Generally, start by doing the necessary (securing the wellbeing of your household), then do the possible (investing out of your savings) and with time, you will be doing the ‘impossible’.
Prosperity is Planable!
i) Set a SMART objective
*SMART: specific, measurable, achievable, realistic & time-bound
Example: Within the next 12 months, accumulate total savings (reserves) equivalent to your total monthly expenditure (rent/real estate service fees + utilities + groceries + transcom + healthcare etc) for six months. The number of months for which you may want to build reserves should be informed by the average period of time it takes to secure a new job/execute alternative income generating activities/get the next farm output etc.
If your total monthly expenditure is 40,000 currency units, this would come to 240,000 currency units of reserves for six months. Hence an objective would be to accumulate 240,000 currency units over the next 12 calendar months beginning the month following the present one.
ii) Breakdown this objective into a monthly target e.g. save 20,000 currency units per month over the next 12 months.
iii) Join an investment/savings group or open a dedicated savings account. In a group, you encourage each other and inculcate discipline through positive peer pressure.
iv) Do not aim to save an amount that is too huge every month, this will burn you out and make you give up; instead start small and increase progressively if possible.
v) Transfer the planned savings amount to your savings group account/personal savings account first thing after receiving your salary/profits.
vi) At the beginning, saving regularly and in a disciplined way might be uncomfortable given the immense pressure to spend on consumer goods. However, with time, as your savings grow, you will feel more and more motivated and even begin to enjoy saving. Review you progress regularly and pat yourself on the back for milestones attained e.g. the first 10,000 currency units in savings, the first 100,000 currency units in savings etc.
vii) After 12 – 18 months of continuous savings, you are ordinarily expected to have set a foundation for wealth creation, assuming no significant negative shocks emerge. At this stage, you are now not only better prepared to deal with emergencies but have also attained the minimum conditions for a take-off into the investment journey on selected products. You can invest this money in secure and fairly liquid (quickly convertible into cash) assets like treasury bills from which you earn returns but which you can easily liquidate in case of emergency.
viii) Once the necessary threshold for a selected investment strategy is attained, do not let your savings lie too long in savings accounts which mostly earn relatively low interest. For more on how to proceed from here, see the ABC of investment issued by InterCurrency.
Note: Each individual should use a plan that is adjusted to his or her individual economic situation. However meager one’s income is, everyone can develop a sustainable savings culture from which he or she can invest at a later stage.
For further advice, get in touch with a professional personal financial consultant.
©Intercurrent (K) Limited
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