Each new year presents a chance to urge for new resolutions. In my case, it's like a revert to a 'default mode' setting. A step back, and a scrutiny of life's choices in the past year. Is there a thing that needs re-evaluation?
I'm increasingly driven by an ambition - financial stability. I'm clocking 35 years. For a decade now - since I was 25 - I've been earning a salary. At the time, I'd been hoping to retire at 40 years, but not really pressing towards it. Well, presently, I don't seem any close to achieving such a milestone.
What really happened to my earnings over 10 years?
I landed a job straight from college. I got absorbed into a firm after a 3-month internship stint. It was quite unexpected. The take-off package was generous - I'd take home Ksh30,000 every month. My first posting was away from the city, which meant raking in an additional Ksh10,000 in hardship allowance. My firm also provided staff housing.
I was 26 years old, then, with an annual salary of Ksh480,000.00.
Oh, the lifestyle change was phenomenal. A struggling college graduate suddenly has a huge disposable income within reach. I didn't have a family. I didn't have any obligations. After the mandatory deductions like taxes, the state pension scheme, and college loans - I still had a lot of money to burn.
My first paycheque? I bought a huge stereo system. I loved music. I'd host night-long house parties, blasting music. It was wild. At the time, most of my college mates were still seeking work - I'd feel remorseful, when they told tales of tarmacking for jobs. So, I'd try to send them money, or invite some to my legendary house parties.
That first year flew past in a blur. I'd spend most of my money on expensive, little things. Latest phones. Fancy gadgets, like celebrity-branded headphones. Designer clothing. I had a fully-kitted kitchenette, yet I'd often eat out in restaurants.
I remained at that post for 2 years.
My new job posting in the city came with a nudge up the job group. I got a salary increment. I earned a further Ksh20,000 on my payslip, which included a higher house allowance. That came to a Ksh60,000 monthly salary.
I didn't enjoy free accommodation. I took up a 2-bedroom house in a middle-class suburb, going for Ksh20,000 in rent. In retrospect, it was an unnecessary expense. I neither had a family, nor did I need to live in a relatively expensive middle-class suburb. That monthly rent ate into the entire pay increment.
My next promotion came at 30 years, and it's still my current position. I was posted to a coastal city. Well, no sweat - the paycheque doubled. From Ksh60,000 to a whooping Ksh120,000.
I landed at my new post at the coast, with a bang. The coast is full of fun spots, right? But, then, wouldn't I need a car of my own to shuttle around? The folks at my bank's branch were happy to see me, when I asked for a loan. They quickly pointed to blank spaces on bank loan forms I needed to sign. In less than 48 hours, my check-off bank loan had matured.
I bought that first car clean off the showroom. It wasn't cheap. But I was heady with happiness. What little money was left from the loan, I sent to my brother upcountry with instructions to 'buy a good dairy cow - I hear there's good money in dairy farming.
Well, my brother did indeed buy a cow. But, not necessarily a dairy cow. More so, he lacked either the wherewithal or the skills to properly maintain a cow. The poor thing's health deteriorated within a month. We had to sell her off to a butcher, at salvage prices. Total loss.
Around this time, I met a lady I liked. We made a good pair, and before long had started a family. I was blessed with two kids, now aged 2 and 3 years. The bills are higher - rent, medical, general household sustenance, and annual expenditure.
Suddenly, I've found myself with very little cash to spare, with a hefty bank loan to service. I need to evaluate my financial choices.
I didn't have a proper savings plan. I didn't have a savings goal to achieve. The little that I'd saved by check-off to a friendly Sacco account, I'd be withdrawing it on the 'dry' days of the month. That little, would be the left over after I spend.
Lately, the phenomenal 50:30:20 saving system makes sense. The rule decrees that 50% of the income goes to needs, 30% goes to wants and the inescapable 20% goes to savings. Further, the savings should be delegated to a separate Non-Withdrawal account.
In my 10 years working, I didn't have an alternative source of income. Huge mistake. I wholly depended on my salary. I didn't have a fallback plan, if my job backfired.
Everyone has an extra skill that can be used to generate an extra income. There's a whole list of ideas to explore: backyard gardening, blogging, vlogging, some artwork, teaching evening classes and tuition, et al. However little, income from such side hustles lessens the strain on a salary.
Properly planned, some loans pay off in the end. In my case, though, I had erred by taking a loan to purchase a depreciating asset. It didn't matter that I had bought a brand new ride, its value started plummeting the moment I drove off. Worse, that purchase further started eating into my budget - daily fuel, maintenance, and insurance.
Basic finance teaches about assets. There are appreciating assets (land, etc.), and there are depreciating assets (cars, etc.). It's advised to avoid seeking financing for depreciating assets.
In my early days, I didn't make any effort to invest, either long or short term.
There are many options for hassle-free investment options. There's the money market, mutual funds, and so on. Over a set period, like, in my case a decade, a principal amount in a mutual fund will earn a tidy sum in growth and interest.
5. Investing in Self
Over the same decade, and becoming a parent now, I lacked the basic insight to invest in myself. I could have enrolled in college classes to further my education and inspire a better rise in my career. I didn't.
As it is, I'm stuck in my current pay grade, due to the stagnation of my career qualification. Any expenditure used in self-growth is an investment towards self.
It's always a good idea, to take a while to plan a family, before getting that family. Well, I now have two kids - 2 and 3-year-olds. I hadn't foreseen how that eventuality eats into a family's budget.
Over a 10-yr period, I had enough time to invest in health and education assurance plans that'd cover my kids by the time they'd come of age. A lot of such investment policies have a maturity point, usually 5-10 years, and often with exit clauses. If one plans on having a family, this is something they ought to think about and invest in.
7. Emergency fund
I'm a family man, on auto-pilot. That's hardly a good thing. Parenting comes with a lot of surprises, and unseen pitfalls. Kids fall sick at the weirdest of hours - every parent needs an emergency fund.
In a basic family budget structure, it's always a good idea to set aside a different account for savings that is known as the emergency kitty. This forms a cushion against sudden emergencies involving the family.
I'd get a pay rise - I'd think of something to 'upgrade my life'. It ate into the pay rise. I'd get a little more, I'd get a bigger house. I'd earn a promotion, I'd think of a new car.
Each time an unplanned increment happens, it's always a good idea to refrain from unnecessary spending. That extra amount is best put aside in the general savings account, till a sober decision is eventually made. Lifestyle inflation makes the increment redundant.
I'm only 35 - yet, I cannot run a mile. I'm really unfit.
To achieve financial goals, always seek to start with yourself. Take care of your health. It pays off later on with much fewer hospital visits or lifestyle demands. Be active, eat healthily and invest in social habits that keep your mind and body alive.
10. Blind projects
I bought a dairy cow off the fly! I issued instructions to a young prodigy without any desire to rear livestock! That was daft - I lost money.
It's never a good idea to invest resources in a project without due research. Always approach investments with a business angle: the viability, the expected returns, daily challenges, the long-term goal, and so on. Again, the family-member aspect is never a factor to consider in making an investment.
Above all, we seem to lack financial mentorship - at the beginning of a working career. It's always prudent to identify and align oneself with a discerning financial mentor. His role is to give guidance on financial acumen. A mentor guides a rookie on good investment habits - points out viable options. He encourages upward financial mobility - teaches about savings and investment.
Again, if one missed that step, the next best time to get a financial mentor is right now.