If you work in paid employment, you probably already know that feeling that comes up mid-month; the feeling of eager anticipation of the next pay cheque. The feeling that accompanies an empty wallet and not enough money to buy gas in your car… It has often filled me with dismay, this idea of living pay cheque to pay cheque- literally hand to mouth! I met someone recently, who greeted me very warmly and by my name. So I say, “I’m really sorry, I have forgotten your name and don’t remember where I met you”, to cut a long story short, she worked in a bank I used to use and lost her job 3 months prior. I don’t want to sound disparaging, so I’ll say she did not look the way I remembered from seeing her at the bank. We talked a little and she mentioned how she’d like to do a sale- she had bought a few designer items while she was at work and now that she did not have a source of income, she needed to sell off some of these things so that she could eat. She said, if her rent fell due before she got another job, she’ll be out on the streets.
I was very moved by her plight because it could have been me. Or even you! Have you structured your finances while you have a job or are earning a living, in a way that gives you a fall back plan if that salary were to be stopped? This got me thinking, “what do you do, to stretch your income, if your only source of income is your salary?” I have phrased that question like that, because I do not believe that your salary should be your only source of income. Even if you do feel like you are not entrepreneurial, there are forms of investment that you can make. Investments in stocks, bonds, real estate and the like. But for this post, we’ll focus on stretching your buck by talking about budgeting and saving.
When you budget you keep records of money that you have coming in, versus, money that goes out. So drawing up your budget is a way of tracking your money. I personally think this is very important and not for the conventional reasons. It is important to me, because when you work, you are exchanging “time” which is the currency that your life is made of, and offering your service– expertise, skill and unique perspective to an enterprise, in exchange for which you get paid a salary-money. It therefore means that a part of the measurement of your life/time is the income that you earn. Having realised that, I’m sure you can see how important it is that your money is used in the best way, tracked and eventually made to work for you.
I veer off… back to budgeting. A budget helps you plan how you can make what you have coming in, cover what you need to pay out. Which is only the very first step. Once you have your budget drawn up, I would advise that in that month, you start to keep a spending diary or a record of all the monies spent, -N100 for plantain chips, N150 at the toll gate… no matter how small, keep a record. Also keep your receipts. What is likely to happen at the end of the month, is that when you look at the budget drawn against the tally of what you actually spent, you probably exceeded your budget. The spending diary or a record of your spending is very useful because it helps you make a more realistic budget and also shows you where your money actually goes, so that you can cut out what is unnecessary.
Having done that, I’ll also say no matter what your budget looks like, even if your outgoings seemingly exceed your inflow, you need to pay yourself first. Decide on a sum, 10 to 20% of your income that you will save every month and save it. Create systems to help you do this- direct debit instructions into an account open specially for this purpose and from which you cannot withdraw or from which withdrawal is accompanied by a stiff penalty. Most Nigerian banks offer this service and allow you upgrade the accounts, so if you opened one where you need to have a minimum of N50,000, when you exceed that amount, you upgrade that same account to one where you need a minimum of N100,000 and so on and so forth.
Saving/paying yourself first is an important discipline, and it speaks to you- says you are priority but more importantly, it helps you learn to live within your means (I am a strong advocate of creating more means- I don’t believe there is a pie that we are all eating out of that is reducing, I believe that if you want more pie, you create it- but that’ll be the subject of another blog post). I do not also advocate buying luxuries from your savings, they should be bought either from an alternative savings stream or better still from part of profits made from an investment. Other things that I have found helpful in growing my savings is to treat bonuses or other unplanned income differently. If with your salary, you save 10 to 20% monthly, with those extras, you save 80 to 90% and spend only 10-20%. That way you reach your savings goals much quicker and you still feel rewarded by the extra you have received. By the way, Warren Buffet agrees with this, he says you don’t get rich by spending all the money you make.
So we have budgeted and we have saved. Saving then needs to become smarter (we are already smart by using accounts in the manner described above). But money has a time value- the longer you keep your money saved, without making it generate or grow more money, the less it can do- this is because interest rates do not usually grow as much as inflation does. Once our savings have grown, fixed deposits and other high interest bearing solutions allow them grow even further.
These tips help you stretch your income. I am not a financial adviser and have had to learn the hard way, the value of some of the strategies highlighted above. But there is more, saving, is only the beginning. Once you’ve mastered saving, you need to move to investing, making your money work for you and allowing it to multiply. We’ll talk about that next time…
Don’t forget to be awesome this week. I have really exciting news I am bursting to share with you but I can’t (LOL)- for now, in a week or two, when it’s all done, then I’ll share it. Anyhow, I hope this helped you, feel free to share how you handle stretching your buck and causing it to increase in value. Thanks for stopping by.
I found useful information on budgeting on the pages below and wanted to share them with you!
http://healthfulsaver.com/2014/01/21/my-spreadsheet-thinks-its-summer/- you’ll see budgeting in action here!
http://newtofinance.wordpress.com/2014/01/21/budgeting-numbers-to-remember-503020/- talks about the 50/30/20 principle! I thought this was a great and tidy way to look at it.
You are welcome! Ciao!