Saving: Saving on a shoestring

“How am i supposed to save when i earn barely enough to live on?”

“My salary starts to disappear as soon as I receive it. No matter how hard I try to save, I am always broke”

“Even when I do save, something always comes up, like my friends wedding which was last week; she will never forgive me if I don’t “take” her aso-ebi; that set me back N30,000 and there is another one in two weeks time. It’s impossible to save”.

Many young Nigerians complain that by the end of the month, there is no money left to save; they give up on saving even before they start. Once they have taken care of their mobile phone bills, rent, food, clothes and entertainment. If you are constantly broke before mid month cannot make ends meet then it is time to change the way you treat your money; with a little determination and discipline, you can do it.

You don’t earn enough to save?

This is the most common reason for not saving and it is flawed. Many people tell themselves that they do not earn enough money and that that if they made just a little bit more, things would be much better. This excuse would hold more water if you have already placed yourself on a tight budget and are paying careful attention to your spending, and are still broke.

The truth is that many young adults are simply not paying enough attention to their personal finances. They assume they will earn lots more as time goes on and things will begin to fall into place. This attitude means that they don’t really consider what comes in and where it all goes. Yet, it is not the amount of money that you earn that matters, but how much of it that you keep. If you establish poor spending habits when you are young it will be no different when you begin to earn a significant amount of money.

Are you spending more than you earn?

Do you track your spending? Start tracking what you spend for a month and a startling picture will emerge of where all your money is going. When you do this, you will have a clearer idea what you need to cut back on or do without altogether. Note that it’s easy to track spending on set expenses, such as transport costs or rent. But you can easily lose track of how much you are spending on eating out, or mobile phone re-charge cards especially if you always pay with cash.

32 year old Shade lives rent free with her aunt in Lagos, and earns N165,000 a month yet she is always broke. When friends visit her office armed with clothes, shoes, bags and jewelry for sale she can’t resist and it is quite easy to acquire the items as they let her pay over three to six months. At first these impulse purchases may seem affordable but before long the expenses spiral out of control and hundreds of naira spent in this way grows into hundreds of thousands of naira. It was glaring why Shade was always penniless and in debt. She decided to log her expenses for the month of January 2011; it highlighted her typical monthly expense pattern.

Tithes : N17,000

Hair / Beauty : N32,500

Eating out & entertainment : N30,000

Take-away meals : N20,000

Aso-ebi : N45,000

Mobile phone re-charge cards : N16,000

Transport : N30,000

Clothes : N25,000    

         N215,500

Budget

One of the best ways to ensure that your expenses are not exceeding your income is to budget. List all your routine monthly expenses, and other spending, and subtract those amounts from your income. By making small, manageable changes in your everyday expenses you can make a huge impact on your financial situation.

What is really important?

If you are living on a tight budget, prioritizing your spending is essential. Of course it is nice to eat out often with friends but it doesn’t have to be everyday. If there is an item that you have set your mind on, ask yourself if you really need it. A useful tip is to shop with a list. Before shopping, make a list of only those items you need and buy only those, otherwise chances are that you will end up picking up what you don’t really need. The key is to begin to differentiate between needs and wants, and being brutally truthful to yourself about your personal finances.

Pay yourself first

You are probably tired of hearing about this concept but it cannot be over-emphasized, as it is a key first step to saving. Each time you get paid, no matter how much it is, try to keep at least 10% aside for yourself. Instead of waiting until the end of the month to see if you have any money left, make your savings an urgent bill that must be paid as soon as you get your salary. This will be the foundation of your savings. It can be difficult, but once you get started you will see the savings adding up and this is self-enforcing; you will be encouraged to continue saving.

Put your savings on autopilot

Many people don’t have the discipline to physically set money aside; One solution is to automate your savings; talk to your bank about setting up a direct debit from your salary or current account to your savings account or a mutual fund each month, preferably the day after payday. You won’t have to worry about pay-in slips or visiting the bank; which could be an inconvenience.

Make your savings are hard to get at

Even when you make enough to save just a little money, you will be tempted to spend it if it is easily accessible. Put your savings in a vehicle that makes it a little difficult for you to get at. This may be that you have to visit the bank or observe a notice period to make a withdrawal. Don’t tie your savings to your debit card as once you pass an ATM you will be tempted to withdraw. This will help you to curb your impulse spending.

The art of saving money is really a state of mind. Like any skill, it takes some effort and practice to improve. If you are disciplined enough to commit to it in the first place, the process would already have begun. Investing even small amounts of money at an early age will grow into a significant sum over time; the sooner you start saving, the better.          

source:moneymatterswithnimi.com