Growing up as a Nigerian child came with all sorts of experience. One of many fun experiences was festive celebrations. Families cooked in large portions and shared with their loved ones who came to visit. Kids were not left out of the celebration. As a young child, you would definitely go from house to house, devouring chicken, or gulping carbonated drinks.

After eating, you move to the next house. The most exciting part of visiting homes is when the host gives money to the kids. Older kids receive the biggest share, while younger kids get the smallest notes. At the end of the day, kids would have accumulated money from all their rounds of visitation. It gets more interesting when they brag about who owns the most money.

Did you experience the above narration while growing up? If you did, certainly, how to spend the money gathered will be another subject of discussion. Can you remember how you spent your money those times? 

When I got to secondary school, I got a Kolo—piggy bank.

I was forced to get a piggy bank because I couldn't get to spend the bulk of my money. I let my mom handle my money.  You all know how it will end having my mom keep my money. Anytime, I requested my fund, she'd go, "all the money I have been spending on you since birth nko". Did she have a point? Was getting a piggy bank the best decision? 

There's no one answer to any of the questions asked above. Nonetheless, the above scene shows how making money and handling money has been a part of our lives since childhood. We all have heard so many things about it. Personally, I'd conclude that Employment and Saving are the most spoken about concepts in Nigerian homes.  Are they important? Definitely! However, they are only one side of the coin. On the flip side, there are more crucial things like risks and ruins. I'd bet you had never given it two thoughts.

Fetching Water with a Basket

At the start of our financial journey, we are all concerned about making more money.  We want to make money, so we can spend on our needs and wants. However, getting more money, only to spend it all won’t build you wealth. 

Remember the African adage that goes, "There is no way you can pour water into a basket and expect the water to remain." Don't be surprised to learn that you can hit all your money goals, then squander it all. Spending money is similar to pouring water into a basket. When all you do is spend spend spend without a proper strategy, you'd lose.

Let's look at this real life story below:

This was the case of Rihanna who lavished money on tours and spent on luxury items, and went broke before the year ended. Pagesix reported the testament of her accountant, whom she sued in court for not advising her correctly. 

The Concept of Risk

It is not uncommon to find statements like, 'Life is a risk. Take risks'. Literally, this statement is not entirely right as it is inappropriate to take unnecessary risks.  It is essential to remember that the number of risks we expose ourselves to can inadvertently ruin us. 

A simple analogy is driving. Driving is fun yet risky. You risk getting into an autocrash. However, bear in mind that not every driver will get into an accident. A car going at 180km/h is more susceptible to a crash than a car with 80km/h speed.

Risk associated with Driving

The above driving analogy shows that the level of risks we expose our money to will determine the loss we incur. So, while investments do not guarantee utmost security, some are invariably safer than others. 

How to Avoid Risky Investments

We have discussed the concept of risk and how it can ruin you. Now, how do you identify a risky investment? There are many characteristics of risky investments. Let's look at some ways to lose your money quickly.

1. Risky Assets

There are various kinds of investment assets with varying levels of risk. As a newbie investor, it is best to stick with low-risk assets. 

The easiest way to identify a safe asset is the return on investment(ROI). On a broad scale, good assets return anywhere from 5% to 20% annually. In fact, bankrate.com mentioned that the average annual return for real estate investment is around 11.72%, while stocks average 16.63%.

The most important thing to know is that the higher the expected return, the higher the risk. Why is this so? Volatility. The volatility of price affects the gains and losses an investor can make. Due to volatility, investors should expect to lose as much as they gain. If an asset can earn a 15% increase annually, it can also lose as much as 15%. Hence, invest in assets based on your risk appetite.

To make this information visual, let’s compare the following assets and their volatility rate. Mutual Funds, Real Estate, and Government bonds are considered safe investment options as they return anything from 5% to 15% annually. On the flip side, stocks and cryptocurrencies are very volatile and expose the investor to excess risk. 

2. Gambling

It is as simple as it goes. Gambling or betting is leveraging money to win a doubled amount. In gambling, the system will always win. It is a super-risky investment as your money is dependent on luck and we all know that not so many people get lucky.

