Help! I make Sh70,000 but don’t know how to save

 Q: My name is Wilson Murimi. I make Sh50,000 a month on average in commissions from selling insurance every month. I also have a side hustle that gives me about Sh20,000 on a good month but this income is erratic. My monthly expenses add up to about Sh35,000 but I have other needs outside my family that consume the rest. I can hardly get to the next month before I become broke.

My biggest problem is saving. However much I try, I just cannot get myself to start saving. Where do I start? And what percentage of my income should I save?

Wilson

A: Thank you, Wilson, for expressing your concerns about your inability to make savings. This is a common problem in the society and especially among young urban Kenyans. You did not share family circumstances which is usually key when looking at different options for managing money. My advice has therefore assumed that you are single, and without additional responsibility to provide your parents and siblings.

Financial literacy is at the very basic level of having the knowledge, skills, and confidence to make responsible financial choices. These choices include the five key elements relating to money management such as spending, savings, and investment choices, as well as social choices like when to start a family among others, which come with financial consequences.

Savings like spending must become part of your normal habit. It is not usually the amount saved per period but rather the habit that matters in early stages of life especially when your income is still low.

In a recent response in this column, I reiterated that life is in phases. A typical college graduate in Kenya is in the fourth (22-28) phase of their life. In terms of career, this is also called the establishment phase which also spills to the fifth phase ((28- 35). During the fourth phase you are expected to be able to be visionary – set goals and set in motion actions to create those goals in real life. 

Goals provide the motivation and commitment needed to achieve a behaviour change, which have indicated is a gap in your life. Savings is usually a natural normal for people driven by a strong value for accumulation and it would be manifesting in your life today regardless of the tools used even if you had not set it as a goal.

Three issues

In short, Wilson, you need to address three issues all of which lead to change in behaviour from spending to include accumulation through savings and investment actions. It would be useful to take a values test just to find out which of your values are prominent and how low the value for accumulation ranks among them.

Without a double, your values for accumulation are not prominent among the values driving your choices today. It would also be useful to consider a deliberate goal for savings and investment complete with the milestones, targets, and actions for the next five and specifically for the next twelve months. 

This goal will be the first step towards inviting some motivation and to raise the relative level of values for accumulation. Targets must be kept low initially until you have adjusted your behaviour to make saving a normal part of your life.

Finally, take courage to undertake an assessment of your wastes today to trim some expenses down. This will involve looking at say three things you do daily with money and at least one thing you do weekly.

Externally motivated

You will need to consider many options for doing them and then adopt the option that releases some money back daily or weekly depending on its frequency. Savings is a behaviour which is driven in your mind as you make choices for the money in your hand. It cannot be externally motivated. You need to make it a deliberate part of your daily life.

Principles of personal finance management prescribe that we first consider bringing financial security into our lives. This implies investing first, then using the investment income to acquire our personal use assets. While saving by itself won’t make you rich, savings enable you to access other peoples’ money through credit. 

A person who can save more of their income, will most likely access more credit, earlier in their life. If you were single and living with parents, you can easily save up to half your income, because food and other accommodations have been taken care of at home.

Once you move out you lose at least 12 percent of your gross income to rent and another 18 percent per month on a bare minimum to maintenance. Savings as a percentage of income therefore vary from a high of 50 percent to a low of 10 percent of your net disposable.

 Patrick Wameyo is a financial literacy and entrepreneurship coach at Financial Academy & Technologies. [email protected]