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How to Give Your Child the Best Chance to be a Great Investor

By
Irene Makanga
-
0

Every child needs a chance in life to be whatever they would like to be. An investor is one of those crucial roles we must all take to survive these progressive economic times. Thus, teaching children about money at a young age could reap big payoffs in adulthood. Take the example of the third richest man in the world – Warren Buffet. He bought his first shares of company stock at age 11. In the same manner, you only need to start early and give your child a fighting chance to be a money genius.

Here is how you can turn day to day activities into learning experiences about value and how to use money:

Age 2 -3

Age 2-3 isn’t too early and the basics need to be mastered at this age. By the time your child is aged 3, they need to grasp basic money concepts such as commerce and money denominations. While your child may not fully grasp the value of money and its role in everyday life, they can learn to identify the different denominations early.

A great way to do this is to have your child match physical coins to images of those coins while learning the name and number values. Also, to help your child learn about commerce, you can play store at home. Using play money to exchange money for goods or services, your child can begin to understand the basic concepts of commerce.

Age 4-5

By the time your child is between the age of 4 to 5, they will be more aware of money. So, when they stroll along with you to the supermarket, make them more involved in the shopping process. For instance, share your shopping list with them and have them looked out for certain products when walking up and down the aisles. This way, they can feel helpful and engaged in the shopping process.

Also, you should continue playing store at home as they need to grasp more complex concepts such as making change as a cashier and turning a profit at the end of the day.

Age 6-8

This is about the age when children start receiving an allowance. At this age, you’ll need to now teach the concepts of saving – or simply putting aside some money to buy things they really want. With them, make a trip to the bank and help your child open a savings account. While doing so, make a big deal out it and your child will feel grown with responsibilities, and all!

Don’t forget to take some time out to consistently encourage them to make regular deposits to the account. As their savings grow, discuss the concepts of interest rate and how the bank pays people back for saving their money. Ensure your child’s savings account has no fees and no minimum balance. This way, they can really benefit from the compound interest accumulated over the years.

Although the concept of giving and sharing should be inculcated at a young age, giving back ought to be a part of your child’s makeup. Giving back is more than just a financial lesson, it also teaches social responsibility. From a young age, have your child give clothes, donate some money to charitable organizations, buy food for the hungry or simply anything that may interest them. Make it a family project to find out what you can do for the charities that are close to you. Figure out together how you will be able to help and what percentage of donations goes to what causes you want to give to

Age 9-12

By the time your child is 9 to 12, they will have already noticed and asked questions about your shopping habits. For instance, “Mum why do you buy this soap and not that one…It has better packaging?” Take this time of their growth to teach them about comparison shopping. Have them read price labels, look at product size and compare the amount per shilling.

Also, don’t forget to take into account the quality of the product. You can do so by buying high-end brand products one week and the next, the cheapest one on the self. This way, you can have a chance to discuss the differences and decide together if the high-end item is worth the extra coin.

Additionally, with many kids now wielding their first smartphones by age 10, it important to also introduce them to great apps such as Monopoly. These apps will help deepen their understanding of the connection between choices and outcome, and also help manage money and plan for the future. Though, it may not compete with their first love, Snapchat, reaching them through their devices is one of the easiest ways to help them understand.

Age 13-17

I call these the make or break years. By the time they are 13 years, they should have mastered the concepts of identification of money denominations, commerce, making change, turning a profit, and comparison shopping. They should also be confident enough about money to make decisions and haggle with customers or when making a purchase. Then, from there you can introduce the stock market.

You can start by playing pretend by investing in your child favourite companies such as Facebook and such. Make this a family activity by having every member pick a stock, write it down on a piece of paper – aside note the date and the value of the stock in current day price. Then for the following days, read the paper or watch financial news together. Discuss how the stock value of everyone’s choice fluctuates from day to day.

