Although sticking to a budget and setting aside money each month will help you establish a sufficient emergency fund and a fund for investments, are some practices compromising your efforts?
While the following actions may seem beneficial initially, they can significantly lead to the depletion of your hard-earned savings.
Your account isn't earning anything significant, but you aren't exactly losing money either, and at the very least, your money is safe in the bank, correct? If your money is lying in a low-interest savings account, you lose money.
Inflation is the progressive increase in the prices of goods and services and a corresponding fall in the purchasing power of money. For example, if the annual inflation rate is 5% for 2022, a product that costs Ksh1,500 today would cost Ksh1,575 in one year. According to this, if your savings account isn't increasing at a similar or higher rate, your money is effectively losing value year after year.
With the annual interest rates for savings accounts ranging from as low as 1% to 7%, it may be a little challenging to get one offering returns higher than the prevailing rate of inflation.
But leaving your money in a savings account that pays little or nothing guarantees that your buying power will reduce by that much in the future. Instead, you can consider saving in a money market fund.
Read Also: Rising Inflation: Where Should You Keep, Invest Your Money?
If you have been blessed to enjoy good health, it is pretty easy to dismiss your need for coverage. I have been here before and had to learn that no matter how long it takes for you to ever need to visit a hospital, such covers come in handy at some point.
Although sometimes hardships set in, maintaining your insurance payment remains crucial. I had to part with an amount that could have covered four months of my insurance payment on a single occasion. It was a terrible pinch but an eye-opener. Even if you lose your job, NHIF has an option that allows you to adjust your contributions to the amount you can afford. In the end, you'll still maintain your cover and enjoy its benefits.
There are several other crucial insurance covers that you may consider. Apart from your motor insurance, you can take up a life insurance cover, although not many people consider it.
Read Als: If Hospital Bills Can Bankrupt Your Family, What Can You Do Now?
In the same way that paying yourself is essential, having an emergency fund is also crucial. You may believe that you have a solid monthly salary and, as a result, have no need to be concerned about dealing with emergencies.
COVID-19 brought many people's darkest nightmares to life, as they have witnessed their greatest fears come true. It is impossible to forecast a pay cut, a job loss, or anything beyond your control in advance. We have no way of knowing when we will get sick as much as we do our best to care for ourselves and our loved ones. Using loans to pay for necessary needs and not being able to pay back the debt may put you in even deeper financial problems.
Lacking emergency funds might eventually put you in a tight spot where you must pay some bills and push others forward. It can be nearly impossible to save any amount when in such a position. It's thus necessary to understand the details and how you can have an emergency fund and sustain it.
Among the unusual money habits you can find in Kenya is unplanned borrowing. This behaviour is quite common among people who live beyond their means. Why so? Such individuals mostly find themselves in situations where they cannot meet some of their most urgent needs. The best solution is for them to turn to friends and family for additional funds.
However, with the rise of digital lenders , most people quickly turn to them for financial fixes. While they offer quick relief in times of want, sometimes people use them to finance unnecessary expenses. You get intertwined in a circle of debts that frustrate your saving efforts and overall well-being. While talking to a financial advisor can help you overcome this tendency, you can also learn about other remedies from different platforms.
Read Also: Loan Decisions: Mistakes that Can Affect Your Wealth
You can spend carelessly if you don't have a budget or fail to follow it. Creating a budget plan is critical to maintaining a well-organised financial life, regardless of one's age. It may appear to be outdated or "not-so-cool" to create a budget plan. However, it aids in the development of superior money management abilities and foresight into what expenses you can expect over a month or year.
It's easier to become disoriented when you don't have a budget. It could be the daily lunches you buy at work or the weekly night out with friends. While you can do these periodically, it's best to ensure that the accompanying expenses fall within your budget and you can account for the funds.
Nonessential spending takes away money that could be used for more important things, such as rent payments, reducing your debts, paying off student loans, or putting money down for a comfortable retirement.
It is necessary to reduce nonessential spending to improve your financial situation. It's a component of nearly every balanced budget and pleasant lifestyle. However, taking a close look at it and making cuts is an excellent first step.
Regardless of how you choose to go, simply admitting that you have unhealthy financial habits is a step in the right direction.
Because there is no one-size-fits-all answer to managing money, it takes some ingenuity and critical thinking to figure out how to better your financial status.
You can start by monitoring your expenditures. Consider consulting a trained financial advisor if you require support or guidance on overcoming these habits.
You should be better prepared to make sound financial decisions now that you've read this. With any luck, this indicates you'll soon be able to realise your financial goals.