In gambling, you may win once and lose 30 times. Hence, the fastest way to lose money is by gambling.

3. Putting your money in Investment schemes

Schemes come with many names, so they may be hard to identify. The most common schemes are pyramid schemes/multi-level marketing, and Ponzi schemes. Ponzi schemes promise huge returns in a short period such as 20% ROI in 6 months or 90% in 1 month. Many Nigerians fall prey to the Ponzi scheme as they are eager to make quick and significant returns. 

Pyramid schemes use a matrix or referral system to woo people. The idea is that you register under someone (upline), and you refer people under you (downline). The more people your downline brings, the more returns you make. People fail to realise that in pyramid schemes, there is neither equity nor equality. People at the top keep exploiting people at the bottom.

Pyramid and Ponzi schemes are always bound to fail, as they are not sustainable. No matter how long they exist, they will still crash. These schemes depend on more people entering the market. Hence, if you are late to the scheme, you lose. The risky part is you don’t know when the platform will tumble. 

People who think pyramid schemes, Ponzi schemes, or gambling will make them sustainable money are either ignorant or greedy. There is no quick way to make money as we all know the easier it is to make money, the faster it is to lose. 

4. Not Diversifying your Investments

If you put all your eggs in one basket, you risk cracking everything if the basket drops. The same applies to money. If you depend on only one source, you risk losing everything. 

Ever thought about what will happen if you lose a client or a job? The answer is obvious, yet many fail to take it to heart. Whether as a beginner or advanced professional, have alternatives. Be it Job, investments, or business. If you work in a company, take up a side project or gig. Similarly, have more than one client that will contribute to your revenue. Not only does it increases your profitability, it also shields your business from unforseen circumstances.  

In the same vein, have multiple asset classes in your portfolio. I’d keep my money in crypto, stocks, real estate, and interest-generating savings account. Additionally, you should not only be concerned about having eggs in different baskets, you also be concerned about stacking other food items. In clearer terms, have multiple assets under each asset category.

As a beginner, you may worry about not having enough money to diversify your portfolio. In this case, you should opt for mutual funds, Real estate investment trusts (REITs), exchange-traded funds(ETFs), etc. 

5. Being Over Generous

Getting money is tough. Not losing money is tougher. When you fail to handle money correctly, you’ll lose it. Another tip on preserving your funds is staying 'wicked'.

Wicked in this sense does not imply causing havoc or being malicious. It is just a subtle urge to be selfish. It is important you understand that People like you for the value you have. If they notice you don’t value your money, they will take it from you. You can’t struggle for money only to give it all away. 

Africans especially, get tricked with Black Tax. Black Tax is psychological and can be manipulative. Hence, it is essential to create boundaries, so as not to hamper your financial well-being. 

When purchasing items, don’t overspend. If it is irrelevant or excessive, cut it. If you would regret splurging that cash, then it is a bad idea. 

6. Not Letting your Human side Play out

Thinking like a human is a combination of logic and emotions. Many would argue that there is no need for emotion in monetary affairs. I can’t entirely agree. It is crucial to strike a  balance between the two when handling your finances. 

If you suffer a loss, take your L’s in peace. The logical side of you would advise you to take a deep breath away from the scene. However, the emotional part of you would want to recover your funds or take drastic decisions quickly. Similarly, when you make huge returns, greed sets in. You’d enter that market again and try again. 

Greed is one of the constant reason people lose money. You should know that the money market is a no-respecter of small investors. Hence, be ready to cut your losses or take profits. 

I always say this, picking individual stocks or crypto tokens is risky. Trading these markets is also extremely risky. You’d be tempted to forecast the market and make assumptions based on logic. Some will say history will always repeat itself. But, what if a new history is made when you think history will repeat itself. Hence, you can’t be so sure of market moves. My advice is don’t be rigid. If things don’t work as planned, make a new plan. 

Wrapping Up

At this point, you’d agree that getting rich is not about the money you make. It is about the money you keep. Earning money is so hard, but losing money is incredibly simple. In order to achieve financial freedom, ensure to protect your money at all costs. 

Now, let me hear from you!

What has been your biggest struggle keeping money? 

Which of these tips will you start practising first? 

Let me hear your thoughts.