This is also the time, most young teens have their allowances increased to cater for more i.e., lunch money, school supplies money and other small necessities. Young teens can quickly spend all their allowance if not taught how to handle it. Help your child set a budget by first discussing wants vs. needs with them. For example, potatoes are the food we need to survive, while a new lipgloss though may make your lips look good, it isn’t a necessity. This idea can be reinforced by going over the family budget with your child and discussing your family’s needs vs. wants.

Age 18 and up

At this age, don’t let it go.

We live in a time of plastic money, M-Pesa, M-Shwari and many apps that give easy access to quick money. These things aren’t the same as cash and your child can get disillusioned about how much they can actually spend. Another great lesson to teach here is in financial responsibility.

With a set amount of money in their card, your child can budget their allowance. This way, when they go off to college they can live within their means and not seek out lenders to finance their lifestyle.

From Piggy Bank to Profits

Parents, grab the opportunity to turn your child into a great investor.

Teaching children about money requires some dedication on your part but it is well worth the effort. Get them learning early, and get those good investing habits down, wealth building started to increase their long-term odds. Your child does not need to be born with a silver spoon to scoop up riches at a young age, just great resolve and persistence, which can be learned young. At the end of the day, Just keep it simple and in time, who knows what kind of abundance they’ll grow into!

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Disclaimer: The information contained in our website, blog, guest blogs, e-mails, videos, programs, services and/or products is for educational and informational purposes only, and is made available to you as self-help tools for your own use.

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4 Clever Ways to Raise Money for Your Business

By
Irene Makanga
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0

Let’s put aside all the conventional ways we can raise money for our businesses. Now, let’s take a look at some of the unconventional, yet clever ways entrepreneurs are raising money. Desperate times do really call for the desperate measure – or should I say clever ways.

Some of the ideas listed below are truly interesting. It’d be a good idea to speak to a financial advisor first before considering taking up any of these.

1 Amateur Shares

During the course of my work, I have met quite a number of budding capitalists seeking consultation. They have large sums of money which they are willing to bet on companies they think will do great. You can get them to buy some shares and promise to pay them back at a profit i.e. you can promise to pay back at the rate of 1.50 on the year. The .50 is the value your business provides over the course of the year which can be broken down into the conversion of business from a ready market.

Most investors will not look twice at a company that does already have a ready market, with existing sales to turn their money to profit. Potential needs to be measured. To avoid people being sceptical about what you are doing, you’ll need to do your homework and provide real numbers to back up any offer you provide. As such,  present your company in the best light possible, highlighting the real value that the company provides for the investor.

2 Bater Trading

This is a low-level lending option that’s great and cheap. If you belong to a community of entrepreneurs that have services/products you need and also need the services/products you offer, then you can barter your trades. Income and expenses do not always necessarily have to mean cold hard cash trade. Any trade credit created from the exchange of goods and services can be used to “purchase” a product or service from someone else in the barter system.

It is understandable that we may not all have the skills/products to trade up for more valuable items. However, barter is a great useful tool for business owners looking to stretch their budget. In this Jubilee economy, barter trading will ultimately help your bottom line and thrive for long.

3 Customer Financing

Sometimes during the course of your business, you will meet customers that appreciate what you do and gain a lot from your business. With this, you can raise some capital in two main ways:

  1. Ask them upfront if they can finance your business (that is if they have the means to do so),
  2. Take upfront payment for products or services before you actually deliver.

Most of the times, customers would be more than happy to make an upfront payment if the product or service is of great worth to them. Try your luck!

4 Crowdfunding

Crowdfunding goes against the mainstream approach to business finance and many businesses have not tried it yet. Crowdfunding basically when a business owner/individual offers an idea that people love to support with small contributions. The aim is to get a lot of people to buy into your idea and raise a lot of money. The internet is a great place to start if you have the right kind of product/exciting project. You can easily launch your campaign via a crowdfunding platform (add some intelligent promotion tactics) and present your idea to thousands of potential backers.

