A question that arises severally:
I would like to know how to go about saving, being a student in my final year in campus. This is because it gets difficult to save when the little cash am given is meant for my upkeep in a month and the same amount i want to save
Now saving money presumes that one has some money that they can actually put away after meeting all their expenses. Such money is usually some sort of income whether from a salary or from a business. It would be a stretch to treat monetray support from parents as income but that is not to say that one cannot find a way to save even while on an allowance. It is all a factor of one’s living expenses and how one manages them. For many university students, having a TV in their room, an iPod or MP3 player, wearing the latest fashions or going out three or four times a week is a necessity and they will gladly shell out money for these expenses. It should not be assumed that all university students are barely meeting their most basic needs and can only afford a few meals and the most basic of clothing. Clearly, a student who chooses to forego the “luxuries” such as the iPods and latest sneakers can indeed have some money to set aside even if only as an Emergency Fund. That notwithstanding, I do know of many of my college mates who were actively buying stocks in the Nairobi Stock Exchange, although I, unfortunately, remained totally ignorant of the benefits of such activities at the time.
So in a nutshell, I would say that saving while surviving on an allowance from ones’ parents is a factor of how simply one chooses to live and, obviously, the level of support received from ones’ parents. That notwithstanding, Kui is a final year student and soon to be thrust into the world of employment and real responsibility. Presumably at this point, monetary support from Kui’s parents will cease and she will be responsible for her money and future wealth all by herself. I therefore wish to set down a few pointers that i have learnt along the way in the time since I was also a student like Kui. Hopefully these tips will serve Kui, and other twenty something year olds in good stead in the days ahead.
Tip #1: Lay a solid foundation now
You will probably never be as poor as you are in your twenties again. The lessons you will learn in the area of frugal living will serve you well if you decide to keep them up as you get into your first job and your first paycheck. The mistake that most make is to immediately get caught up in the trap of lifestyle inflation and increase their expenses as their income goes up. Make a decision to live as cheaply as you can for as long as you can. This will enable you pay off your student loans and accumulate savings early on in your career.
Tip #2: Learn to differentiate the Needs from the Wants
Most of us make the mistake of failing to distinguish our Wants from the things that we actually Need. As an example, food is a Need while Pizza is a Want. A TV may be a Need but a 37 inch plasma screen is definitely a Want. Use your income to meet your needs (food, rent, clothing etc) and keep your Wants in a wishlist until you can either afford them or save and pay cash for them.
Tip #3: Dont pay interest on depreciating assets
Upon employment, bank sales agents will bombard you with ‘affordable unsecured” loans to meet your every desire from furnishing your house to buying your first car. Remember that those things that you buy lose value the moment you possess them and continue to do so at an alarmingly fast rate. The brand new TV will be worth less than half its purchase value if you decide to dispose of it later. Take loans (if necessary) to invest in things that actually bring a return such as starting a business.
Tip #4: Always look for opportunities to boost your income
Your ability to create wealth will be very much determined by how much income you are able to rake in. Although you may earn very little early on in your career, always seek opportunities to increase your earning potential, e.g by going back to school to increase your skills or by starting a business that can bring in extra income. Even when in campus, many students engage in money making ventures e.g offering private tuition etc to bring in some much needed extra income.
Tip #5: Take advantage of the tax benefits in Pension schemes
This is a mistake i made early on by not joining a voluntary pension scheme offered by my employer since i thought i earned too little. This meant that i missed on the opportunities available to save on PAYE by failing to contribute. Many young people also withdraw and use their pension contributions when moving jobs. Dont do this! I like the RBA advert that has a 24 year old saying that she is “on the fast road to retirement” at only 24. This tells you that its never too early to begin saving for your old age.
Tip #6: Take advantage of the power of compound interest
Albert Einstein called compound interest one of the world’s greatest forces and for good reason. By starting small very early on in your career and letting compound interest do its magic, you could save a considerable amount of money during your career and even possibly retire early. Use this calculator to see how even small amounts saved over long periods of time can blossom to tidy sums in the long run. Experts advise that the younger you are, the greater the risks you can take so dont be afraid to take well calculated risks early on in your life. If you make mistakes along the way, you will have sufficient time to make them up. Investing in the stock exchange is usually considered a volatile and risky venture but in the long run, the returns outweigh most of the other investment options.
Tip #7: Have an emergency fund
Even with your minimal living expenses, it makes sense to have an emergency fund that can cater for those unforeseen expenses that are sure to come. These can cater for such expenses such as rent deposits that are the bane of many young people. Having such a fund will ave you from having to resort to expensive bank loans or worse, shylocks
Tip #8: Track your expenses
Although this applies to persons of any age or stage in their career, it is important for a young person to incalcate the practice of tracking their expenses from very early on. This exercise will show you what your mandatory expenses are and wenable you to see what is available to save and invest. Failure to do this will lead you broke and living from paycheck to paycheck no matter how much more you evenntually earn as your career progresses.
Tip #9: Dont try to keep up with the Joneses
For many young people, the period after leaving school involves a lot of conversations about “who works where” and ” who is now earning what”. As sure as the sun rises in the East and sets in the West, there always will be your peers earning more than you and others earning less than you. Trying to keep pace with the freespender from your class who got a job with the United Nations is a sure recipe for financial disaster. Develop your own financial plan and stick to it. The fruits of this will be there for all to see in due course.
Tip #10: Dont expect too much too quickly
A common mistake with many young people is to expect their careers and earnings to start high or progress quickly. Wanting to own a BMW is all well and good but it is important to remember that the people driving around in these beautiful beasts have worked long and hard at their careers for upwards of ten years to get to where they are. Work with the money that you have, however little. At the same time, work hard to increase your income and plan your career well. In the fullness of time, the things you desire will come to you
Most of all, i would advise young people to enjoy their youth as much as possible. Having fun and managing money responsibly are not mutually exclusive and one can enjoy the things of young (partying, hanging out with friends etc) and still manage to stay on the road to wealth. Do not deny yourself these things in the name of saving for retirement but remember, its never too early to start taking responsibility for your financial future