EDITOR’S NOTE: This article is a part of our Money254 Partner series and is produced in partnership with Absa Bank Kenya to celebrate the launch of their new digital savings account. Our partners may suggest topics they would like readers to know about but do not influence what/how we write about it. Money254 remains committed to providing objective information to our audience. For more on Money254’s editorial policy, read here. For more on Absa’s new digital savings account, read here.
It is just a few days to the end of the year. If you are like us here at the Money254 HQ, you are probably taking stock of your 2022 achievements and what areas you need to improve on in 2023.
One thing is clear, even if you do not subscribe to what some may call the ‘cliché of New Year resolutions’, you must have started 2022 with some big goals - written down or not.
From our experience, the goals of any financially mindful person will always involve some element of saving money; whether it is putting more money aside than the previous year, or reducing wastage and everything in between.
However, we all agree that 2022 has been a particularly tough year for most Kenyans. Inflation rose to a 5-year high of 9.6% in October, with a 2kg packet of Unga retailing at a high of Ksh250, fuel prices rose by 37% between January and December and job losses persisted despite the gradual post-Covid recovery.
As such, and depending on which industry you work in and how the upheavals in the economy affected you, you either exceeded your targets or everything may have gone south for you, as it did to many people.
But whichever side you have found yourself in at the end of the year, this is the time to learn from your experiences and start 2023 with a plan.
As a way of helping you visualise the success or failure of your savings objectives for 2022, Money254 explores two contrasting experiences of employed Kenyans living in Nairobi, both earning a net salary of Ksh100,000 and how their savings journeys led to extremely different outcomes despite both having the intention at heart to succeed.
Tony: 31-year Old Accountant
I turned 30 on November 20, 2021. It was on a Saturday. And a sobering one for that matter, since after a Friday night out with friends to usher me into the ‘third floor’, my bank balances were not looking too great.
As I sipped my home-made hangover cure - lemon, ginger and honey concoction - I started reflecting on my expenses and I couldn’t believe that with approximately 10 days to payday, I had already blown 90% of my Ksh102,000 take-home pay.
Save for the Ksh10,000 loaned to a trusted friend, a whole Ksh82,000 had gone to expenses. Even when I subtracted Ksh18,000 rent for my two-bedroom house and the Ksh20,000 I spent on my birthday night, a whole Ksh34,000 was spent in 20 days!
That's about Ksh1,700 per day for a single man with no children. According to my mobile wallet and m-banking statements, my average spend per transaction was around Ksh350. Only that these transactions were numerous on any given day, with only weekends showing transactions of up to Ksh4,000.
With the realisation that I was now already in my 30s, this was the day I decided I needed to drastically change my habits, and specifically, start saving a significant percentage of my take-home pay.
That morning, I swore to start saving half of my salary. But it would take me another mishap in December to fully commit to saving a more realistic 30% of my income every month from January 2022.
My goal: It has been very simple. Save a constant amount of money every month without fail, no matter what.
Consistency: I have, incredibly, succeeded in saving Ksh31,000 every single month of 2022 so far.
Total Savings to Date: From 11 months of saving Ksh31,000, I have accumulated Ksh341,000 in savings as of November 2022.
Withdrawals: Also, incredibly, not once did I dip into my savings. I guess being in my 30s has really helped me resist the temptations to overspend.
Interest: At 4% interest per annum compounded quarterly, I am expecting to see Ksh4,678 added to my account in January.
In 2023, if I use the Absa Digital Savings Account which offers 7% quarterly compounding interest, and save the same Ksh31,000 every month without withdrawing, I expect my interest to be Ksh8,223.
After arriving back in Nairobi from the December festivities, the first thing I did was to open a savings account for this particular purpose. I was determined that no other payday would find me regretting my choices from the previous month.
I was keen on making sure I couldn’t easily withdraw from this account, but rather chose one that was easy to fund, even from my mobile money wallet.