Many businesses are using crowdfunding to do various things to move their businesses to the next level. Such as expanding operations, launch new products, raise donations, raise venture capital and more. The internet is full of people willing to support new concepts and products or want to be a part of the growth of a budding business.

For a business running and operating in Kenya, you can apply for crowdfunding from LelapaFund, M-changa, FundRazr, Kickstarter, Indiegogo and much more.

Types of Crowdfunding

There are four types of crowdfunding for businesses:

  1. Reward-based offers backers a reward for their investment. These could be handwritten thank you notes, to tchotchkes, to even simply a t-shirt.
  2. Equity-based offers backers an equity stake in your business. Make sure you understand how exactly this is done. That is, understand the rules that govern (legal implications) this kind of campaign with the help of a qualified financial consultant.
  3. Lending-based offers lower interest rates and more flexible terms to the borrower. The investors, on the other hand, are seeking equity – thus similar to equity-based crowdfunding. Therefore, be careful to investigate it very carefully. Understand the rules that govern such transactions with the help of a qualified financial consultant.
  4. Donation based offers backers tax exemptions for the donations and an opportunity to uplift a non-profit. This style of crowdfunding is for registered non-profits an opportunity to raise donations.

Ready to Launch

Finding funding can be the hardest part of getting your business off the ground, but it can also be a very rewarding experience. Though it is a long road to success, finding allies along the way (whether friends, investors or capitalists) to help you keep your business afloat can make all the difference in the world.

All the Best!

Image credits: Top, by Savvas Stavrinos via Pexels.

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Disclaimer: The information contained in our website, blog, guest blogs, e-mails, videos, programs, services and/or products is for educational and informational purposes only, and is made available to you as self-help tools for your own use.

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6 Simple Habits That Will Help You Build Wealth This Year

By
Irene Makanga
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0

“How can I grow my wealth this year?”

I bet that’s a question that has been on your mind since the year begun. As a financial planner, I hear this question all the time. A lot of people out here simply want to create enough wealth that provides them financial security and fund their lifestyle – which they can – if they develop simple habits that will set them up for financial success.

There are no shortcuts to building wealth, just habitual saving and investing through consistent efforts that ensure that you attain long-term wealth.

Aside from the conventional, sticking to the budget, tracking spending, automating savings etc., here are other simple habits that you can adopt this year to increase your wealth.

1 – Diversify

Building wealth over the long-term in a market that moves up and down can be challenging. Diversifying your investments by putting your money in different asset classes is better protection for your overall net worth.

Choose to spread your savings across the market, industries and selecting various classes of assets or investment types i.e. holding a varied portfolio of stocks, funds, real estate and bonds. Hold different stocks or invest in funds that are broad in nature.

2 – Invest Loose Change

Get in the habit of putting all your coins or spare change in a piggy bank and then at the end of the month, collect that change and put it in a savings account or invest. By getting into the habit of valuing, saving and investing small change early and taking advantage of compound interest, will make a big difference to your over net worth over the long haul.

At the end of the month, you might find yourself saving/investing at the very least KES. 1,000 a month- easily. Hustle free. In reality it is never about the amount you start with, but rather the time your money has to work for you that matters.

For instance, imagine if you bought shares at the end of every month with your KES. 1,000 a month. Over time, you’ll hold a substantial amount of shares, perhaps worth a substantial amount.

3 – Make Time Your Friend

This year exercise a lot of patience with your finances. Learn to ignore the short-term market fluctuations and invest with at least 10 years in mind instead of days.

On a day to day basis, stock markets are basically a coin toss, moving up and down. However when assessed with a long-term view in mind, the picture changes as the market rises more and more, than it actually falls.

4 – Accept Risk

A lot of people are afraid to take any risk with their money. They would rather simply hold it in their bank accounts. They refuse to invest in anything because the idea of losing even a shilling is too painful for them.

