Ten Commandments of the money-smart in our own situation

The month is coming to an end in what most salaried tycoons refer to as “ the month is at the corner” we were having a heated chat with SaTP on how to manage our meager monthly income which could not go beyond any reasonable two days on receipt. We could not agree on the way forward because our topic needed a financial guru or experts to expound and explain to us how we can be able to manage what is rightfully ours on this earth and being the only thing which keeps hope and life going, l had to convinced SaTP that it was time we employ the knowledge of a knowledgeable those from KESNEB or their likes. He agreed and this is how we borrowed a leaf of effective financial management of what is rightfully ours. On monthly basis until then cometh the end.

Some lady in a far land, Mumbi kinyua came up with what she termed Ten Commandments of the Money-Smart which l am hereby sharing with you and my likes now do the reading:-

Have you ever looked at your bank account three days after getting your salary and found you barely have anything left? Or after a client pays you for services, do you find yourself spending the money a whole lot faster than you earned it?

What tends to follow these bouts of dissatisfaction with our spending habits are promises to do better next time. But a lot of the time, the cycle repeats itself, no matter how hard we try to be good.

A spending plan, however, may be just what you need to get your bad habits in check. Here are 10 commandments that should help you hold on to your earnings a little longer.

  1. Thou shalt write a budget

Writing a budget is a rock solid way to get a better grasp on money management. However, you are still vulnerable to enticing advertisements and the temptation of buying something you hadn’t planned for.

To stick to a budget better, think of it as your net-worth determinant, rather than a plan of what you need to spend.

  1. Thou shalt follow the 50-30-20 rule

One way of writing a budget that works for you is by following the 50-30-20 rule. Here’s how it works: your fixed expenses, that is, those that do not change often, for example, rent, fare and electricity, should not take up more than 50 per cent of your earnings.

And then allocate 30 per cent to your day-to-day expenses account, which includes the cash you use for buying lunch, groceries and entertainment. Finally, direct 20 per cent of your income to important financial investments, such as savings and a retirement fund.

  1. Thou shalt have more than one savings account

Open multiple savings accounts in line with your money goals. If you run a single savings account, you risk spending all your money at one go when something urgent arises.

With an eye on your goals – for instance, buying or land, buying furniture and building up an emergency fund – set up accounts for the specific needs, and put a portion of your earnings into each account every month.

  1. Thou shalt record thy expenses

Make the effort to note down each time you spend money. This will help you get a clearer picture of you financial position. Tracking your expenditure lets you know where your money is going if you find yourself broke soon after payday.

Recording your expenses goes hand in hand with writing a budget. One outlines exactly where your money is going and the other gives you the control to channel it to where you’d want it to go.

  1. Thou shalt set money goals

Before you even start saving, you need to know why you’re doing it. Are you saving to achieve a long-term goal or a short-term one?

Bigger money goals, such as a downpayment on a house, demand that you be more careful with your spending habits than if you’re saving for new furniture.

  1. Thou shalt observe the rule of the 30-day wait

If you suffer from chronic overspending, then you’re familiar with impulse buying. One way to cut down on impulse buying is by waiting 30 days before you buy something that you think you absolutely must have, even though you hadn’t planned to buy it.

If you are able to survive 30 days without making the purchase, then it will be clearer to you if you really need the item, and if you’re in the financial position to afford it. This rule also reduces the buyer’s remorse that tends to accompany impulse buys.

  1. Thou shalt save at the start – not end – of the month

One of the richest men in the world, investor Warren Buffet, advises: “Do not save what is left after spending, but spend what is left after saving.”

After you get your paycheque, bank what you have allocated for your savings accounts and then allocate the rest of the money to your fixed and recurrent expenses.

  1. Thou shalt plan for the unexpected

In economics, this commandment speaks to the precautionary motive for holding money. It basically means that it is necessary to save money to cushion you from unforeseen circumstances, such as medical bills in case of an accident.

  1. Thou shalt be aware of thy spending biases

People are either frugal or spendthrifts. Knowing the type of person you are when handling money will help you plan your income better.

For example, if you are a spendthrift and exhaust your 30 per cent (refer to commandment two), have your 20 per cent in an account that you can’t easily access – you can ask your bank to move you to an account that doesn’t allow for online or mobile banking, or ATM withdrawals, for instance.

  1. Thou shalt pay off thy debts first

If you’re in debt, the most logical thing to do is to pay off what you owe first before you splurge on expensive lunches or nights out. Delaying debt repayments increases the total amount you end up paying back.

Where possible, channel bonuses or any windfalls towards repayments so you can be free of the debt sooner.

Topical commentary

With Odongo Odoyo

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