How families can plan better for their money

The year 2019 was tough economically for most households. The downturn of the economy was hugely publicised and with it came job losses, given the number of companies that announced retrenchments. This also meant that there were fewer opportunities for those looking to enter the job market.

So, how does one create a safety net for their family to navigate shocks as were experienced in 2019? There are numerous proven ways that have to start with planning with whatever income that one receives.

As a country, we have a very poor savings culture. Even our forefathers knew many generations ago that we would need to keep yams or maize aside in our granary during seasons of plenty to help us survive in the seasons of bad harvest. This should still apply for us in modern society. Financial planners say that one should always save at least 20 percent of the monthly earnings for the rainy season. You can put this in a savings account but do not expect to get much interest from it.

You can be smarter and put the money in schemes like the numerous money market funds where you can expect to earn an average interest of seven per cent per annum. There are other options like the government papers, for instance, M-Akiba but be sure the money is in a place where you can have access to it in the shortest time possible. A savings culture is a must!

Not so long ago, insurance was viewed as a luxury and something associated with the well-to-do in society. Not anymore. In fact, insurance is a very important avenue for providing a safety net for your family. Insurance companies have become very innovative meaning that you can get an insurance cover for just about anything. Insurance cover for your household goods, medical insurance, insurance against loss of income, education cover and life insurance, just to mention but a few. These policies come at a small fee but will cushion you when you really need it. One of the most recent additions is the last right/funeral covers where for as little as Sh4,000 a year, one can get up to Sh300,000 towards the last rights in the unfortunate event that you lose a parent, parent-in-law, sibling, child or spouse. This reduces dependence on social circles and harambees at that time of need.

Another sure way of safeguarding your future is having a pension plan. By law, every employed Kenyan should have a pension through the National Social Security Fund. However, it is very little to sustain one upon retirement. Luckily, a good number of employers also have pension schemes for their staff to supplement this. If your employer does not have one, the good news is that there are many private pension plans in the market where you can save for yourself.

Currently in the market we have various flexible pension products designed to conveniently enable individuals to save for retirement.

One is never too young to start saving for retirement, in fact, the earlier the better because you will have a longer period to save and can be sure of a more decent payoff when you retire. Retirement is a must; get a pension plan now to safeguard your old age. But we need to petition the government to stop taxing pension income for over 65 years old to enable these senior citizens to enjoy more from their pension savings.

In addition, pension funds can create a safety net in the form of a trust fund for children in the unfortunate case of death.

There has always been a notion that trust funds are meant for the well off in the society, but times are changing. Retirement funds can be transferred to minors in form of a trust fund with the consent of a guardian. A trust fund ensures that children’s needs like school fees, upkeep and medical bills are taken care of and prevents incidence such as relatives misusing funds of the deceased and failing to take the children to school.

We can agree that life shocks can hit us at any given time especially in a volatile market but let us be at a better position to deal with them by preparing and planning ahead of time. Create a safety net for you and your family today and give them a bright future.

The writer is managing director, Octagon Pension Services.