We all know the pillars that accompany money talk when we ask about how to grow our money – spend less and save more, or start saving if you haven’t, find an alternative source of income and invest. So why are we still broke? Why are we still living from hand to mouth month after month? Why are we grappling with poverty? This is an interesting question for me seeing as our parents’ generation worked their lives off, and while some have something to show for it, most do not. So what is missing – what is this thing that our parents did, that we are also doing that is preventing us from progressing towards financial independence and gain?
I do not claim to have the answer, but from my assessment – the missing ingredient is financial literacy and self-discipline. This does not mean that the sacrifices our parents made or we are making to sustain life were bad financial decisions, but some of them could have been handled better.
Take for instance, say you have been working for 2 or 3 years now since you graduated, how much do you have in your savings that could sustain you for a couple of months if day you lost your job? Do you have an emergency fund? Do you have an insurance cover? Have you started considering a side hustle? Do you debts that you need to clear off, say HELB, and how are you clearing it away? What is your target of being HELB – loan free? Or do you have other debts that could have been avoided – say you borrowed money because you did not want your friends to know that you are broke so that you can attend yet another restaurant opening or baby shower or trip out of town? If the answers to these questions are tending toward the negative, it is time for you to buckle up your financial seat belt and start safe driving, because where you are headed is toward financial ruin and you need to remedy that.
As with all ailments, financial ill health starts small. And the sooner it is diagnosed, the sooner and the faster it can be healed. Having bad finances is like growing a tumor, the earlier it is taken out, the earlier you can heal, and your wallet can start smiling again.
So what are the basics before we plunge into the pillars of save more, spend less, and invest?
Personally I feel that the points below are well suited to lay a foundation for better financial independence/ gain.
First. Know Your Money
Take a sheet of paper and write down your debts, your income earners and an estimate (more on this later) of how much you spend each month. See of you are living below or above your means. If below, you are in the green. If above, you are in the red and that is something that needs to be remedied.
The importance of this step is that we often make money calculations in our head and just assume that all things will eventually fall into place, but that is not the case. An incidence that made this point clear occurred last year. I was at home, and my mother asked me to help her create an expenditure account for a family function that has occurred as she was the treasurer. She had Mpesa messages of how the money came in and went out, and so we made the expenditure sheet. In the end, there was an over-spend of 7k, and it was from her pocket. The most interesting this is that she had initially been aware that she had probably put in some extra amount from her pocket, but had not been aware that it was that much. 7k is not little money (unless you are Chris Kirubi, and am sure he is careful about his money). Since that day, I decided that I will be writing down my expenses weekly so that I can know where what goes. Sometimes, I fail in discipline and do not this, and so I am not aware when I overspend. I have to say, keeping up those weekly expenses helped me open my eyes to see where my back hole of spending is. So it is very important to make this step.
Second. Make a Budget, and Keep Track of It
The first step is important, but not just by itself. Use it as a springboard from which you make a budget on how you will be spending monthly. This will let you know how much is allocated for debt repayment, for savings, for expenditure, for buying that piece of furniture, clothing or pair of shoes or curtains that you want to acquire and how much for having a good time.
The importance of a budget is to be like a guideline on how to spend. For sure, sometimes emergencies come up etcetera. But you cannot have emergencies from month to month otherwise you will never grow. The guideline helps you to say no to yourself so that you can stick to your financial goals.
Third. Have Financial Goals.
When we do not have goals, any dream we have of financial independence or how to spend our money is just that, a dream. A goal is usually specific, measurable, achievable, realistic and time specific. Instead of saying you want to save a lot more this year (a vague dream), say you want to save KES 100000 this year, and if you break it down to 12 months that will be KES 8334 a month (assuming you started in January) or 10000KES if you are to start next month or you want to reach the target in 10 months instead of 12.
Also, having a financial goal will help motivate you. Because you know this money will be for travelling, or for paying for your education net year or for your retirement plan.
Fourth. Educate yourself.
There is a lot that schools teach us, but they barely teach us how to use the money we make and how to grow it. So it is up to you to teach yourself this. Read books that will enhance your financial literacy, read how the business giants/moguls have done it, read anything you can lay your hands on that has to do with financial literacy. Lifestyle magazine usually have a section towards the end that cover finances (I do not why it is almost at the back. The good thing about education is that it compounds over time, and the more you know, the better it is for you. Read, read, and read. If you cannot find the books, there is the internet that is an open source library, if you know where to look.
These are my top 4 basics on how to begin the journey to financial freedom, and the good thing is, is that I have directly benefited from doing them, and that’s why I am sharing. What other basics could you add to these that have helped you gain financial rein over your finances?