Big spenders, small savers

A budget and financial discipline can change you from a spend-thrift to a meticulous saver, writes GRACE KITHAKAMuthoni and Wairimu are two jolly sisters. But they have something else in common: they love to spend money.

Muthoni is a student at United States International University, while Wairimu is an administration officer with an NGO and a part time student. Currently they both live with their parents and confess to being uncontrollable spenders when they land their hands on cash . 

“There is nothing wrong with that (spending on shopping) as long as I have eaten and paid my rent,” says Wairimu, the elder sister.

So what sorts of things does Wairimu spend on? Everything, she says vaguely. Muthoni, on the other hand, is more candid. “I spend my money on my hair,” she says. “Being a student, there are some things I do and I think are a bit extravagant but, since I like them I’ll go ahead and pay for them.” 

Muthoni and Wairimu are part of the breed of people who find it hard to resist the urge to empty their wallets often on items or services they hardly need. Technically, it’s called compulsive spending or shopping, where some spend money on impulse or just to fit in a certain social class.

Prior to the Money interview, Muthoni had spent most of the day having her hair done. “I think I spent around Sh3,000 having my human hair braids fixed, and everything else in between,” she says. 

Muthoni braids her hair every two months or less. That translates to an average of six times a year, at a total cost of Sh18,000. 

“We don’t spend money on alcohol and things like that,” Wairimu says. “That’s why I don’t see anything wrong with spending money that is mine.” She cites food, sandals and hair products — at least before she decided to be shaving — were some of her favourites buys. This way, they say, they are being generous to themselves and it helps them satisfy an inner feeling of want.

But when push comes to shove, the ladies acknowledge they can be frugal with cash. “If a financial planner looked at what I spend my money on, they’d probably think I’m extravagant,” says Wairimu. “He’d say that I probably spend too much on entertainment and clothes.” 

Financial experts say compulsive shopping is a disorder. 

Known as shopaholism, compulsive spending is “a lifestyle disease of the affluent, or those who imitate to fit in,” says Mr Hardy Pemhiwa, the managing director of Amana Capital Ltd, a fund management and investment advisory services firm. 

Rampant spending, he says, is caused by various factors including television, upbringing and peer pressure. But Mr Pemhiwa points a finger at parents, saying they fail to teach their kids the value of money early enough.

“The big difference between countries in the East, the West and Africa is that children from (other) countries . . .  are taught saving techniques,” he says. “If you can remember your days in boarding, parents never asked how much their child had saved throughout the term when they came home for holidays.”

Muthoni says that even their mother thinks the sisters are extravagant. Wairimu says: “She thinks I buy too much because we give out a lot of clothes…a lot.” The spend-thrift sisters draw the line at borrowing money to shop. “Recently I saw some really nice shoes but I didn’t have money on me. I called my sister who gave me the money and I gave it back to her almost immediately,” Wairimu says. “ But I wouldn’t borrow and then pay it months later. If I know I can’t afford it I can’t.”

Wairimu can’t figure out how much she spends in a week. She defends her recent clothing purchases, citing the weight she has gained and a recent visit to Tanzania. Eventually, she concedes. “OK, actually I am a compulsive shopper.” 

The rule of the thumb, according to Mr Pemhiwa, is to save 10 per cent of your salary, whatever you amount you earn. “This money is not for rent, for the dentist, transport, lunch or tithe. In fact it should be deducted in the same way Paye (pay as you earn) is deducted, without reference to the person it’s being deducted from,” he says.

The way to convince compulsive shoppers off their wasteful ways is by showing them alternative uses for their money.

If Wairimu earns about Sh30,000, 10 per cent, or Sh3,000, would add up to Sh36,000 in a year. Since a compulsive shopper rarely buys alone, he or she could form an investment club with three friends with similar earnings. With each friend contributing their 10 per cent a month, they would have Sh144,000 at the end of the year. They can then seek financial guidance and invest the money wisely. 

Mr Pemhiwa underscores judicious investing. “One must however know what their investment goals are,” he says, but ultimately, where people choose to invest depends on how well they want to eat or sleep. 

According to her sister and a friend, Wairimu is guilty of buying clothes that she doesn’t use at all. “Honestly . . . I give out a lot of things,” Wairimu says. She says her spending ways started in campus, when she and her sister would hustle to survive. 

“We know how to make money so we can survive and buy what we want. We don’t get spending money from men, nor from our parents. Personally, I know I have a habit so I’ve learnt how to take care of my needs. And I don’t run into debts.”

Muthoni, who used to work, says she still feels she has few responsibilities, and she wants to enjoy every bit of this time.

