Emotions are a very common culprit of ruined budgets, and we have all fallen victim to emotional spending at one point. Triggers vary from person to person for example a bad day could lead to one of the biggest culprit’s retail therapy that is supposed to help you feel better but that’s not always the case, on the flip side there is need to reward yourself for an achievement.
This need to spend unnecessarily as a reaction to emotions can be changed, through proper budgeting where you don’t only factor in utilities, investments, savings, pension, debt repayment and all the other important avenues your money needs to be channelled to, to ensure financial success. You should also factor in money for entertainment, vacation and purchases that you want to make be it household or personal, that way you to get to reward yourself for all your achievements with a vacation or a purchase that is actually planned for instead of buying your tenth handbag while there are some in your closet that you haven’t made use of or purchasing your fifth watch just to add to the collection. Planned purchases are more thought through and mean so much more once you finally acquire what you want.
Another trigger is sales and while they are good for your wallet when they are not sales scams, they still need to be planned for. Very often we see sales signs and we buy things that we don’t need or something that we do need but that purchase takes money out of your savings for the month, and we rationalize the purchases as ‘’I could not leave it because it was a really good price”. The truth is there will always be another sale probably with even better prices, so next time be patient and just wait to accumulate the needed amount.
All the best as you break bad habits and propel yourself toward financial freedom.
Question by XXX:
I earn about K Sh 300,000. I save very little because all my money goes to school fees. I am in a dilemma, should I change my kids to cheaper schools to save for investment and retirement? Or should I ensure they get the best education and hope for the best in retirement? Is there a percentage guideline of how much I should spend on school fees?
Response:
BY GEORGE OYUGA
Dear XXX,
Thank you for speaking on behalf of many!
The dilemma you are in reflects a deeper challenge that many people go through. It is a pointer to the question of whether success in life is determined by how much one earns or by how well one manages whatever amount they earn. I believe that the latter is true. Success and contentment in life is determined by how one manages the little that comes into their hands.
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You have mentioned that you earn about K Sh 300,000. I will assume that this is your monthly income because people rarely quote their annual or quarterly incomes. You have also not stated whether this is your gross or net. Having a view of how much you earn is a great thing as it puts your income into perspective. This is usually the first step in the art of budgeting. The next step requires you to take control of where your money goes.
I am glad that in your question you seem to be exploring a solution that leans more towards controlling or adjusting your expenditure as opposed to agitating for an increase in your earnings. Improving your financial management skills will yield better results than a simple increment in your earnings.
Those who live their lives agitating for higher earnings always become restless, stressed, and impatient at their present workplaces. Financial literacy and being smart on money matters can be linked to better job satisfaction and employee loyalty. Poor financial management leads to discontentment, impatience, subconscious greed, corruption and crime.
Alternatively, one may end up living a miserable life feeling they are among the less privileged (overworked and underpaid), yet they in actual sense are among the few most privileged people in society today. I hope you appreciate that you are among the few top earners in Kenya today. Your earnings place you among the 79,909 Kenyans who earn over K Shs 100,000 according to recent statistics. This accounts for only 2.9 percent of the 2.7 million formal workers captured in the Kenya Revenue Authority (KRA) database.
I am also glad that you do not seem to be too happy with your level of investment or retirement savings. You call it very little. In your view, it appears that school fees seems to be taking the larger share of your expenditure. You have however not shared how it compares with the other expenditure lines that you incur on a monthly basis. I am sure you have other expenditure lines which fall into the categories of basic needs, wants, debts and entertainment among many others.
I feel that your problem revolves around budgeting. This will be best addressed by seeking the help of a financial advisor or financial literacy coach who will help you build on your budgetary skills. The art of budgeting requires a careful diagnosis of your entire earnings and spending patterns to weed out the unnecessary financial habits while strengthening what is financially helpful. The steps of budgeting will follow a carefully laid plan that looks into your income sources, tracks your expenditure patterns over an agreed period, helps you to decide on your current financial priorities and designs a new budget framework that suits where you are in your financial journey. For future success, it will teach you how you can always track your future expenditure and refine your budget accordingly as your circumstances change with your life stages.
A good financial planner, financial advisor or financial literacy coach will help you determine which budgeting pattern suits you. There are several budgeting patterns that range between the 50:30:20 rule, the 50:40:10 rule and the 70:20:10 rule which are commonly referenced. They help you to divide your monthly after tax income to determine what goes into basic needs, wants, savings, investment, insurance, debt, etc.
• 50% (Basic Needs) :30% (Wants) :20% (Savings/ Debt)
• 50% (Basic Needs) :40% (Savings, Debt, Investment) :10% (Wants )
• 70% (Living expenses) :20% (Savings, Debt ) :10% (Investment, Charity)
The outcome of this professional intervention will determine whether you will need to change the school your kids attend currently to a cheaper one or not. Do not be surprised if the diagnosis reveals that the solution to your current financial pain-point lies somewhere else in your other expenditure habits and patterns.
But kudos for being a responsible parent. Education is the best inheritance that a parent can accord their children. My only advise at this point is that you may need to take care not to over-spend in their basic education at the expense of saving for their future tertiary education and training. Try and save for these as the real school fees burden awaits you yonder.
Lastly, I hope you are not heavily invested in their education today thinking that you have them as your retirement plan. Your children are not your retirement plan! There are high chances that thinking of them as your fallback in retirement will backfire. Make separate retirement arrangements and you will thank me later!
The writer is a financial literacy trainer and General Manager in charge Umbrella and Retail Retirement Solutions at Zamara. He can be reached via goyuga@zamara.co.ke
Don’t we all wish financial literacy was something we learnt in school, at least it’s being introduced to the new curriculum. How we view money is a journey that most if not all of us unfortunately stumble through, unless you have a mentor that guides you. The sad reality is that most of us start really learning about savings a lot later than we should, I mean we are all told saving is good and something that we should do but we never really grasp the impact that this has on our future until we are in our mid to late twenties and that’s if we are lucky most of the time it’s when we are in our thirties.
Fortunately this can be fixed and it’s never too late to change your money mindset, although there are a few prerequisites; first is a can do attitude just like with everything else in life you need to believe that your mindset can and will change but it is going to require self-discipline, budgeting, accountability, sacrifice, living below your means I could go on and on but you get it, it will take work, time and a sprinkle of grace for when you mess up because you probably will. I say a sprinkle because you don’t want to be too liberal with the grace that its sets you too far back from your goal. Your view of money also needs to change for example if you have a scarcity mentality you need to flip that to an abundance mentality. All these things have become easier to do especially with the vast resources we have now, whether through a life coach, online platforms, books, financial literacy classes and consulting friends and family that can nudge you in the right direction.