must, never compare yourself with anybody, I had to deliver myself from it, it dawned on me that am not under any obligation to out shine anybody as I am living my life for me and not for anybody. I am not saying you should not dress well or eat well, what I am saying is you can do things within a good budget and still not losing focus of the future, I am an optimist and I believe in a better financial life but it is a journey. The principle is understanding your present state and knowing that it is a bus stop and not the final destination.

Another pitfall is PEER PRESSURE, any friend that will not accept you in your low state is not worth being your friend, one of my clients did an analysis of the “Aso ebi” she bought last year and we discovered that she spent well over Four Hundred Thousand Naira in a calendar year. Before you judge my friend, I will give it to her for being able to track her expense. Can you?? Calculation for phone call cards, snacks, trips, etc. I am not a judge, but I am passionate about how we can live our life void of financial embarrassment, trust me I have been there and it is not a good state to be in.

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IMPULSE BUYING is another trap, people buy things they do not have an immediate need for. I twittered last week that “My wallet is not in my pocket, but in my brain, I think and weigh every purchase before I pay”. Some people felt it was cool some say its extreme, but I say that is the way to go. You need to have a hold on your expenses, have you ever asked yourself why you have chocolates and candies at checkout/paying points in shopping malls and supermarkets? The owners want you to buy on impulse. Impulse buying is a rash financial decision.

 BAD FINANCIAL HABITS (Faji), Womanizing, drinking, smoking, chocolate addiction and all sorts of addictions and habits are other reasons why some people fall under the LAI or LWI group. Let's  do a rough calculation, you take three bottles of beer every night, let's say minimum of  four days in a week, you would have taken one hundred and eighty bottles of beer in a year, multiply it by the amount it sold and often times, this beer will go with a bowl of pepper soup or assorted meat. That is why drinking joints will never go out of business  and you on the other hand is indebted. Same thing goes for womanizing, chocolate addiction, which is called “chocoholic” and remember good chocolates are not cheap so you keep spending. We can go on speaking of the different reasons why people spend anyhow, and do not have savings.

Living within your Income is similar to those living above their income the only difference is those within the LWI group are not indebted. There is a thin line between the LAI and LWI group, and more often than not, the people living within their income fall short and find themselves at the other end which is living above their income.

A simple formula:

Income – Expenditure = Debt,  (Then you are living above your Income)

Income – Expenditure = Zero, (Then you are living within your income)

 

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You can join me in this #personalfinance campaign by sharing this blog with your friends and all that you know. We will be talking about LBI- Living Below your Income in our next post.