Making access to my savings inconvenient was very deliberate knowing myself - I remember a day in 2020 when I made a whole three trips to the ATM to withdraw “enjoyment” money. That was before I had my mobile banking app. I couldn’t simply risk this kind of recklessness.
Secondly, and knowing how easily I could spend on impulse or my undying love for procrastination, the next thing I did on the same day was to set up a standing order. And considering that Ksh30,600 is exactly 30% of my take-home pay, I put a standing order of Ksh31,000 to be deposited to my savings account every 1st day of each month.
My employer has always paid our salaries every last day of the month, whatever that date is, so I was very confident there would be money in the account. If there was not enough money in my current account, I would be penalised.
That day, I left the bank very proud of myself - no matter what, every month I would be saving Ksh31k - unless we got paid earlier and for some reason I withdrew enough to leave a balance less than Ksh31k before Date 1 of the next month. How likely? Very unlikely, at least by my new habits.
What’s more, turning 30 has a way of firming you up. At least this has been my experience so far, now as a 31-year-old man. After deciding that I needed to save 30% of my income come what may, I knew I couldn’t keep randomly spending my money whenever my heart pleases. My saving target definitely needed some belt tightening.
To be completely honest, the fact that Ksh31k was being automatically deducted from my account almost instantly after my salary landed is what really helped me to reduce some of the unnecessary expenses.
Remember the Ksh1,700 a day expenditure from that month in 2021? I actually realised that I wasn’t spending too much at a go, but was instead making small but very frequent transactions that ended up eating up all my money.
Some Ksh400 here on lunch, Ksh500 for some impulse buy from a street hawker here, random airtime purchases via mobile money instead of getting a monthly plan, daily grocery buys averaging Ksh250 there and maybe a friend or gateman wants some Ksh300 urgently and it all adds up.
I have not made any major changes per se, but with less to spend - and a commitment to saving something for myself, I have seen myself go out less often, order in less often and become more wary of money “favours” from friends.
I still pay Ksh18,000 in rent for my two-bedroom house which I may not actually need - the extra bedroom is my “home office” that I don’t use as much as in the Covid era. Also, I still drive to the office every day despite the fact that taking the bus is way cheaper.
Looking back at where I was financially in 2021, I can say for sure that the fact I succeeded in saving something every single month of 2022 without fail is my biggest achievement.
In fact, I have become so accustomed to budgeting for the remaining 70% every month that one of my biggest ambitions in 2023 is how I am going to start earning more.
Admittedly, it is that standing order I have to thank for this feat. I have the mind of a master procrastinator - which I am working on. But so far, anything and everything can be done the next day, just not today. Maybe that’s why I am still single at 31. The genius has been in getting the saving done, without depending on my flawed brain.
And I am just realising this now, the Ksh341k I have saved to date (it will be 372k when the Dec salary checks in), could maybe have been much more had I set a specific real-world goal to achieve with the money. Maybe I could have actually saved Ksh500k if it was a 1/8 acre plot I wanted to purchase at Juja Farm?
Don’t get me wrong, I am extremely happy with my achievement this year. I couldn’t be happier. Let’s say that my 2023 goals will be more specific. I am going to be saving towards a lifelong investment. That should motivate me to tighten the belt even more.
Money254 Question: Would the new Absa Digital Savings Account have helped you on your savings journey?
I have just seen that the Absa Digital Savings Account offers a 7% interest rate if you do not withdraw more than once a quarter. That is 3% more than my bank offers. I know that, and the fact that the interest is paid out quarterly, would have motivated me especially since I did not do any withdrawals at all.
The fact that there are no account management fees or withdrawal fees is also a great incentive for me. It shouldn’t cost me to save money.
Michael: 27-year-old Program Associate
2022 started with a bang for me. I had just graduated with a masters just a month prior in December 2021 and January represented the first month I would be taking home a whole Ksh100,000 in net income from my new NGO job.
A good friend of mine from my undergraduate days had given me the confidence to negotiate based on net salary rather than gross pay. And it worked! My gross pay ended up being Ksh135,000, that whole Ksh35k goes to PAYE tax!
