5 Easy Things You Can Do About Your Finances TODAY
Let’s admit it. The process of building financial discipline is hard, exhausting, and takes more planning ability and hard work than most of us have. For these reasons we get paralyzed and end up not doing anything about our finances..
We choose to coast along and hope the situation sorts itself out at some point…
We hope that one day we will earn enough money to meet all our expenses and save some….
We hope that we will one day land a deal that will transform us into millionaires and end all our money struggles…
We postpone the planning to next year January. It is best to start in the new year we say…
We say we will start thinking about personal finance when we hit 25 years, then 30, then 35….
Then one day we have no more room to earn and save, or the luxury to choose /say the above.
Today, I’d like to share 4 easy things that we can do today that will help you fix our finances (even if it is in a small way).
1. Automate Your Savings
Saving is hard because there are always wants and needs competing for our money. Most of us depend on willpower to save. We keep all our money in one account and hope that we will have the discipline to spend only what is on the budget. Having tried this time and time again, I can tell you that it does not work! You may save for a month, but by the third month, you undo all progress by spending the money on a whim or on an emergency.
Instead of relying on your willpower and discipline to save, set up a standing order that transfers your savings to an inaccessible savings account as soon as your salary comes through. This way, the bank does the saving for you, and you will no longer need the discipline to do so. For this, I recommend saving at least 10% of your earnings, and any windfall earnings you receive such as bonuses. These are the savings you will use to build up an emergency fund and an investment fund.
At 10% saving, won’t it take too long to build an emergency fund? Well, it will take about 10 months to save one month’s pay and this may seem like too little for too long, but that’s how finances work. “Haba na haba hujaza kibaba” ~ Little by little fills the jar. You may think 10% is little, but if you do not do it today, I doubt you will have one month’s salary saved up in the next 10 months.
2. Budget With An Envelope
Most people tend to spend on the go, that is withdrawing money from the ATM whenever they need to spend. This means to keep track of your spending, you have to do two things:
a. Keep a record of your spending on a notepad or an app
b. Balance your bank statement at the end of the month to make sure that your withdrawals correspond with your spending record above.
This is quite a bit of work, and when the withdrawals are frequent, the ATM charges do add up. For an easier way to manage your budget and track your expenses, embrace the “Envelope Method“. Once or twice a month, withdraw the money you need to spend and allocate it among the various envelopes. These can be “Groceries”, ” Entertainment”, “House Shopping” etc. It all depends on what you spend your money on. Every time you make a withdrawal from the envelope, indicate what you intend to spend the money on, and maintain a count of the cash on the envelope. At the end of the month all you have to do is summarize your envelopes to see how well you did.
3. Enroll On A Personal Pension Plan (PPP)
A PPP is an arrangement where you save money when you have earning power, then upon retirement you receive the amount saved plus interest earned, either as a lumpsum or a monthly payment from the insurance company. PPPs are more beneficial than insurance “investment products” such as life or education insurance. Contributions to a PPP are tax allowable, meaning they reduce the amount of “Pay As You Earn” tax you pay to the government. Some pension plans also give better returns than you would earn by buying government bonds or saving in a bank.
At the end of this month, sign up to a PPP, and instruct your employer to deduct at least 5% of your pay for the PPP. Some employers usually match the employee’s contribution to the PPP, so if you can, try negotiate for this when you get your next pay rise. 5% is not much in current terms, but in another 30 or so years, it will be substantial, especially because the absolute amount keeps increasing as your pay increases. If you earn Kshs 70,000 for example you may be able to contribute Kshs 3,500 per month today, but as your income grows, the amount saved keeps growing. 5% of 120,000 is Kshs 6,000 and so on.
This month’s Rookie Digest will be giving more details on PPPs, and will also evaluate 3 PPPs in the market that you can join. Please click on this link to sign up for the newsletter.
4. Spend One Hour A Day Working On Your Passion
Due to systemic issues and circumstances, a good number of us work at functional day jobs, though we are passionate at things that are not related to our day jobs. One day we would want to be financially secure enough to quit the day job and pursue our passion fully. Waiting for financial independence to pursue your passion is not realistic for two reasons;
– It takes a really long time to be totally independent financially, because as you grow older, financial responsibilities increase and staying in that boring day job is all you can do to support your lifestyle.
– Even if you will be able to quit to do something else entirely new, for you to be successful at something, it takes passion, skill and experience. You can be passionate and skilled at something, but lack of experience at making it make money for you will not substitute the first two. It is very risky to quit to start working on something you have never worked on, no matter how passionate you are about it.
To avoid this risk, spend at least one day of the 16 hours you are awake working on your passion. It may be writing code, writing a book or even farming. Every day before you sleep, spend one hour either researching or actually working on that which you are passionate about. You can spend more than an hour, but for it to be a habit, start with just one hour daily. If you do this for a year, you will have spent 365 hours (15 full days) developing your passion into something viable. When time `comes to quit, you will have built expertise and possibly some revenue from your passion.
5. Ask For A Raise
Working an extra job is one way to have more cash to spend. However, if you feel you are applying yourself fully at your job and you have brought in good results, why not ask for a raise? Most people wait for the end of the year to get the annual increment, but you should as be proactive in demanding your rights as you are at your work. If you are giving extra, then you deserve extra pay. Make a case for a raise to your boss.
There you go. Those are my 5 super easy things you can do about your finances today. What other super easy things do you think we can do? Let us share in the comments section.