“I have no responsibilities right now,” she says, “when I start having my responsibilities I won’t have enough to take care of myself. This is reason enough for me to enjoy myself now. So normally, I’ll go and have lunch at Java, treat myself to a movie now and then, have my toes and nails done… small payouts.” 

These little perks are expensive in the long run, but Muthoni denies she’s extravagant. “I’m not suffering in any way because of my shopping habit,” she says. “I know fellow students who save up only to waste it all on alcohol and then puke it all out. I’d say, it’s wise to spend the money on clothes rather than on alcohol.” 

Muthoni’s mother, on the other hand, doesn’t agree. “She’ll say to me, ‘You did not need to buy another skirt or, you have a top that looks like the one you just bought.’ . . . all I can say is that I like them.” 

The two sisters are confident it will be easy for them to control their shopping habits when bigger responsibilities set in. “It’s not like we’ll go hungry so that we can have a skirt,” says Muthoni. They won’t disclose where they shop or their average price range. “I guess we were brought up with the mentality that if you want something and you can afford it, go out and get it. I don’t understand why that is a problem.”

Spend with budget

“It doesn’t matter how much or how little you earn,” says Mr Pemhiwa, the financial adviser. “You need a personal or household budget.” And a budget is more than just a list of items with figures against them. It can only be helpful in managing your money if you prioritise your spending needs. “Rent, food, transport, school fees, medical insurance rank among the highest priorities for most people,” he says. 

Once you have a budget, the next step is to actually track your expenses against it. “You need to ask yourself where did my money go today? All it takes is five to 10 minutes at the end of each day or perhaps 15 to 30 minutes at the end of each week.” 

Mr Pemhiwa says the more you check your budget, the more stick to it and the more you will save.

You are an addict 

There are a number of indicators that someone has a shopping problem. The first one is that shopping gives you a ‘rush’ or a ‘high.’ “oh yeah,  the two sisters says almost in unison. They cite examples like finding just the right pair of shoes,

or when they can’t stop talking to their friends about some bargain they got. 

The second sign is buying items you don’t need, like when Wairimu buys cloths she has no use for, just because they are pretty. 

The third sign is lying about how much you spend, or even about buying at all. The two girls are guilty on this one, as they can’t drop the slightest hint of their shopping budget.

Sign number four is that you shop with money set aside for bills, to which the girls plead innocent. And lastly, compulsive shoppers may feel guilty or ashamed because shopping has strained relationships with family members or friends. 

To these sisters, any guilt is washed away by how great they look in the mirror. “When I came from Dar, I had this budget where I had even put aside some money to last until I got another job, but obviously I surpassed the budget by far. I felt ashamed,” says Wairimu. Her sister and her friend reveal that she had about eight expensive towels when while in Dar es Salaam. 

“My mother cannot say much now, she has accepted that I am the way I am. My Dad would comment to my friends that he didn’t know what was wrong with me because he’d see me in one thing today and the next day it was thrown out.”

Wairimu doesn’t have specific plans for her money in the future. She has only managed to save for luxury things like trips and buying household items like a wrought iron bed.” But Mr Pemhiwa says financial planning is key to meeting your life goals, be it buying a car, a home, wedding, starting a family or furthering education. “Proper financial planning can help you work out where you are now financially, what you may need in the future and what you must do to reach your life goals,” he says.

For a compulsive shopper — or anyone not managing their finances wisely — the process involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a plan on how you can meet your goals given your current situation and future plans. 

“By viewing each financial decision as part of a whole, you can consider its short- and long-term effects on your life goals,” says Mr Pemhiwa. “You can also adapt more easily to life changes and feel more secure that your goals are on track.” 

Financial planning

•   Set measurable goals: For example, “I will have saved Sh100,000 by September 2006.” Not: “I will save this year!”

•   Understand the effect your financial decisions have on other financial issues. Dining out every weekend for Sh1,000 means you may not be able to reach your savings target of Sh100,000 by September.

•   Re-evaluate your financial plan periodically: The onset of marriage, a new job or moving out of your parents’ house can call for re-evaluation

•   Start now: Don’t assume planning is only for the old or rich.

•   Don’t confuse financial planning with investing. Investing is a part of financial planning; not the other way around.

•   Don’t expect unrealistic returns on investments. Borrowing from the bank to buy stocks and expecting your returns will pay off the loan and interest is usually a recipe for disaster. Not all stocks behave like KenGen.

•   Don’t wait for a money crisis to start planning your finances. A financial crisis is the result of a lack of financial planning

Spending money today has an opportunity cost, says Mr Pemhiwa. According to his calculation, spending Sh1,000 every month for 30 years instead of putting it in a personal pension plan means you are foregoing a future accumulated retirement fund of Sh3.9 million assuming a modest annual return of 12.5 per cent per annum on the Sh12,000 'blown' per year.