Abu is single, and 27 years old. As soon as he left University three years ago, he scored a job as a Banking Officer. The first thing he did was rent an apartment close to his workplace for an easy commute and then accumulate a significant amount of discretionary income from his employment.
Goals
While his mates – including his childhood friend, Hassan – were busy buying up every new tech gadget, Abu ignored the intense pressure to spend frivolously, and instead focused on his life’s objectives: buy a car, get married in the next few years, purchase a home, start a family, and possibly even plan for retirement.
Like he did so many times in the past, he asked Hassan to straighten out his financial life, but his friend was too far taken with the good life.
Baby Steps
Abu was now eager to begin planning for all his important life events but did not have a formal financial plan. He had a big advantage, though: his parents had taught him and his siblings to budget and save, right from when they were 6 years old. Spurred on by his father’s anthem: “Great wealth builders focus on both saving money and earning more”, Abu imposed strict financial discipline on himself.
He:
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Rented a house for the first few years after starting work. In the short term, renting offered far more flexibility than committing to a long-term mortgage, which he was entitled to, six months into his new job, subject to his position being confirmed. While renting, Abu would save on property maintenance, repairs, tax, insurance, and any force majeure disasters, which were all the Landlord’s obligations. Abu’s dream was to purchase real estate and build an elevated bungalow with a pool for his family. He felt he would be ready to handle the responsibility of a loan three years into working full time.
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Did a 10- minute commute to work. Because he lived near his workplace, he did a short, inexpensive ride-share to work with colleagues, and did not immediately have to worry about the costs of vehicle reliability, pricing, or financing.
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Never bought what he didn’t need. Did he ‘want’ that sleek, supersonic Mercedes Benz that Yusuf had just bought? Of course. But he just didn’t ‘need’ it immediately.
Action Plan
It was now time to plot his future with more certainty, and Abu turned to a professional financial advisor from a trusted Asset Management firm to help him with planning.
This made financial planning easy for Abu by first assessing his goals, current situation, and risk tolerance, drawing up a budget, and then constructing an investment portfolio. For Abu, the recommendations were to establish a preliminary annual savings account and a retirement fund.
The plan was for him to save up to 30% of his income, if possible so that he could aggressively put more of his wealth toward investments – short and long term – such as an emergency fund, mutual funds, Exchange-Traded Funds (ETF), and even a personal retirement account.
The financial advisor continues to support Abu in tracking, reviewing, and re-evaluating his progress toward his specific goals.
Lessons Learned
Yusuf, on the other hand, made the terrible mistake of thinking that financial planning for the future was restricted to those approaching retirement. His preference for spending over saving hindered his life trajectory.
While he now shares a small apartment with two friends and is saddled with debt, Abu lives in his own house, is married, has purchased a car, and has comfortably risen in the ranks at work.
Abu’s greater future orientation is a testament that starting life with good financial habits will inevitably bleed over into success in building wealth.
