Investment 101 (Personal Finance)

6 best ways to build wealth

In this day and age, even with the current economic situation, it is still very possible to build wealth. The knowledge of some of the best ways to build wealth can go a long way in helping you to successfully increase your net-worth and elevate your financial status. Jumia Travel, the leading online travel agency, shares 6 best ways to build wealth.

Consider Your Vehicle
One of the worst things a car buyer can do is to buy a car without doing some research first. It is extremely important for a car buyer not to rush into the process and get as much information as he/she can on the vehicle reliability, pricing and financing of the vehicle he/she intends to buy. This is mainly because there are many people currently spending a significant portion of their income and savings on car expenses and it’s almost like their vehicles are vacuums that suck up all their money. Various car payments can be normal but this ‘normal’ will definitely not help you build wealth in the long run, and it is best to do proper research before purchasing a vehicle so you don’t end up with a vehicle that constantly devastates your bank account.
Be Wary of ‘Little’ Expenses
The thing about little expenses is that they quickly add up into shockingly large expenses, so unless you need something, you really have no business buying it. Avoid buying crap that is not only useless but eventually becomes a regretful waste of your money. Every ‘little’ expenses should pass the ‘is it useful?’ test, and if it doesn’t pass the test, then please save the money and be on your way to building wealth.
Save a Percentage of Your Income
There is no magical way to build wealth, it takes time that’s why it’s called ‘build’ wealth not ‘conjure’ wealth, and saving remains one of the best ways to build wealth. Yes, people are fond of saying that it’s difficult to have a saving culture in our society because we simply don’t earn enough, but that really isn’t true. Consider Fridays and how much money is wasted by most of us in the name of ‘boys night out’ or ‘girls night out’; if a person decides to take N5000 or even N3000 out of that entertainment money and put in a saving account for a year, he/she would have saved at least N60,000 or N36,000. Though the money might be small, it is something, and if the person continues that way for half a decade, it would have increased to something very reasonable, alongside the interest that will be received on it. If the person is interested in building his/her money further, he/she can invest some in real estate or can decide to buy shares and let that money continue to multiply in these ventures. There are still other legal investments to consider that can be very good for you in helping to build wealth, you just need to do some research to find out about them.
Earn More
It is important to change that wallowing mindset of ‘Well, if my job is crappy and I don’t earn enough or if I’m not given salary increases, how on earth can I earn more?’ There is little than can get in the way of a determined man, and if you are able to work up enough grit to think of and actively look for ways to earn more money, you will. Life simply answers more to those who learn to take the bull by the horns and refuse to give in, give up or wallow. Some ways to earn more money include getting a side job (maybe a weekend job) whose income can contribute to that of your main job, invest in your education by getting more degrees or certifications that can qualify you for better-paying jobs etc.
Consider Venturing into Entrepreneurship
If you have a knack for it, entrepreneurship can be a very effective way of building wealth. For most people, their wealth building journey really took off when they made the decision to venture into entrepreneurship. However, starting a business is no small feat and it’s definitely not for the faint of heart. You are likely going to experience a lot of challenges and setbacks, and you will have to remain focused and resilient through it all. You also have to be prepared for the fact that as much as starting an entrepreneurial venture can help to jumpstart your wealth building journey, it can also really set you back financially. Nevertheless, like was said earlier, if you have a knack for it and genuinely believe you have what can set you apart from the rest and can succeed at it, then you can definitely consider venturing into entrepreneurship.
Consider Real Estate
Investing in real estate is not for everyone, but it has helped a significant amount of people build wealth. Real estate investments might not make you wealthy overnight, but it can significantly increase your net-worth in a shorter time-frame than many other traditional investments. If you invest in real estate correctly, wisely and responsibly, it can earn you significant windfalls that can eventually significantly elevate your financial status. Some real estate investment strategies include buying and selling undeveloped lands, renting out apartments, house flipping etc.
Culled

Stock Market: Time to Pick Cherries

Adekunle Binuyo

Do you constantly run out of money despite earning a decent income? Do you often wonder how some average income earners manage to own houses and start a side business? Learn these life-saving tips from our financial experts. You can send your articles and questions to editor@alabingo.com.

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Telling people to buy shares in a falling stock market sounds like asking a sleepy market analyst to take an extra cup of coffee; a sure prescription for trouble? Maybe not.

Truth be told, the tumbling of prices on the Nigerian Stock Exchange (NSE) is jamming open a number of great opportunities for future price gains. Granted nobody likes seeing assets lose value but sometimes it is necessary in the short term. By dropping a few points the exchange is creating room for higher market returns for investors when the market rebounds by the middle of the year. Besides, buying stocks low when markets fall during panics is a tactic that usually turns up tidy profits.

