My Five Pillars of Wealth - A path to financial freedom

Photo by Towfiqu barbhuiya on Unsplash

Financial Independence Retire Early (FIRE) is a movement of people devoted to a program of extreme savings and investment that aims to allow them to retire far earlier than traditional budgets and retirement plans would permit. (definition from Investopedia)

My understanding of FIRE is simply having complete control of my time. I believe you can't really retire from doing something you really love, case in point Jakom aka Baba aka the fifth/sixth/seventh etc😂😂 I am working to achieve complete financial independence by age 40 and then spend the rest of my life travelling, trading for regular income, and spending more time with my family..but it looks like Zakayo wants to derail my plans with these new taxes. After Zakayo there is inflation waiting to chapa my disposable income kiboko and not forgetting my jaber who has expensive tastes😂😂.

But all is not lost. I have a plan! The five pillars I consider important which if I follow diligently I believe nitatoka block💰. Let us discuss:

1. Cashflow Management aka Budgeting

I believe in life you get what you focus on. Pay yourself first, minimize expenses, avoid unnecessary debt, spend with purpose and you will create a life of infinite wealth.

Your monthly passive income should always exceed your monthly expenses. This way when you stop working, your assets will feed you.

I use an Excel budgeting tracker which also has graphs to show me how I am using my money and how far I am from my 12-month emergency fund. It is important to know how you use your money. Budget for every shilling you earn.

If you benefitted from HELB, I highly encourage you to start paying it off. In addition to what your employer deducts, you can make an additional voluntary contribution. I did this and will be clearing my HELB loan in a month's time!👏👏

2. Savings

My objective here is to psychologically frame savings to create my dream life.

I have this thing I call THE KING EATS FIRST! I work hard every day to earn my salary and when that debit alert hits, the first thing I do is save. I have money markets and a SACCO. I am working on automating all my savings to relieve the stress of physically transferring money kila Wakati. (the lunje in me can't resist Swahili..)

My savings are in the following buckets (something I learnt from Pius Muchiri, MD of Nabo Capital.. you can watch his videos on YouTube):

Lifestyle portfolio - This is my emergency fund. Start from your first paycheck and invest purposefully. I don't touch my emergency fund. I let it compound. My goal is to have my future expenses like rent paid from the interest earned on this fund.
Security portfolio - This is for potentially disruptive high-value expenditure lines like education and healthcare.
Aspirational portfolio - This enables you to upgrade your life. You can save for travel and even purchases like furniture. I call it the dream bucket, you can even save to buy a jet! This is the fund you spend with no GUILT!!!
Legacy portfolio - This helps you ensure your wealth transcends multiple generations. To whom should you transfer your wealth and how should it be transferred. This is usually the last portfolio you start working on after the other three are in place. This blog forms part of my legacy, the lessons herein will be passed on to my kids and their kids. I just pray they have a reading culture😂

3. Investing

The objective here is to understand how markets work and how the economy works to benefit from economic cycles, create investments that maximize your gifts, understand how strategies improve Reward/Risk ratios in investing that contain risk and create outstanding portfolios.

The typical Kenyan will invest in Land..maguta maguta. But today's financial markets have grown to offer different alternatives like money markets, stocks, ETFs, crypto and bonds.

I think having a mix of both paper, physical assets and insurance is key. My go-to is real estate, money market bonds and life/term insurance.

I love real estate because I believe cash is king. In these times nothing comes close to having regular cash flow. I have seen people hate it because of the low rental yields, but they forget the aspect of capital appreciation, the value of the property will always grow. Even with apartments where you have sectional titles, there is value in that.

My dream is to have 1000 rental units, and it's purely for cash flow, I can use the cash to buy bonds!

Money markets are safe, but remember they are tied to the sovereign. They become riskier if the government is rated poorly. Ghana defaulted, Kenya can always default! Diversify! But they are a good place to have your emergency fund.

Lastly, develop a skill, or hobby you can earn from. I love trading and have recently gone back to video editing and teaching beginner traders on YouTube.

https://www.youtube.com/channel/UCcDTosv5ZJquY3RzCrRk7Ew

4. Tax Efficiency

How much do we pay Zakayo in a month? In a year?..in five years? For investments like real estate, the tax is low, and I think if you are part of the affordable housing developments, there should be some tax incentive for you as a developer.

I am not familiar with our tax code, but if you can avoid tax avoid...don't evade..avoid.

5. Asset protection

The objective here is to protect your investments to preserve your financial freedom.

In Kenya, especially if you are in the middle-class kuenda chini, you are one disease from becoming poor. The cost of healthcare in this country is expensive.

Having an insurance plan will help protect your assets. Term/life insurance can also be part of your legacy, your children will benefit from it. The earlier you start the better.

In a nutshell, that's how I am planning to achieve FIRE. I understand I have to put in the work. Since I have a 9-5, my goal is to increase my skill set, and be very reliable at work to increase my earning potential. To be honest you can't save what you don't have.

If don't have a job or just can't afford to save, start by working on your skills to get you a better job which can allow you to save.

Fill your day with high-priority activities to increase your chances of creating wealth. The best things in life come from investing, from making the decision to do something difficult or painful now to reap the rewards of compounding later. Most of the decisions that feel good now will feel bad later, like jumping into a purchase that significantly impacts your finances when it was completely unnecessary. Saving is hard, but the long-term benefits of compounding will feel good later. Be an investor, i.e. a long-term thinker, willing to delay instant gratification for a better future!

Some YouTube links, you can watch to pass time or maybe learn a thing or two:

So Good They Cant Ignore You - Why Skills Trump Passion in the Quest for Work You Love

Cal Newport is renowned for his groundbreaking insights into focus and productivity. He is the author of Deep Work, Slow Productivity, So Good They Can't Ignore You and Digital Minimalism. I first heard about him on Ali Abdaal's channel, I remember it was a video of Ali summarizing Deep Work, one of Cal's books which I eventually bought, and even got to review some of the initial chapters. That review is somewhere in this blog I have since read two of his books, and plan to purchase another one before the year ends. Today I focus on So Good They Can't Ignore You. Why do some people end up loving what they do for a living, while so many fail at this goal? It starts with mindset. Do you have a craftsman mindset or a passion mindset? People who love their jobs have a craftsman mindset, not a passion mindset. Let me differentiate the two: A passion mindset focuses on what the world can offer you, while a craftsman mindset focuses on what you can offer the world. When you f...

Food for thought

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