EDITOR’S NOTE: This article is part of our Money254 Partner Series produced in partnership with Absa Bank Kenya to celebrate the launch of their new digital savings account. For more on Absa’s new digital savings account, read here.
At a time when the cost of living continues to soar, it's becoming an increasingly familiar story: payday comes with a sense of relief, only for your salary to vanish into thin air far too swiftly.
It's as if our salaries are developing wings and taking flight, leaving many Kenyans wondering where it all went. The cost of fuel, electricity, basic commodities such as cooking oil, sugar and maize flour has gone up.
Even household items that we previously picked without checking the price tag are going up. Have you recently checked the cost of paper tissues, toothpaste, or bathing soap?
It's no wonder that many Kenyans are finding themselves exhausting their salaries faster than ever before. It is now common to hear of colleagues complaining of how broke they are as early as by the 10th day of the month.
The struggle to make ends meet is real, and it's a challenge that spans the globe. It's crucial to explore strategies that can help us to not only make our salaries last longer, but also thrive in a world where the high cost of living is the new norm.
This article highlights 5 simple daily habits that will help you master the art of stretching every hard-earned shilling.
Many people run broke because they inadvertently spend more than they earn. One way to avoid spending more than you earn is to track all your expenses on a daily basis and constantly identify expenses that were unbudgeted for or unnecessary.
Tracking daily expenses offers a practicable way to get a perspective of where all your money is going.
For example, when doing your monthly budget you may have calculated you needed 5 kilos of meat for the whole month. While tracking your daily expenses, you may notice that you are spending quite an amount sending a rider to fetch a quarter kilo of meat on most days.
Rather than buy it in small quantities when the need arises, you could get it in bulk at an abattoir bi-weekly and preserve it in your fridge.
Considering that even the most basic needs including food and transport are becoming unmanageable, it's essential to resist the urge to spend on non-essentials and prioritise necessities over luxuries.
Start by calculating how much you need to have a smooth financial runway – the money you need to live on comfortably before your next payday. While doing this, create a budget meticulously, and adhere to it faithfully.
Importantly, with the frequent changes in the economy, factor in that your salary may be delayed for a few days and ensure you would still be comfortable without going back to your savings or taking unnecessary credit.
Paying high interest runs counter to the concept of saving. While debt can help you grow your income in the future, it is important to take debt whose cost of servicing is lower than the expected returns from the investment you deployed the borrowed money towards.
If you have taken debt for the purposes of consumption, then you may want to prioritise clearing that debt.
Prioritising the reduction of expensive debt frees up your money for savings, emergencies, and investments, ultimately putting yourself on a path toward greater financial stability and security.
Establishing an emergency fund is critical in improving your financial well-being. Life is inherently unpredictable, and unexpected events such as medical emergencies, job loss, or major car repairs can occur at any moment.
Without an emergency fund, you might find yourself in a precarious financial situation, forced to rely on expensive credit, or even sell long-term investments to cover unforeseen expenses.
However, by consistently setting aside funds in an emergency savings account, you create a financial safety net. This safety net not only shields you from the stress of unexpected financial burdens but also prevents you from going deep into unplanned debt.
It provides a sense of security, peace of mind, and the ability to navigate life's uncertainties with financial resilience. Having an emergency fund may ultimately protect you from running broke when an unplanned expense comes up in the middle of the month.
It is recommended to have at least three to six months' worth of your living expenses in an emergency fund.
Once you have saved your money, it is important that it is kept in the right place to serve its full purpose. It is not enough to save money. Savings, if kept in a current account for example, lose value to inflation.
Thus, an important factor to consider in where to keep your money is the returns the money gives you. A high-yield savings account helps you counter inflation until that rainy day comes when you need it most.
However, it is not enough to have a decent return on your savings. It is important to ensure your savings are accessible to you when you need it. You can imagine saving for emergencies and when you are in need of the funds, say to pay for a medical procedure, you are informed that you can only access your savings after two months.
In Kenya, for instance, the Absa Digital Savings Account makes for an interesting case study for those looking to earn high interest on their savings and yet have accessibility during emergencies.
It is easy to open given its digital nature - the process is fully online and takes less than ten minutes to set up. You can manage the account from the comfort of your phone or laptop. There is no minimum initial deposit requirement allowing you to start with the amount you can afford.
On the returns, it offers 9% interest rate, with daily accrual and monthly compounding. Kenya’s inflation rate in August stood at 6.7% - meaning the returns are well above the inflation rate.
On accessibility, in the event of an emergency, the Absa Digital Savings Account allows instant withdrawal without any penalties.
The cost of living has indeed been rising steadily and the paycheck has not exactly caught up. This tough situation demands for more proactive efforts at a personal level to ensure you not only do not run out of money before the month ends, but that you are also saving towards your most cherished goals.
Analyse your spending habits and be fully aware of where your money is going. Budget accordingly, figure out a plan to pay down expensive credit and make sure you are saving something every month to ensure your goals don’t take an indefinite halt.