If you are like this, this year try and dip your toe a little and accept some element of risk. All investments come with some degree of risk and this is a reality we all need to accept and move forward with. Remember, even sitting cash also carries it’s own risk in the form of inflation, opportunity cost and the risk of losing out of investment opportunities.

5 – Hold Assets

2019 should be the year where you seek to grow your asset base rather than increase the stuff you own. If you want to grow wealth this year, focus your energy on growing wealth – not spending.

Spend your time seeking out land to buy, shares to invest, businesses to start etc., anything and everything that will appreciate in value.

6 – Invest Unexpected Cash

We all come across extra money in the form of gifts, bonuses, a raise etc. The best way to handle this unexpected windfall is to pretend that the money does not exist.

Get in the habit of putting this extra cash to work rather than spend it. This way, you can avoid lifestyle inflation when you get a raise or spending all your years bonus without actually getting real value from it.

Finally, Begin…

Start today and remain consistent. Be committed to winning this year and not rely on luck to get you through.

Image: Top by Pixabay via, Pexels.

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Disclaimer: The information contained in our website, blog, guest blogs, e-mails, videos, programs, services and/or products is for educational and informational purposes only, and is made available to you as self-help tools for your own use.

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How to Invest Your Savings for Short-Term Goals

By
Irene Makanga
-
0

Image source

How to invest for goals that are less than 3 years out, in short-term investment vehicles. 

Are you trying to save for something big in the next 3 years? A wedding? More education? Emergency fund? A new car? Vacation? Saving and investing for these things is different from investing for retirement or your baby’s university education.

There are very many avenues to make short-term investments and the right option depends on your individual situation and preference. As you look to save up for your short-term goals, you also need to make careful consideration of the investment vehicle. Remember, you don’t need to go into debt to pay for any of these things.

Here is how to invest and save for your short-term goals:

1. Savings Accounts

Savings accounts are a great secure place to stash away money to meet short-term goals. They offer a low-risk return, high liquidity and also guarantee to never lose capital. Savings accounts could earn you as much as 7% per annum – where some Kenyan banks calculate this once a year, every six months and very rarely monthly. It is quite a straightforward option, just look out for the best return for your money.

2. Chamas – Lending Clubs

Chamas’ are quite popular nowadays and have evolved to be quite sophisticated investment societies. They typically take on a peer-to-peer lending structure, such as a merry-go-round, or are formed through a pooled investment with shares. The structure and purpose of a Chama totally depend on members needs or common goal. They earn money from lending members or making joint investments in businesses or real estate.

3. Certificate of Deposits (CD)

Certificates of deposit offer predictable guaranteed returns for investors. A CD requires that you hold it for a set period i.e., seven days, one month, one year and so on. If you cash out sooner than the stipulated period, then your account attracts a penalty. These penalties sometimes range from one to six months’ worth of interest. They are a great option for short-term goal oriented investors who know exactly when they’ll need their money.

4. Money Market Funds

Many people park money they will need soon in money market funds where they can earn about 7% interest per year. This may not seem like a lot but when compounded over a few years, it makes a significant difference. Money market accounts are a great option for short-term investing because they are secure and quite easy to access.

5. Short-Term Bond Funds

The short-term bond fund is a mutual fund that invests in bonds that mature in one to three years. They consist of a portfolio that invests mainly in treasury bills and bonds, mortgage-backed securities and corporate bonds. These funds seek to limit risk by investing in short-term debt securities where the risk of interest rate rise or a default is reduced significantly. They are a great option for investors looking to earn a little more return within a short period of time.

6. Treasury Bills and Bonds

Government Treasury Bills and bonds are issued by the Government of Kenya and offer a great return for investors. Treasury bills run on a 91-day, 182-day, and 364-day cycle. They are currently offering an annual interest of 7.6%, 8.9%, and 9.8% respectively. On the other hand, treasury bonds offer both medium-term (less than 10 years) and long-term bonds that pay interest every 6 months. The Central Bank of Kenya auctions treasury bonds on a monthly basis. Treasury bills and bonds are a great predictable source of income, which you can reinvest to meet your short-term goals.

