Majority of employers and managers are conversant with financial plans and budgets which enable them to squeeze every bit of value out of each shilling. But even with such valuable skills, these budgets seem to apply only at the workplace but not on their personal lives.
A managing director and his driver left the workforce at the same time. Each approached their pension administrator regarding their dues. The driver had only Sh700,000 while the boss had Sh5.5 million in pension. However, while the driver was grateful and contented with what he had saved for retirement, his boss was in unquenchable panic.
How best do we explain the reasoning behind a house-help in Kenya who manages to save and educate her children when her employer is in debt and relies on loans to pay school fees?
Just as a paradox contradicts itself and still seems somehow true, pension administrators are constantly dealing with cases involving employers and bosses who exit the workforce more broke than their employees.
Many people with high status and big salaries forget that those perks will come to an abrupt halt in the near future. Their exotic lifestyles revolve around salaries with which they take their children to high-end schools locally and abroad making their salary a small amount compared with what is needed to sustain such lifestyles.
They take loans to buy cars and houses and to purchase an identity with a certain class. They even take normal meals in hotels, meals that have traditionally been made from their houses, yet these are living expenses best described as liabilities.
This is a narcissism that is well explained by the allegory of the handsome Greek hunter who chanced on his reflection in a pool of clear water and fell head over heels in love with it. The Greek hunter became obsessed with the beauty of his image and was unable to leave it until he died.
This 21st century has been held captive by kind-hearted people, who, sadly, possess a scarcity mindset — a belief that there will never be enough. They spend without consideration and take debts to facilitate their lavish lifestyles.
The managing director with his Sh5.5 million retirement money got into panic because he was half-way into paying off his mortgage loan in one of the city’s affluent suburbs. It was a five-bedroomed house that he did not need because he had a spouse and two children. He also had three cars, two of which were high-maintenance and his two children were, as anyone would expect, in expensive schools.
It has been said in different words repeatedly that when one eats their future now, their future will eat them because there is nothing else left for it to eat. In the end, the managing director will have to dispose of the liabilities he mistook for assets.
In contrast, it is puzzling that people with low status and lower salaries have mastered the science of humility founded on fear of the unknown, further augmented by self-regulation and fiscal responsibility. Humility is most accurately judged when it is under strain.
For instance, the aforementioned driver with his Sh700,000 pension gladly took the money and upgraded his 20 mabati rental structures with water and electricity after which he raised rent from Sh1,500 to Sh2,500. All the driver needed was 14 solid months to recover his Sh700,000 through rent from the same houses that lasted another three years before undergoing minor renovations.
It is possible to tell that this driver bought himself hope which is a by-product of well-set structures. Hope is what keeps people alive because it is an optimistic state of mind that is based on an expectation of positive outcomes with respect to events and circumstances in one’s life.
This juxtaposition between a high and low income earner only goes as far as describing the epitome of financial freedom. It is not necessarily true that low-income earners are better prepared for retirement than high-income earners. However, the risk that a high income earner will have too many assumptions is not in doubt.
In essence, the epitome of financial freedom involves having enough savings, investments and cash on hand for an individual to afford the lifestyle they want for themselves and their families; and a growing portfolio that will allow them to retire without being driven by earning a certain amount. If someone can generate enough income to meet their needs from sources other than their primary occupation, they have achieved financial independence.
Saving is an attitude whose oxygen is asset accumulation. Rich or not, everyone should set out to gather revenue-generating assets until the generated revenue surpasses living expenses which are always a liability. One should therefore gather enough liquid assets to then sustain all future living expenses.
Another approach to financial independence is to reduce regular expenses while accumulating assets to reduce the amount of assets required for financial independence. This can be done by focusing on simple living. However, before symptoms show, it is important to seek a pension expert’s advice.
The writer is CEO, Enwealth Financial Services Ltd.