The current low value of the market has created some opportunities to pick up a few stocks on the cheap. The trick is to know what to pick and when to pick it. The banking sector, for example, looks like a decent hunting ground for buying a few great stocks at lovely prices.

 The  orange view

Take GT Bank (recent price N24), for example. The bank has grown and sustained a sizeable market share of both corporate and retail clientele over the last decade or so, being a chief beneficiary of the flight to safety of many customers after the bank consolidation exercises in 2005, when weaker banks were instructed by the Central Bank to either recapitalize or merge. As the number of banks shrunk from over 80 to 25, several customers did a dash for what they saw as a ‘corporate safety valve’; which was reflected in the stunning growth in the banks deposit base and the number of walk through customers it had to handle daily. Nevertheless, the early customer press has simmered down as the bank now deals with customer service quality and corporate relationship issues. In terms of financial performance, few can pull a face at the bank’s balance sheet.

Peter Amangbo, MD Zenith Bank

Beyond market size, GT has shown strong operational performance that has not been too common in the industry.  The banks third quarter Net Interest income to Gross Earnings was 40.3 per cent suggesting strong underlying profitability in its core business, Net Interest income year-on-year grew by 10.5 per cent between the third quarter of 2015 and third quarter of 2016. Non Interest Income as a proportion of Gross Earnings was 15.3 per cent, pointing to the fact that the banks fee-based business is still fairly shallow. From the perspective of strategy what the bank appears to have done is to retain excellence in its non-fee based retail and corporate banking businesses while it concedes territory to its rivals (particularly StanbicIBTC and Standard Chartered Banks) in the fee-earning end of the market.
This works well as long as low deposit rates and high lending rates prevail in the local money market. Deposit rates currently average about 9.10% per annum while lending rates average 17.09% per annum, leaving an average spread of 7.99%.  However, if tight monetary policy stays to support loose fiscal spending, then uncertainty concerning inflation rate in months ahead could really hurt yields and worsen the quality of bank risk assets (loans and advances) as manufacturers and traders choke on rising costs and escalating loan charges. With inflation presently at 18.8%, the signs of trouble ahead are clear.

Does this suggest a Frankenstein monster? Not really. GT Bank has shown grit in its business operations. The banks provisions for bad loans as a per cent of average loans it has on its books are in the region of 4.01% or 7% lower than the industry average of 11%, this means that it has fewer bad debts to deal with than its industry rivals.   A couple of other indices recommend the bank. Return on Equity (ROE) at 32.64 per cent and Return on Asset (ROA) of 5.20 per cent are among the best in its class, as a few other banks have seen their ROE crash below 20 per cent and their ROA literally disappear. The banks most recent book value per share (a measure of what it would be worth on breakup) is N17.15 or 28% lower than its recent market price of N24, suggesting that there could be strong future earnings expectation by traders. GT has shown a capacity to deliver a dividend yield of 6.23 per cent (on a five year average basis) and a dividend growth rate of 12.10 per cent over the last five years. On a year-on-year basis the bank has posted a capital appreciation of 58.51 per cent, despite a year-to-date decline of -2.79 per cent. Median market analysts forecast for the year see the banks share price rise to N28 per share or 17 per cent above present value (see chart).

A trader’s best friend

 

Segun Agbaje

But GT is not the only financial sector cherry. Zenith Bank Plc (recent price N14.73) is also quite attractive. The bank has over the years built a reputation for its aggressive penetration of the retail banking segment across the country. At a point the bank was seen as Nigeria’s premier retail lending institution with as high as 55 per cent of the market amongst traders of eastern extraction who felt that the bank catered specifically to their needs as importers of packaged goods and automobiles (Zenith’s dominance in this market segment has since been whittled as banks like Fidelity and Diamond Bank have chiseled away at this market segment). The banks funding process was fast, uncomplicated but pricey. This suited the traders well as they could always pass the added cost to consumers. But with recession slashing at real disposable incomes this has become ever more difficult and banks are finding that customer tolerance for higher interest charges is waxing thin.

But regardless of these challenges, Zenith appears geared for sustained growth as its third quarter profit after tax figure  rose by 20 per cent year-on-year between 2015 and 2016 and its gross loans and advances grew by a further 22.6 per cent year-to-date, while return on average equity hit an impressive 20.7 per cent. True enough the bank has seen a slight dip in its net interest margin which slid from 7.9 per cent in 2015 to 7.6 per cent in 2016, the margins on the banks core business of lending is still sturdy compared to  that of a number of rivals.

 

Warm weather, good harvest

 

With warm weather creeping up on investors, the lousy fortunes of a number of shares may begin to take a turn for the better, especially when the fiscal stimulus expected from the federal authorities begins to make its way through the economy by the middle of June. This should lift the prices of stocks a bit as the economy shows signs of growth.     .