One of the simplicities about money is what you can do with it: you’re either spending it, saving it or investing it. Period. The cracks of these three is where the good habits about money are.
These habits can be taught, refined and mastered over the years – you can always getter at managing your money. Always. There’s no one out there who’s not hungry to pick up yet another good habit on managing their money.
I’ve mastered a few over the years. I share with you five of them:
#1. Make provisions
Making a provision is an accounting term. It even has an entire accounting standard that talks about it. (I’m a certified accountant with ACCA, that’s how I know about it.)
It simply means setting money aside in advance, for an expense you know with some certainty, will come to pass. Like, car or health insurance, NHIF, your child’s school fees.
My daughter started school a few weeks ago (whoop, whoop) so school fees is the readiest example for a provision: because we knew she’d be going to kindergarten in January 2019, GB and I set up a separate school fees account in October, and agreed to be sending to it a small respective amount every month.
This money was to cover school fees, uniform, clubs, bus and school lunch.
So when life sweeps across your financial terrain, the money for necessities such as this has safely been stashed away. Now we’re beginning to save for term two, Inshallah.
Pick up this habit. If it’s car insurance, divide it by 12 months then make a commitment to set aside that amount every month. Even better if you send it to an account you can’t access.
You could also set up a direct debit or standing order to have that cash deducted at source. Even your payroll accountant can help you manage your provisions.
#2. Never put money in your hands until you’ve budgeted for it
Budgets, oh budgets. Budgets are one of those good habits we’re aware of, we really want to get done but which we never seem to get around to doing. It’s like taking our dietary supplements, our omega 3’s and multivitamins. Or going in for an annual pap smear or prostate exam. Or keeping time.
I don’t know what else to say apart from this: never – like, don’t ever – put money in your hands until you’ve budgeted for it. Be it salary, wages, side-hustle income, investment income, old debts repaid, new debts to be repaid, money you’ve borrowed...
You’d rather let it sit where it is until you’ve come up with a plan on what you’ll do with it.
They always say that you must pay yourself first – i.e. save – before you begin to expense your income. Here’s the thing though, you don’t have to follow this suggestion with every shilling that comes your way – have a different budget for each stream of income. It simplifies how you manage your money and also managing the expectations you have of yourself, and of your money.
For example, budget to spend your salary, budget to save money you’ve lent out, and budget to invest side-hustle income.
#3. Use your investments returns to invest further
As a freelance writer, I’m paid only for what’s published. I’m not on a salary but I receive some constant figure every month. It’s a precarious way to live but it’s taught me to be smarter, sharper and more diligent.
Sometimes it frightens me... but... more on that another day.
I’ve structured my income such that I spend my entire ‘salary’, and save and invest my side-hustle and investment income.
Here’s an easy example, I invest with two Saccos. I receive dividend income from both annually. For one of the Saccos, I reinvest the dividends back into my Sacco savings.
For the other, I use the dividends to prepay chama contributions for the entire year. Income from my side-hustles (I have a handful) I plough back or redirect to another investment.
Unless in extreme circumstances do I use my investment income for day-to-day expenses like food and clothing. Those circumstances do arise from time to time. As is life.
I’m in my 30s now so this is the time to grow and build. The time to grow and spend will come someday soon. Probably in my 40s and 50s. I pray I’ll be around to enjoy the fruits of what I’m building now.
#4. Respect it – there’s nothing like small money
The line that separates small money from big money is so faint that it doesn’t exist for me anymore: money is money.
I have to be honest with you, though, I used to despise small money. That was until I became a freelance writer and every word I write translates to money in my pocket at the end of the month. A word for every shilling. A sweat for every coin. A story idea for every budget line.
You’ll value money more if your efforts are directly proportional to your income. Keep an eye on the small monies. How so, you ask? Well, seal the small money leaks.
For example, are you holding your cash in a bank account that’s charging you an extra Sh50 and Sh70 for services you neither need nor use? Shut the account and move to a cheaper one.
Are you sending money on M-Pesa without being aware of the Sh15 and Sh20 difference in sending brackets? For example, to send Sh5,000 costs Sh60, but when you add Sh66 ya kutoa and make it Sh5,066, then you’ll move to the next bracket and it’ll now cost you Sh75 to send.
What you can do instead, is to send that Sh5,000 then do a second transaction of Sh66 which costs you nothing. Saving that Sh15 is the small money I’m talking about here.
Then there’s the weekly shopping for fruits and vegetables. You can do your shopping like a wholesaler at Marikiti market and begin to save monthly at least Sh3,000.
And on and on it goes. If you audit your daily spending you’ll come across several of such small-money leaks. Sealing them little by little adds up to the ‘big money’ most folk give more attention to.
And it’s not being petty, it’s being smart.
#5. Be curious and hungry to engage with money
I’ve demystified money. I read on money. A lot. I’m subscribed to websites, blogs and Facebook pages about money. Magazine and newspaper columns about money call my name. If I listened to Podcasts, I’d likely be subscribed to the ones about money.
I watch YouTube videos and TV shows about money. One of my most favourites is "Shark Tank". That show where entrepreneurs pitch their business ideas to a select panel with the hope of securing financing to further their ideas. All 10 seasons of the show are streaming on Netflix. Catch them.
Whenever I meet my friends and friends of my friends, I’m usually prying to know what they’re doing to make extra money; money outside of their employment salaries. Because it’s outside their salary where a man makes his money bones.
It’s 2019 – make this your year to be a money guru of some sort.
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