So, what does someone who was earning a gross salary of Ksh80,000 (Ksh63k net) do when they get what is effectively a 56% salary hike? For the everyday 27-year-old, maybe it would have meant moving to a newer, bigger house or dreams of getting a car.
But not me. That December when I got the offer letter, submitted my resignation and was serving my notice period, I decided I could save Ksh500,000 easily by December 2022 with my new salary.
But let me tell you Maina… it never happened. Below is how it went down.
The Plan: Save Ksh500,000 by December 2022 and then decide what do with it.
Consistency: Let’s just say by the third month, in March, things started really getting out of hand.
Total Savings to Date: I have Ksh193,000 saved in my savings account. While this is just about 40% of the target, it’s not nothing.
Withdrawals: I really have to look at my statements for this one, but I doubt there was a month I didn’t withdraw even just a little to sort something out - especially relating to family.
Interest: To be honest, I have not really thought much about what interest I will be earning when January comes given the rollercoaster that 2022 has been. I know I am supposed to earn 4% p.a. compounded quarterly which if I had saved the Ksh193k evenly (Ksh16,083 per month) would have earned me some Ksh2,500. Interest was not my biggest concern at the time.
In 2023: While I was haphazard with my monthly instalments, now that I have Ksh193,000 saved, I know I can earn at least Ksh13,000 on my savings in the Absa Digital Savings Account in 2023 before I even think of adding more funds.
Emboldened by my new take-away salary and my ambitious savings target, my plan for arriving at Ksh500k in 12 months was to simply save an even amount of money every month. 500,000 /12 = Ksh41,666. I rounded that off to Ksh42k in savings every month. That was 42% of my income.
In the initial days of ruminating on this idea, I thought to myself, “I was already living comfortably with Ksh48,000. Ksh58,000 for expenses every month must be a piece of cake!”
With my previous salary, I was able to save up to Ksh15,000 every other month, but not very consistently (hence 63k net - 15k savings = Ksh48k).
The plan was to sit down on the very day my salary checks in and pay all my dues - rent, buy tokens, water, send something to my parents and send the Ksh42k to my savings account - all in one day and leave money for my discretionary expenses every month. That’s how I had it figured in my head.
Yes, the target is to get Ksh500k so why would I withdraw the money? I reasoned I would train myself to think I was still earning my previous salary and only deal with everything that comes my way with that amount in mind. Surely the greatness of having half a million in the bank and the things I could do with it in one year should trounce any temptation to withdraw, right?
The year has gone by pretty fast and while indeed I ended up saving money, it was a far cry from the target I had so ambitiously set for myself.
Today, with one month’s salary to go, I have Ksh193,000 in my savings account. My current account has about Ksh36,000. My savings goal is only 40% complete. A couple of things happened. I will detail them below to the best of my memory.
Remember how convinced I was that I could save Ksh42k every month and actually transfer the money to my savings account? Well, it turns out that I would become ‘busier’ than I had imagined and save for January and February, I never really saved on payday.
Neither did I consistently pay all my bills in one sitting, meaning money would be leaving my current account at random dates of the month. By March, I was well on my way to considering what was left in my current account as savings.
I can’t really tell how I ended up here so fast. But there’s one thing that I kind of ‘realised’ a few months into enjoying this new salary. It sounded something like, “you know what? Kumbe Ksh100,000 is not that much money!”
During my graduation ceremony in December, my folks made sure to invite anyone and everyone who cared to attend. And the enthusiastic pastor would not let it rest that I had a double blessing of not only graduating but also bagging a ‘big job’ with an NGO in Nairobi.
It was all fun and smiles. In fact, the guests, true to village hospitality, brought monetary gifts, however modest, which totalled about Ksh40,000. I used that money to upgrade into a better laptop - befitting an NGO employee. I was a very happy man that day.
