This is one of those posts that I have mulled over for a very long time especially after reading Suze Orman’s book Women and Money: Owning the Power to Control Your Destiny. After transitioning graduate school and living on coffee, noodles and dreams, I have come to appreciate the advice offered in her book and watching this video.Though, it primarily targets North American readers, Women and Money discusses the relationship between women (in their various roles) and money, here are few lessons that we can all apply in our circumstances and carry forward to 2015:
Having a regular date with your budget
As torturous as this might sound, it is important to know the state of your money affairs so that you can be able to create more money and comfortably spend it. Do not wait for the time that you will have personal account or for your significant other to take care of all the money issues.
You can take easy steps such as opening AND reading your bank statements for both your credit and debit cards. These days your statements can be sent directly to your email so that you can be confirming your payments and deposits against those ATM and store receipts ( if you prefer swiping your card rather than carrying your cash). This will help you notice any irregularities in your accounts.
Set aside time in your busy schedule to go through the important financial documents so that you can see where you can afford to save (and splurge ) in the next month,
Read your payslip so that you can pay yourself.
Most people, everyone looks at their net pay before any other item on their payslip. After accepting your monthly or weekly wage, study your deductions and note whether they are worthwhile, well apart from the statutory ones. This will help in the next tip.
Know how to file your taxes
This is one of the most important and excruciating things that every one has to do in their adult life. We must give to Caesar what is his, so that he can ideally improve our infrastructure and bring about positive change in the nation. I know. I know. You are probably scoffing at me right now after reading the last sentence. At least do it so that you don’t kill your political ambitions and/or land yourself in jail for tax evasion.
Kenya Revenue Authority (KRA) normally runs free tax clinics in various counties which they advertise in the local dailies. Take advantage of this and you could be the one helping your friends and colleagues come the next financial year.
Know the difference between a savings account and a current account
As basic as this may sound it is quiet important to differentiate the two. A savings account is meant serve as an emergency cash fund. However, it is less convenient than a checking account as it has restrictions on the minimal withdrawal amount and withdrawal frequency. Most financial experts advise that you should save enough to cater for three to six months of your living expenses. However, with the current state of the global economy, it would be better to save enough to one year’s living expenses.
To facilitate this, you can make standing orders to your savings account and for other important bills, so that you don’t have to think twice about your setting aside the cash. You can also consider having your saving account in a different bank to lessen the ease of accessibility of the money. If you have a large sum of money that you might have immediate use for instead of putting it in a saving account, consider a fixed deposit account or a short term government security that will earn higher interest .
Save for retirement
Millennials have been pumped with messages of live in the present like there is no tomorrow. We forget that one day we will grow old and we will need money as we retire to that farm on the outskirts of Nairobi or if you decide on the beaches of Watamu. But before then, we have to work hard and save up for it. For those who are employed, the most obvious way is the pension contribution scheme provided by your employer.
Most employers tend to match their employees contribution, so please take advantage of that. One of the greatest benefits of this scheme, is that member contributions are tax-deductible .
For instance: Kerry earns a gross salary of KES 100,000 and contributes KES 10,000 to a registered scheme. Her PAYE income tax will be calculated on KES 90,000. This means that she will pay less taxes and save more money for the future.
For the self-employed Kenyans, you can check out the Retirement Benefits Authority (RBA) website that offers you various tips on individual retirement benefits and also a list of providers
Debt is not evil
Growing up, I watched too many TV shows that showed the adverse effects of having too much. My young mind registered: DEBT IS BAD!!!. When I finally started to educate myself about debt, I learned that it is a necessary evil.
Let me explain.
There is good debt and bad debt.
One should take a loan i.e. good debt that will help them generate income. For example, Higher Education Loans Board loans (HELB) are good debt because with a good education (all factors held constant *ahem*), you will be able to earn a higher income and be able to pay it off, once you start earning a steady income. Taking a loan to build residential houses or commercial spaces is also good debt as you will be able to repay it easily from the rental income. A home mortgage are also another good example, because shelter is one of your basic needs. Cars have become somewhat necessities in our day and age but we take the loan, please rank functionality slightly higher than prestige.
Bad debt is buying a luxurious good or going on holiday and charge it on your credit card on impulse. It keeps you up at night and makes you not want to open your credit card statement at the end of the month.
