Why this is the time to ramp up your savings despite the hard times

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One of the strategies to manage your finances wisely is by employing US Senator Elizabeth Warren's 50/30/20 rule. PHOTO | SHUTTERSTOCK

Renowned billionaire entrepreneur Warren Buffett is celebrated globally for his well-documented 82-year wealth-building journey best summarised by his famous quote, "Do not save what is left after spending, but spend what is left after saving."

While America suffered a devastating economic depression, Mr Buffet continued saving cash which he subsequently spent on buying stocks from different companies, amassing wealth worth billions of dollars.

With Kenyan families hardpressed by dwindling incomes, the hand-to-mouth approach has seen families concentrate on putting food on the table while disregarding an important aspect of human existence, saving for a rainy day.

By adopting a saving culture, individuals create a financial fortress that provides a buffer against unexpected challenges such as job loss, medical emergencies, or economic downturns resulting in business closure among other scenarios. Embracing a saving culture not only serves as a personal safety net but also contributes to the overall resilience of the economy.

The 50/30/20 rule

One of the strategies to manage your finances wisely is by employing US Senator Elizabeth Warren's 50/30/20 rule. This means allocating 50 percent of after-tax income to basic needs, 30 percent to wants, and the remaining 20 percent to savings, which sets a structured path towards financial stability. This rule acts as a compass, guiding individuals to make informed financial decisions and cultivate a habit of mindful spending.

Modern saving methods

Gone are the days of hiding money under your mattress. Today, financial apps offer secure avenues for saving and investing at competitive interest rates that ensure your money continues to grow.

These platforms provide not only security but also the potential for substantial wealth growth. Automating savings payments ensures consistency, allowing individuals to grow their wealth systematically.

Diversifying your savings models

Kenyans traditionally relied on fixed deposits, savings accounts, saccos, and chamas. However, the financial landscape now offers a myriad of options. Money market funds present an attractive alternative for both short-term and long-term investors looking for low-risk avenues. With flexible access to funds, this option serves as a pragmatic tool to mitigate the impact of economic uncertainties.

As the Swahili saying goes, “Haba na haba hujaza kibaba,” the result of monthly saving habits lies in the ability to foster financial discipline, security, and long-term wealth accumulation. Whether through regular contributions to investments or retirement plans, consistently setting aside a portion of your income is a fundamental step toward achieving financial goals and building a successful future.

As we navigate the tough economic terrain, embracing a saving culture is a powerful tool to secure tomorrow's financial well-being.

The writer is the Portfolio Manager at CIC Asset Management.

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