Little did I know I would have to pay back this generosity in what I have come to describe as black tax on steroids, from the very moment I landed in Nairobi. Incessant calls from not only my siblings, but also cousins, uncles and even neighbours. I have paid hospital bills, bought medicine, cleared school fee arrears and even given ‘soft loans’ that I am sure will never be repaid.
The problem with being deprived of so much for so long is that when an opportunity to enjoy what was out of reach arises, you may want it all. And without proper planning, you could waste a good opportunity.
As my December planning shows, I had resisted the temptation of letting the excitement of earning significantly more drive me to “upgrading my lifestyle.”
Ultimately, as my saving consistency shows from March 2022, I couldn’t resist the urge to spend on myself. I moved to a bigger house in a better neighbourhood - in my mind I was moving closer to work. I started upgrading my appliances and buying what I didn’t have - like this Sony Sound bar whose price I can’t dare mention to my village people.
I am now convinced they don’t pay you more when you get a bigger role for no reason. I quickly realised that I needed to dress better, take cabs more often, network with “higher quality” people and generally “look the part” for my people-facing role - which increased my budget, but also increased the “pressure” to spend.
I am a product of the community. People fundraised to take me to college. My siblings are not doing as well as I am. I am undeniably indebted to my family, my church folk and the community I grew up in. But I now realise I have to put a limit to how much I can give others.
All the withdrawals from my savings account have come from the need to sort a family emergency or something closer to this description.
I could have achieved so much more - despite the occasional withdrawals - if I had put a standing order to be contributing to my savings account once my salary checked in. I think putting a limit to the number of times I can withdraw would also have helped. Admittedly, I am yet to do this - I am a little disillusioned.
I think the very high target of saving almost 50% of my salary may actually have contributed to my failure. As the realities of the job kicked in, the natural need to live a fairly comfortable life and other family-related expenses, it became clear setting aside Ksh42,000 was a tall order. I did not readjust.
Money254 Question: Would the new Absa Digital Savings Account have helped you on your savings journey?
I think I would have benefited a lot. For one, while I already had an existing savings account that I opened when I got my first job, I think opening a new one for this phase of my life would have been a better choice. I see the set-up is entirely online and there are no maintenance fees, including withdrawal fees. For someone who has sometimes been forced by circumstances to withdraw from savings, this is beneficial.
Secondly, and which I actually think is an even more important benefit, is the fact that if you do not withdraw more than once every quarter, you get to enjoy a 7% interest rate. This, particularly, would have helped me resist the temptation to withdraw to only when it is absolutely necessary. So, I probably would have saved more and earned more interest at the same time.
To open the new Absa Digital Savings Account, all you need to do is to sign up online on the Absa website, provide your KRA PIN Number, upload a copy of your ID/Passport and a Signature specimen in JPEG, JPG, PNG or PDF format. (Make sure the signature specimen is written on a white paper).
There is no minimum balance requirement, meaning you can save what you can. There are also no fees to manage the account nor are there any withdrawal fees in case you need to quickly access your money for an urgent expense.
The base interest rate is 3.5% per annum which is paid out quarterly. But there is a bonus reward, which most savers will find very attractive. If you do not exceed one withdrawal per quarter, you get a bonus of 3.5% of your savings making your total interest 7%.
You can easily track your progress through the Absa app, USSD and Internet Banking or via a branch if you ever feel the need to. Note that to set up Internet Banking, you have to do a one-time visit to a branch.
Saving is a fundamental step in building wealth for the salaried. Intending to save and actually doing it are very different things - and there are no rewards for good intentions when it comes to money - only those who follow through reap the benefits.
In a world increasingly running on technology, it is a no-brainer that digital tools can improve our efficiency, including how effectively and consistently we can save.
The journey to consistent saving, at least from the stories of Tony and Michael begins with not only a clearly defined goal that is also realistic, but also the ability to automate the process of setting aside a portion of your salary every month.
Equally important, is the ability to track your progress on the go, earn an interest from your savings while maintaining liquidity and knowing where every single shilling of your money goes.