When I started my first job 10 years ago at the age of 21, I had no savings culture or investment plan. This lingered for another five years. I had gone from zero salary to over 100,000 per month and my expenses surprisingly grew at the same pace. Interestingly, over the years, as I got an increase in salary, same pattern occurred – I acquired new taste and my expenses grew at the same pace with my income. I soon realized that it isn’t how much you earn, but what you do with what you earn. 

I had lost five years of an opportunity to invest. I had lost five years to make my money work for me. A portion that could have been invested had gone unaccounted for. So where did I start from? Let me introduce you to our benchmark – Inflation.

Inflation measures sustained increase of prices of goods and services in an economy over a period of time. In other words, inflation signifies the time value of money. Tracking inflation from an investment angle ensures that what I can buy with N1,000 in 2018, I can still buy it in the future with the N1,000 plus the interest I earn on the N1,000 capital. Whenever you’re investing, look for opportunities that gives you a return that is at the minimum equal to the inflation rate. That way, the value of money is preserved.

What are my options?
1.)Savings/Fixed Deposit account. This asset class offers an average of 5% per annum. While fixed deposit offers an average of 10%. Nigeria’s current inflation rate is higher than this, as a result the returns on savings account isn’t a good return for the money you worked hard for as it is not high enough to beat inflation.

2.) Treasury Bills/Government Bond: The government issues T-bills and Government Bonds when it needs to borrow money via the Central Bank of Nigeria.
T-Bill is short-term in nature while Govt bond is long term. The key differentiating factors between T-Bills and Government Bonds are timing of interest payment and interest rate nature. For T-bills, the interest is paid in advance.

For instance, if you plan to invest N100,000 in T-bills for a year at an interest rate of 11%. You will pay N89,000 to invest in the T-bill (the interest rate is paid in advance). Then recoup the capital of N100,000 at the end of the term.On the other hand, Government bond interest is paid quarterly, the interest rate is not fixed like that of Treasury bill, it is floating. Always compare the rates on T-bills and Bonds to inflation rate.

3.) Mutual Fund: This is an investment vehicle made up of a pool of moneys collected from several investors for investing in securities such as T-bills, Bonds, equities, commercial papers or even real estate.

There are several types such as the Money market fund. Here, your capital is relatively safe due to the nature of the instruments it invests in. (T-bills, Government bonds and commercial papers). You can start an investment with as little as N5,000. The investor can also compound by contributing regularly to an existing mutual fund account and re-investing the interest accrued.

4.) Equity: The value of a company after all liabilities have been deducted. A share is a smaller unit of a company which measures the financial performance over time and provides an opportunity for investors to buy into it. As an asset class, a share offers value in two ways: Capital Appreciation – This is a growth in the value of the shares. E.g if you buy a bank’s shares at N4 a unit and after two years, a unit is valued at N8, you have just doubled your investment.
Dividend Payment – This is the profit distribution to shareholders. It is declared on an annual basis per unit of shares.

5.) Real Estate: This is the investment in properties. The properties range from virgin lands, commercial buildings to residential buildings etc. Real Estate generates return via capital appreciation, due to increase in the value of the property, and through rental income. In a country like Nigeria, a bulk of real estate growth comes from appreciation of the property. Real estate return depends on the type of real estate asset. Location and purpose of property plays a critical role in value addition

6.) Personal Development. This is my favourite class of investment. You are your greatest investment. Unlike of all the other options, you are immune to inflation rates, currency devaluation or value erosion. Take that course to take you to the next level, take up new challenges, prepare for new opportunities, read those books. Ensure you are deliberate about improving yourself.

It is one to know all the investment options available, it is another to take the right step. Time is a great currency here and the earlier you start the better. It is much easier to start now than trying to play catch up 10 years to retirement. You owe it to yourself to pay yourself first which means investing now.