Real tips from money-saving experts on how to grow your savings and most importantly, how to make your money work for you…
You may think you are miles away from turning into a millionaire but really you are only a few steps away. Here are five tips from experts on how to grow your savings that you can easily action and don’t include removing your weekly karogas…
1. Make a financial plan
All you really need is a plan. Your initial step is to work out what it will take for you to arrive at your money goals. Consider your financial plan as a roadmap to get you from saving to living life on your terms.
2. First – pay yourself!
One of the main cash sparing tips you can learn is to pay yourself first. On a monthly basis before you start spending, you should put 15-20% — consistently — in savings, retirement plans and investment funds. Only then should you pay your non-discretionary costs (rent, groceries, bills, childcare, matatu fares). Simply after that should you spend on things like drinking, weekend gateways or a hobbies.
3. Set aside cash early and regularly
Radhika Bhachu, CEO of Ndovu, says “The earlier you start, even with small amount, the better off you will be”. This is because of the power of compounding. Investing is not magic, but the power of compound interest can make you a believer.
How does compounding work to an investor’s advantage? In this case, if your investment of KES10,000 earns 10% per year, the KES1,000 you would make brings your balance to KES11,000. The next year, if you earn 10% on that amount, you would earn KES1,100. That is added to your balance, which increases how much you earn in the next year, and so on…
Smart investing allows you to take advantage of this powerful force, helping you build your savings more quickly than you would by simply putting money away in a bank account over time. Understand how compound interest works, and you can make your money work for you.
If your employers don’t offer a pension plan, you can set yourself up for investing by creating your own plan on Ndovu. There are various mutual funds available locally allowing you to invest in stocks, bonds, and other asset classes such as property. Ndovu goes one step further by carefully selecting the best funds available locally and globally to make sure our customers are getting value for money. All whilst providing you with advice and easy access.
4. Reduce outstanding debt and live a frugal life..
Loans can really cost you a lot. On average micro lending companies in Kenya charge around 10% per month when compared to what you earn on savings accounts (3-4% per year), is extortionate. Furthermore, it’s not simply the interest that adds up. There are additional fees that accumulate. Therefore, before you start saving, you should first pay down any expensive debt.
5. Delay unnecessary big purchases
This one may be the hardest. Don’t buy things you don’t need. If you want to make a big purchase, wait 30 days before purchasing it to determine if you really need it. Your average millionaire lives below his or her means. Millionaires also tend to live in modest houses and don’t splash out on flashy new cars until they have multiple sources of income.
Taking baby steps towards saving will get you closer to achieving financial freedom.
Plan, invest early and often with Ndovu.