When finance is spelt out, what comes to your mind? Money, right?
But let me apprise you in this article, finance is beyond money matters alone. It is the management of everything valuable that you own. Finance is not just the money you have at hand, it is all the things you have as an asset (what brings profit, and not loss).
As an entrepreneur/salary earner, your finance is a bracket of your money, assets and wealth. In this article, we shall break all these down for simpler understanding.
So, what is money?
“Money is the generally accepted means of exchange and measure of value.” says the Oxford dictionary. It is also the hard/soft cash that we spend as individuals in our day to day activities. Money is not what makes anyone the richest. The influential men we have in our society today were not made because of the money they possess, but because of the influence and wealth they have garnered. One good thing about money is that it can run your errands, and a bad thing about it is that it can control you.
When money is not properly wired through the right channel, it can slip away so easily. For instance, when it is not properly invested and you lose it, it could lead to unforeseen circumstances_ sicknesses, imprisonment, loss of properties and lives. Money is not a good master! It should not be ranked above your relationship with family, friends and colleagues. It has the ability to possess you when you overrate it.
Money has the ability to solve many problems, but it cannot solve it all. In handling money, one has to be careful. Money does not come to some particular set of people, it is not biased; it moves freely and only stops where it has been called. It only comes to those who have the knowledge about the laws of money: multiplication, retention, diligence, and knowledge.
In the next paragraph, we will discuss assets.
Assets are regarded as your properties, the ones which bring in value for you and does not take away from you. They are also considered as resources that not only provide for now, but also the future; they have present and future value. They mostly appreciate over time.
Assets can be classified into three categories: convertibility (current and fixed), physical existence (tangible and intangible), and usage (operating and non-operating)_ Source-Internet.
The International Financial Reporting Standards (IFRS) framework defines an asset as follows: “An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.”
Examples of assets are lands, buildings, vehicles, brands, inventories, investments, real estate, furniture, equipment, trademarks, patents, etc.
Lastly, we will look at what wealth is:
Wealth is the total value of everything you own, seen or not. What you have at hand, what you conceive to have and what you are working to have are all regarded as your wealth. So, when you are thinking of your wealth, you are thinking of what you want to have and what you need to have.
As a wealthy person, you already know how to make money, so it comes freely; you don’t have to kill for it. If as a person, you don’t understand wealth, you cannot make money in the right way. The understanding of how money and wealth works makes it easy for anyone to make money.
Reflectively, having all the money in the world will not make you wealthy, but when you are wealthy, money finds its way to you. This is one principle of money you should know as someone who wants to make it. Wealth starts from the mind, not by how much you earned.
Someone once said: “your cycle, influence, affluence, friends, mentors, colleagues, health, time, and assets sum up to how wealthy anyone can be.” Wealth is not something you can pull together on your own, you need the help of others.
Your wealth is your network, and your network is your net worth; net worth is the most common measure of wealth, determined by taking the total market value of all physical and intangible assets owned, then subtracting all debts. Both wealth and poverty starts from the mind which breeds the saying “whatever your mind conceives is what you can achieve.”
There are seven levels of wealth: dependence, survival, stability, security, independence, freedom and abundance.
- Dependence is depending on someone else to provide for you.
- Survival means you have just enough to cater for yourself and pay your bills, but there is no spill over.
- Stability is to have enough to spend and save for at least six months.
- Security is planning towards retirement. With a stable source of income and enough assets, you can look forward to growing your wealth.
- Independence is to have steadily invested for a number of years and built a portfolio of solid, long-term investments that pay you enough passive income to cover your day-to-day living expenses into your retirement.
- Freedom is to continue to grow your wealth to a scale where your investments and passive income can now easily fund your luxury lifestyle.
- Abundance is to have more than you will ever need. At this level, your focus will be how you can be a proper manager for your wealth and the legacy you want to leave behind for upcoming generations.
Finance is beyond what we think it to be, it is the management of your money, assets and wealth as an individual.