7. M-Akiba Bond

The M-Akiba bond is an infrastructure and development bond, with an investment tenure of 3 years. This bond is tax-free, easy to access and highly liquid investment option. It pays an interest of 10% per annum, semi-annually. The bond also has a minimum investment of Kes 3,000, making it highly accessible to all. The M-Akiba bond is a great short-term investment instrument as if offers investors convenience, low investment minimum, and good returns as well.

Summary

Here is a short summary of the best places to invest your savings for short-term goals, as per the above explanations of each:

InvestmentQuick FactsPotential Return
Best for short-term investment goals, less than 3 years
Savings Accounts
  • For an emergency fund
  • Highly liquid
7%
Best for medium-term investment goals, 3 -10 years horizon
Chama’s – Lending Clubs
  • Low investment minimum
  • Low liquidity
  • Higher risk
12% – 20%
Certificate of Deposits
  • Not so liquid
  • May attract penalties on early withdrawals
  • Offers hard maturity dates i.e. 7-days, 1-month, 3-months etc.
  • Insured
6% – 9%
Money Market Account
  • May have an investment minimum
  • Highly liquid with low risk
  • Interest is compounded daily
7%
Short-Term Bond Funds
  • May have an investment minimum
  • Liquid with some risk
7% – 10%
Treasury bills and Bonds
  • May have an investment minimum
  • Offers a great source of predictable income
  • Liquid with low risk
7% – 10%
M-Akiba Bond
  • Low minimum investment
  • Pays interest semi-annually
  • Liquid
10%

What Next?

Before you make a decision on what short-term investment instrument vehicle to use, think about why you are investing. What are your life goals? After determining that, create a timeline. Then align your goals with the investment vehicle that best fits your goal. A timeline can help you figure out how liquid – or accessible – you need your money to be. For example, a dream trip to Hawaii in 3 years or so, means you need to invest in a security that matures in 3 years and is easily accessible. On the other hand, assume you need to save and invest for a wedding anniversary trip set 10 years from today. Here, you will be looking for investment instruments with a longer range and that is less accessible. While you consider the timeline, you also need to take a look at risk. Risk affects how much return you get and where you choose to save or invest. Keep in mind that reaching for higher yields, means assuming greater risk.

 

Meanwhile, you can click on the following links to read more about financial planning:

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How To Build A Good Credit Score

By
Irene Makanga
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0

Many Kenyans have dug themselves into a financial crisis by borrowing to finance their lifestyle. While the convenience and ease of access to cash through mobile loan apps has caused Kenyans to get stuck a vicious debt cycle, the consequences are dire. Failing to payback will have you blacklisted by Central Bank of Kenya and your name forwarded to the Credit Reference Bureaus (CRB). This leads to a minimum of 5-year and a maximum of 7-year restriction from borrowing.

Can you imagine that?

It can really set you back for YEARS.

It is important to note that lenders use your credit score to creditworthiness i.e. the likelihood of you paying back. With this score, they can determine how much of a risk you are and the higher you credit score, the better your chances are of getting a loan at the best rates in the market.

Therefore, If you belong to this club of brave Kenyans who fail to make payment on time and haven’t been blacklisted yet, and would like to have a good credit score to borrow much larger sums cheaper in the future, then continue reading.

What Goes Into Calculating Your Credit Score

A credit score is a constitution of five key pieces of information – payment history, level of debt held, credit age, the mix of credit held and recent borrowing patterns. Knowing this will make it easier for you to maintain a good score.

Build Your Credit Score With Good Financial Habits

It takes time to build a good credit score and this means making payments on time and keeping your credit low.

To do this, put into practice the following habits to show your creditworthiness to financial institutions:

1 – Make 100% loan repayments on time. This also includes bill payments such as electricity, water etc., should also be paid on time. Unpaid bills can end up in your report as they can be sold to debt collectors and this will seriously affect your creditworthiness.

