My name is Earl. I work in the pharmaceutical field where I earn a gross salary of Sh50,000. I have worked in this field, earning this money for seven years. In that time, I have saved nothing. I don’t know how to save or invest or even budget my money, yet I have a wife and three children.
The only expenditure I am sure about is Sh7,000 which I pay as rent for the apartment we live in. Please help me with a savings and investments plan. I am desperate to turn my financial life around.
Rhina Namsia is the founder of The Acemt Consulting, a training and consultation company that provides financial planning and investment advisory
Saving and investing is not a one-time thing. These two personal finance components involve curating a culture of habits. The habits for successfully saving require discipline and consistency while investing requires that you be patient and think long term.
However, the main challenge for you seems to be where and how to start that journey. It can be difficult to make good investments with your little income, hence the need to cultivate a saving culture.
The very initial stage is to determine what your personal values as an individual are. It could be having a family and children in the future, becoming a philanthropist later in life, living a comfortable life, serving the community and so on.
It is these values that will inform which kind of goals you set. Your personal and financial goals are intertwined. Set both short and long-term goals personally and financially. Some of the goals could be buying or building a home, going back to school or starting a business.
Once the goals are in place, start asking yourself how you are going to fund them. This way you can start saving money out of your paycheck regularly and consistently.
Have a budget that can help you see where your money comes from and where it goes to avoid wastage and determine how much more you need to make as income depending on your needs in the budget.
In your budget, include savings and investing as an expense and not just shopping lists of what to buy at the grocery shop.
There are several ways of budgeting, but for a start you can use the 50/30/20 rule which states that 50 per cent of your income should cater for all your basic and principle needs, 30 per cent to go to things that you want and 20 per cent for savings and investments. In your case, you can interchange the 30 and 20 percentages so that you save more.
This rule is a better guide as it gives you clarity on exact figures to use in your budgeting. By earning Sh50,000 as gross, your net earnings after all statutory deductions come to about Sh39,000.
On a 50/30/20 rule, it means Sh19,500 is to be allocated to your basic needs, Sh11,700 to go to wants and at least Sh7,800 to go to savings and investments.
However, this is just a guide. Your goals have to be aligned with your budget and make better decisions about where and how to save more, and how to also enjoy life as you save.
Investments are meant to help you grow exponentially in finances. Invest in educating yourself about investments that are available in the market and start small, with whatever you have.
Investments are meant to bear fruits in terms of returns, so think long term. Unlike savings, investments carry some risks that need to be well understood, which is why you should invest in the knowledge before committing money to them.
Open investment accounts such as CDS share accounts, Money Market accounts, and other investments vehicles, then start with what you have.
Since you are married, you must involve your spouse in this process for accountability. At this stage, you both may need to evaluate what income is generated by the spouse or how much can be generated.
This will distribute your expenses across your household and give you both more room to save and invest.
Being employed for a long time and always receiving a timely salary can give you a sense of familiarity and make you too comfortable to consider hustling for secondary income streams.
Currently, you’re over-relying on your job and salary. You need to wake up and start researching on how to find a second, part-time income stream to boost your savings and investments.
With your family responsibilities vis a vis earnings, you may realise that a secondary income stream is the key to achieving some of the medium to long-term goals including returning to school for better skills and qualifications to boost your job competitiveness.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered on this column.
