Money Management is one of the greatest challenges salary earners encounter. Every month, the salary is spent as fast as it is earned with no thought of saving any part of it. There is always something to buy, expenses to off-set and extended family/other dependents to take care of.
Many live from pay check to pay check with little thought of what could happen if the current job relied on so heavily, is lost for any reason.
As a result of the varied needs and wants that demand attention, there is always this notion that monthly salary is hardly enough to see one through the month, let alone saving for retirement or any long-term project. I bought into that excuse and used it to justify reckless spending, impulse buying and a general lack of savings culture at some point.
Looking at the efforts of a dear friend and former colleague, I realized that where there is a will, there is always a way.
She and I worked together for about 4 years and during that period, we earned exactly the same salary. While I spent mine as I pleased, Bel saved up and bought lands, started a farm and several small businesses and also built a HOUSE!!!
According to her, the turning point came in 2009 when she travelled home for the Christmas holiday and spent all her funds. On returning back to Lagos, she could barely sustain herself till the January salary was paid. It was a wakeup call for her and she promised herself that she will make each month’s salary count. At the time, she was a contract staff, earning N60,000 per month but she developed a savings culture which she continued till today.
The principles she adopted to turn things around seemed quite easy but strict. It requires strong will, sense of purpose and a clear plan aided by prayers. According to her, salary earners can make their salaries work for them if they can do the following:
Maintain a Budget:
It is advisable to always prepare a budget that you are determined to adhere to (to a reasonable extent anyway) and ensure that the budget is detailed to contain all necessary expense. She maintains a really detailed budget, with provision for almost every expense (Utility bills, aged parents, transportation, entertainment, even church offering and miscellaneous for unforeseen expenses).
A budget keeps you accountable, gives you clear direction of where your finances are going and helps you keep your priorities straight.
In the words of David Ramsey, “Budgeting is telling your money where to go instead of wondering where it went.”
Frivolous and impulse buying is one of the reasons why people cannot keep money. If we cannot control our impulses and consequently our spending, no matter how much we earn, it will never be enough. Discipline means that you can say no to yourself when the desire to spend on wants arises. To make it easier, you can budget a little money for impulse purchases (if you must) but you must discipline yourself to stick to the amount you budgeted. A trick that works sometimes is to defer the purchase till a later time. Once the purchase is deferred, you will most times realize that the object of your fancy is not as critical to your well-being as it was when you first saw it.
She said that if for some unavoidable reasons (which for her must be an extreme situation or dire need), she is forced to borrow money from her savings, it is mandatory that such borrowed sum is returned, maybe with interest. As difficult and painful as saving money could be, spending funds that have taken years to gather can happen in hours.
Therefore, discipline is very essential because “If you buy things you do not need, soon you will have to sell things you do need.”-Warren Buffet.
Save from every pay check: It may be 10% or 2% of your monthly income but to be able to put money together, you must save a certain portion of your income. As Christians, we pay tithe first but once that is done, the second deduction should be savings. Spending should come from what is left after saving. If you get into the habit of setting a portion aside and treating it like it’s not your money to spend, you find yourself adjusting your lifestyle to suit what you have to spend. To make it easier, you can join cooperative in your office, register for voluntary contribution with one of the fund managers or an ‘esusu’ type arrangement with some trusted friends/colleagues.
Apart from saving from every pay cheque, it is important that you save any unexpected income and pay raises. Do not adjust your lifestyle upwards when unexpected income comes your way, rather, save the windfall and maintain your current status.[quote cite=’ Benjamin Franklin’ align=’left’]Beware of little expenses; a small leak will sink a great ship.[/quote]
When you have money lying around, it makes it easier for you to spend. It is advisable to explore small businesses you can invest in and still oversee while working. This is beneficial in 2 ways; you have another source of income apart from your monthly salary and it will reduce the temptation of spending the money on any new thing that catches your fancy. Please do not invest in any business you have not researched thoroughly and weighed all the pros and cons.
In the event you do not have any business ideas, you can put the money in a fixed deposit account or buy treasury bills. These things also keep the money out of your reach and yield interest in the meantime.
Finally, in our part of the world, there is the persistent need to keep up with the Joneses which pushes us into frivolous spending and excessive borrowing to create an image of a certain lifestyle. This usually happens because we want to please others or to be perceived as doing very well. It is important to remember that you are not in competition with anyone so let them shine their shine while you shine yours.[quote cite=’Will Smith’ align=’left’]Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.[/quote]