By Babajide Komolafe

A middle aged man recently contacted us for advice. In a bid to start a school, he invested his N1.5 million savings as deposit for land which cost N6.5 million.

He hoped to raise the balance sum of N4.5 million either through loan or grant from whoever is willing.
Meanwhile, he will still need money to put in place needed structure for the school to commence.

Presently, he has 15 students in an after-school tutoring venture. This man hoped that once he acquired the land, the new school would attract 15 pupils and others to form a sizable student population.

Meanwhile, he has another domestic challenge that requires urgent financial attention, amidst income that is barely enough for the basic needs of his home.

He has good intention and desire. But his approach is strategically wrong. A lot of people are in similar situations. That is why I have decided to discuss this experience in this column.

As mentioned in earlier editions, you must save and invest in order to earn money and become rich. But you must be careful in choosing what to invest in. You can choose active investment, by setting up a business on your own or in partnership with others. You can choose passive investment by investing in shares, treasury bills, commercial papers etc.
However, two things are very critical.

The amount of money you have and how quickly you can earn income from that money.
As a beginner and someone whose income is barely enough for your basic needs, you must focus on investment you can easily do with the little amount of money you can save. Secondly, you must focus on investment that generates income as soon as possible, or offers immediate cashflow.

As someone in a low or middle low income bracket, you need investment with immediate cashflow that you can use to augment your barely-enough income.

At this level, you should avoid investing in what you are not certain of the outcome, or something that requires you to borrow or depend on others to achieve. And you don’t invest in something that requires a long time before you enjoy income or cashflow.

That is the shortcoming of the approach of the fellow above. His savings is not enough for the business he wants to start. Meanwhile, he is losing the opportunity to earn interest or income on his N1.5 million. If that N1.5 million savings is invested in a mutual fund generating 15% returns, the income per day will be N618.13 and for one year he will earn N225,000. (To be continued next week)