WHY SHOULD YOU SAVE MONEY?
The ability to save money is highly correlated with financial freedom. This is because it allows you to live on less and have more disposable income for investing. Wealth is the accumulated savings that are left after you deduct your expenses.
Remember a dollar saved today is a dollar earned tomorrowTHE RIGHT WAY TO SAVE MONEY
Saving like any other habit has to be learned and practiced consistently under strict discipline.
You should have a monthly target of the percentage of your income that you can save comfortably after deducting your expenses. Most people are comfortable with saving at least ten percent of their income.
A higher saving rate means you will achieve your financial goals within a shorter period of time while a lower savings rate means it would take a longer time to achieve your financial goals depending on your income.
Starting to save up early for your retirement means you will contribute less towards the same goal than one who started later. For example for a target of Ksh. 13 million on retirement age of 50years, a 25 year old individual will need to contribute Ksh. 10,000 for 25 years while someone who is 40 years old will need to contribute Ksh. 65,000 for 10 years to reach Ksh. 13 million
Whatever your financial goals are, choose a saving plan that is comfortable with you and have the discipline to consistently stick to it. If you can comfortably only manage to save 5% of your income, that’s okay. That is what works for you.
DO NOT SAVE WHAT IS LEFT AFTER SPENDING, SPEND WHAT IS LEFT AFTER SAVING.
Many people only make goals to save money but they never actualize their saving dream. This is because they approach saving in the wrong way.
If you do not save before you spend, you may never save money at all. Expenses will always creep into your savings and eat up a section of them if not all of it.
IS SIMPLE BUT NOT EASY
A high savings rate means having lower expenses than you otherwise could. Savings can only be created by spending less and the only way you can spend less is by desiring less. In fact, a high savings rate is only possible when you live below your means. In the psychology of Money, Morgan Housel writes, “Singer Rihanna nearly went bankrupt after overspending and sued her financial advisor. The advisor responded: ‘Was it really necessary to tell her that if you spend money on things you will end up with the things and not the money?’ Morgan Housel continues to write that, “The amount of money you save is the gap between your income and your ego.” This is because people have the tendency to spend more money so as to show others that they have money. This is the main reason why people with decent incomes end up saving so little.
BUDGET YOUR MONEY
Since money is a scarce resource, you have to devise a clever way to spend your money. You have to account for each and every penny that you earn to make sure it is used in a way that you would be proud of.
This is where you separate your wants from your needs. What can you do without and deserves less allocation of your finances?
If you never budget your money, it will never be enough to cater for your needs.Impulse buying will always catch up with you. You will end up buying things that you do not need to please people who do not love you.
KEEP TRACK OF YOUR EXPENSES
Know where your money is going. Good businesses have great record taking systems where they record every new stock and deduct when it is sold. This enhances accountability. It allows the owner of the business to know exactly where each item he stocked in the business went to.
When you keep track of your expenses, you will quickly realize that it’s not the big expenses that eat up most of our income. It’s the small and miscellaneous expenses that cumulatively do the damage.
Once you realize this, you will be able to avoid them and then channel that money elsewhere. That’s where our budgeting comes in.
DON’T ONLY SAVE FOR THE RAINY DAY
You begin saving by creating an emergency fund to clutch onto when unexpected financial crisis emerges.
You should however not stop at saving and wait for the rainy day to come. It may never come. This is where investing comes in. You let your money work for you through investing it in cash generating assets.
SAVE YOUR MONEY IN SECURE LOW COST AVENUES WITH GOOD RETURNS
The last thing you want is to lose your savings. That’s why security is the first thing that comes to mind when thinking of a saving plan.
AVOID:
- Under the mattress
- A savings account
- A fixed deposit account
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