5 (More) Things About Saving Money In Your 20s

This is the second post about a talk I gave at Technical University last month about saving money (and how to think about money) in your twenties. In the first post, I closed by saying that “a little luxury every day is no luxury” – the need to check how often we indulge and be mindful of our indulgences. Here are the next 5 things.

6. Set goals and celebrate when you hit them. The process of goal setting can at times feel excessive and needless, after all life happens whether you plan for it or not.  This feeling is not unique to you, we all feel this way at times. Yes, not setting goals will not mean your life is over, but it means you may end up with the kind of life you did not want. This quote by Lewis Carroll holds true when it comes to life goals:

If you don’t know where you are going, any road will get you there.- Lewis Carrol

Here are a few considerations when setting goals:

• Your financial goals are closely linked to your habits. It is therefore important to be honest about which habits are likely to hinder the achievement of your goals and to mindfully purpose to work on them, or to set your goals in such a way that those habits do not hinder their accomplishment. For example, if you have a weakness for impulse buying, purposing to save every week in a physical piggy bank is self-defeating because it means first working on the impulse buying thing, so you have money to save. A much better goal is to save directly from your bank account to a savings or money market account, that way you minimize opportunities for spending it.
• Your financial goals must be measurable and broken down into “bite-sized” chunks. It is not enough to say that you hope to move out of home in 3 years time. This is a statement of aspiration and not a goal. A goal means working out the budget you need to move out of home and breaking down that budget to weekly or monthly amounts you need to set aside (depending on how often you earn money).
• Stay motivated on your long-term goals by celebrating periodic accomplishments.  Long-term goals can be very boring to work on, and this makes it easy for us to give up and drop off. Instead of waiting 5 or 10 years to celebrate a goal, set markers for 6 months or 1 year and celebrate what you will have achieved. This will give you the motivation to keep going.
• Finally, keep your goals simple.

7. Keep your savings out of reach. I am yet to meet anyone whose expenses remain the same when they have a bit of cash. Things to buy just have a way of showing up, yet when we do not have money, we do not borrow to buy this stuff. This is because when we are broke (or almost broke), we are very clear on what is a need and what isn’t. It is for this reason that saving in your active bank account or M Pesa account is a terrible idea.  Stash your savings away in a savings account that limits withdrawals, or even an M-Shwari lock savings account. Though it is still possible to access the money, the additional work and slight delay  when withdrawing gives you time to think about the reason why.

8. Invest your cash. Saving is the gateway to investing. Do not store your savings for a long time, while they could be earning you more returns if you invested them. Investments range from the very low risk (government instruments), medium risk (unit trusts, money market funds, and blue-chip stocks), high risk (growth stocks and some speculative investments). Take time to learn how these investments work, and dip your toes in early. It takes as little as 5,000 shillings to start investing in stocks, as Palmer writes here.

9. Take calculated risks: preserving your capital should be your priority. Because you have time, you can take more risks than older folk, but these risks must be calculated with a focus to not losing all your money. Never invest in something you do not understand, and do not confuse speculation for investing – if there is a chance of you losing everything you have invested, you are probably speculating. Do not engage in sport-betting, no matter what anyone says – there are better things to do with your money.

10. Join a SACCO. This might sound like old people advise but trust me. A SACCO gives you ready access to credit when you need it, and well-run SACCOs also pay out reasonably good dividends, up to 10% per year. Join the same SACCO with your family members, this gives you a good base of guarantors should you need to borrow. My grandfather gave me this advise when I was 22, and 13 years later, most of the assets I own and value have been SACCO financed. A SACCO helps you make those bulk investments that would otherwise take you years to save for

In conclusion, money advice is simple and does not change through the years. My favorite personal finance book, The Richest Man in Babylon was written in 1922, and the wisdom therein holds true today, almost 100 years later. It is an easy story, buy the book and keep reading it every so often.

Good luck!