Our priorities, goals and needs change constantly as we journey through life.
Lifestyle choices, like holidays and cars, dominate our thinking early on, then more serious imperatives like renting or buying a house come along.
After that, we have education, healthcare and all the things that go with growing families and expanding responsibilities.
All the while, we have to keep an eye on the long-term prize of a comfortable retirement.
Juggling these competing financial needs, on a finite budget, stretches most people. However, the secret lies in starting early, making a plan and sticking to it.
First of all, you should get into the good habit of saving, early in life. The earlier you start, makes small amounts turn into large sums over time. When you are trying to accumulate wealth for the future, the longer you have your money invested the more it will grow in value.
The other advantage in starting early is the mindset it helps create. You begin to see savings not as some sort of luxury but as part of your overall financial plan. It should be an integral piece of your planning and seen as important as your mortgage or rent. Your savings should be divided into different aspects.
The short-term aspect could be for school fees and insurance. The longer term is for pensions and investments.
It is easy to say you should do everything at once but you only have a limited amount of money, so it is important to draw up a budget and put it down on paper.
Short-term needs are most important. Longer-term needs like pensions can be put off a bit. Unfortunately, most people in Kenya are very good at putting things off until the last minute. I like to challenge my colleagues with a simple exercise that really shows you how you spend your money. If you started tomorrow and got a receipt for everything you spent money on for the next month you would be very surprised at what you would find. Most people spend on things they do not even know about.
Getting the basics right is essential. Let us say you are in your 30s and saving, your chance of getting a deposit for a house is quite high. If you are only starting in your 40s you will struggle.
A cash flow statement will show you what is coming in and what is going out and allow you to plan where the spare cash goes.
Financial planning is key. You need to plan, set out your goals, what you want to achieve, and then set out a plan to reach those objectives. After that, you should prioritise those objectives.
The near-term goals get higher priorities — home purchase, children’s education, and so on. Longer-term goals get a lower priority.
After that, it is a question of deciding what sacrifices you have to make to reach those goals.
You also need to have a strategy for each priority in your life. Making a start on each of them may mean starting small. The key starting point is a good budget plan.
While starting your pension planning early is best, people should not be deterred if they have allowed it slip while they looked after other pressing needs. The old cliché is that ‘the second-best time to start a pension is today.’
If you are in your 40s or 50s, you still have 10, 15 or 20 years to go to retirement and there is still quite a lot that can be done. It is never too late to start. You have to have a sensible investment strategy though. It is about having a plan, acting on it, and getting help to put it together.
CATHERINE KARIMI, Chief Executive, APA Life.