This year, Kenya Bankers Association (KBA) adopted the annual percentage rate (APR) which will enable consumers to compare loan products and thus make informed decisions on their total cost of credit. You can be able to calculate your APR on their their online credit calculator.
Get your estate in order
A will dictates how your assets will be distributed among your dependents. Without a will, a court of law will appoint whomever it deems fit to do so. One can also choose to move his or her assets into a trust. This can be your children’s education , maintenance for your dependents and any other specific use that you deem fit. The trust is managed an appointee known as a trustee.
Insurance is equally important as we live in the age of terrorism, rapid lifestyle changes and several forms of cancer and life has a habit of taking unexpected turns. We need to protect ourselves and our loved ones from these surprises. Currently, the Kenyan market has several service providers with a myriad of policies in offer. Ensure that you find a policy that meets your financial needs. Whether or not you are employed, ensure that you subscribe to a medical insurance plan that will help you go through any accidents or sudden illness.
Be cautious on who you choose to be your beneficiaries.
Dealing with the C word
Not that C word.
I mean Commitments
It is said that Africans are really big on their sense of family and relationships and we would go the whole
nine eleven yards for those who are closest to our hearts. However, it is important to note that mixing money and relationships is normally a tricky affair. It is important to have a written agreement for any financial transaction that you are involved, formal or informal. This is will iron any issues that will arise in future. I love this is anecdote from Kim of Bear and Beagle Creative:
Not all of my dad’s business ventures were successful. One my mom constantly reminded us of growing up was a data storage business that ended up shoved in a corner of our basement. Did you know that 1GB in the 80s takes up a hell of a lot of room?
My dad decided to offer remote storage well before the days of cloud computing with a friend. They were supposed to go in halves on 1GB of storage (remember, back then this was a huge amount of space and hefty investment). His partner never lived up to his side of the deal, they didn’t have any contractual agreements, and the business failed. We finally got rid of that giant hunk of junk a few years ago but it was a constant reminder in our basement that business ideas don’t always work out the way you think they do.
Lesson: Don’t run with every idea but be selective. Be selective about your partners too & get it all in writing.
In the case of harambees (fund raisers) for particular causes offer to give in kind. For instance, if your friend has an upcoming wedding, you can offer to chauffeur the bridal party with your lovely car. Maybe one of your colleagues is leaving your company, you can offer to organise (a.k.a running around) the going away party instead of giving a cash gift. Disclaimer: know how your gift will affect its recipient and make sure it will not be a burden or look like a bribe.
Get a side hustle
In his book, So Good They Can’t Ignore You, Cal Newport talks about using career capital to build financial viability in order to successful. He quotes Derek Sivers, ” Do what people are willing to pay for.” We have different skills that we can tap into in order to make the extra shilling. Computer whizzes can build websites or fashionistas can offer fashion advice or if you bold enough you pick up a job outside your field.
Agribusiness has gained the in-thing in Kenya over the last five years and people have realized that they can make money out of their kitchen gardens. Saturday Nation runs the weekend feature, Seeds of Gold that sheds light on agribusiness issues in Kenya as well as advertises opportunities to farmers and investors alike.
Purge and Re-use
Now that its the beginning of the year, there is no better to time to clean out your closet. With the advent of OLX, there is no better way to make money out selling all those things that you thought you would need but have never gotten round to using. If you are
book-hoarder bibliophile like me, you can try to sell those books that have gathering dust on your bookshelf to hardworking Kenyans you sell second hand books along the streets.
Over the last few months, I have been examining what influences my purchasing decisions. Like many millennials, I have been caught in the “live-in-the-moment-do what-makes-me-happy” syndrome . I have learnt that you do not have to have a KES 5000 meal to have enjoy the company of your good friends. Moving and starting a new life halfway across the world with a 40 kg luggage limit can force you to embrace a capsule wardrobe. It has enabled me to adopt jeans as my new fashion uniform ( which I had totally missed) and be more intentional with my fashion choices as well as save a couple of coins.
Investing in experiences not things will go a long way providing meaning and clarity to your life in 2015.
- Giving business news another shot
- Putting your money where your happy is via Yes and Yes
- The Lively Show Podcasts: Eric Williams on debt reduction & motivation and Mary Beth Storjohann on becoming financially proactive. Heck! Why not binge listen!
- Becoming Minimalist with Joshua Becker
Photo Credit via Hapa Kenya