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Managing your money in 2022

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Three Nigerians suspected to enjoy the backing of a powerful Kenyan politician and two Kenyans wired Sh25.6 billion between October and November 2020. FILE PHOTO | NMG

Summary

  • The beginning of a year is a good time to take stock and strategise on how to achieve financial goals.
  • Certain ideologies remain timeless: spend conservatively, save aggressively and prepare for rainy days.

The beginning of a year is a good time to take stock and strategise on how to achieve financial goals. Certain ideologies remain timeless: spend conservatively, save aggressively and prepare for rainy days.

However, some uncertainties such as a pandemic may throw you off balance when income drops and expenses increase. The following tips may come in handy at some point in your journey to financial freedom.

CREATE A BUDGET

Like a two-edged sword, a budget stops expenses from compromising other financial goals while motivating conservative spenders to boldly spend their money. It happens to be the key that unlocks every other financial goal.

A budget is a list of all your income- salary, side hustle, investments- laid against all your expenses. Microsoft Excel already has a budget template ready for you among other free budgeting apps.

Using percentage allocations like the 50/30/20 rule will help you know how much you can realistically afford aligned with your income. That would mean 50 percent of your income going to your needs like rent or food, 30 percent to wants and entertainment, and 20 percent to savings.

The whole point is to lay everything in front of you so you can see where every coin is going and adjust accordingly.

THINK ABOUT RETIREMENT

The best time to start investing in your retirement was yesterday; even if you have decades to go. The earlier you start the less the pressure will be in later years.

This year, take full advantage of tax breaks and employer pension matches. If you contribute Sh15,000 towards a registered pension scheme, your taxable income will be 15,000 less. If your employer matches your contribution, that is free money, increase your contribution.

BUILD AN EMERGENCY FUND

The unforeseen expenditure during the pandemic was a tough lesson for many. The difficulties in meeting basic needs saw 60% of retirees turn to loans, predominantly mobile loans. This is according to a report by Enwealth Financial Services, a leading pension administrator.

With some nearing 900% annualized interest, mobile loans are expensive. After the pandemic roller-coaster, you likely need no convincing that having monies tucked away for life’s unending financial curveballs is the ultimate money stress reducer.

The rule of thumb is to save enough to cover six months of expenses – nine months for self-employed folks. Open a separate savings account that you designate as your emergency fund. If the institution offers a debit card, decline. It could tempt you to use the cash for non-emergencies.

BORROW SMART

While some big-ticket purchases like houses or cars involve taking out a loan, the key to financial security is borrowing what you truly need. This is for you to determine.

As long as they are sure that you can repay the loan, lenders will lend you the maximum possible amount. Often, they disregard your ability to meet other goals. Borrowing as little as possible will boost your income in that budget we have running in the background.

LEARN TO SAVOR

Savoring means appreciating what you have instead of trying to get happier by acquiring more things. Do you need a new phone tricked out with every premium feature? In addition, do not equate enjoyment with spending money on things and people only with the intention to impress. Your money has better uses.

FINAL WORD

While guides like these are eye-openers, expert advice will give you an in-depth understanding of specific subjects such as investments, retirement planning, and more.