2 – Maintain a low credit utilization i.e. use less of what you are allowed to borrow on your credit card. Also, make full payments every month and should you extend to the next month, don’t let your balance be more than 30% of your credit limit. Thus, maintaining a low balance translates to a good score in the long run.

3 – Borrow less often and reduce the number of sources. Don’t be one of those people who owe everybody money. Having a wide array of debt portfolio can have a negative impact on your credit score, aside from forgetting you owe here and there. Remember the lower your debt, the easier it is to manage it.

4 – Hold accounts for as long as possible. Try to keep all your accounts running for the sake of having a good payment history and credit utilization. This will serve as a great point of reference when you intend to borrow more.

5 – Avoid opening new accounts as this reduces the average account age which makes up a part of our creditworthiness.

6 – Finally, check your credit reports at least once a year for errors or discrepancies. The sooner you identify any problems, the faster you can correct and maintain a good score.

How to Check Your Credit Score

It is important to get a credit report at least once year. This way you can estimate how you’ll handle your future borrowing and also monitor if your efforts are paying off.

There are several organizations offering credit information in Kenya, namely, Metropol, TransUnion and CreditInfo.

What’s Next?

Pay on time and borrow less often.

Financial success is as a result of various factors and debt management is at the heart of it. Maintaining a good credit score opens up numerous opportunities for your financial life. Having that option ready for you is the true definition of financial freedom.

Image: Top by Raw Pixel via Pexels.

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Disclaimer: The information contained in our website, blog, guest blogs, e-mails, videos, programs, services and/or products is for educational and informational purposes only, and is made available to you as self-help tools for your own use.

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5 Ways to Improve Your Finances With A Spending Cleanse

By
Irene Makanga
-
0

A spend cleanse works in the same way that a 30-day detox plan. The aim is to eliminate ‘toxic’ spending habits such as spending mindlessly, emotionally and/or wastefully. We need to be more mindful of our spending patterns and eliminate everything that doesn’t serve us and our goals.

A spending cleanse serves as a quick financial fix as it seeks to reset our financial habits. If you find yourself spending more than you would like on things you don’t really need and struggling to find cash to pay your bills and debt, recognizing and curbing  this behavior is important to ensure you succeed financially.

Going through a financial cleanse can be just as painful as a juicing cleanse. The first week will be rough and you may find it difficult to adjust. Remember, that the purpose of this is to set yourself up for sustainable financial success by replacing your bad habits with good habits.

So, how can you cleanse financially? Here are five ways to go about this and they are:

1 – Go On A Spending Fast

Instead of gradually easing into this, start off quick with a fast. You’re going to stop spending money on anything that isn’t a need. Doing this for just a month will send serious shockwaves across your entire financial system. The whole goal is to get your spending back on track by locking down your spending on unnecessary items and creating cash to save or pay down debt.

2 – Stop Borrowing

This is going to be very difficult for most, especially those of us who rely on credit cards or simply borrow to move from month to month. By avoiding those cards, m-shwaris or whatever else is out there for a month will force you to use cash and be more mindful of what you spend your money on. The finite nature of cash will hit home and as you watch it leave your hands, it will make you more conscious of your actions and change your way of looking at money.

3 – Assign Your Income

Once your pay hits the account, assign it to a task i.e. bills, food, rent, savings, mortgage repayment etc. Ensure you don’t have any free cash and all cash has a job to do. Allocating your income will help you track spending and create a more solid financial game plan for yourself based on mindfulness.

4- Find Alternative Activities

For those of us who like to go out all the time on weekends to bars and restaurants, consider finding alternative activities. This will considerably be beneficial if you spend a great portion of your income buying food and drinks. Try to find a simple yet inexpensive way that will leave you feeling great instead, such as picnicking, walking, running, cooking, baking etc.

5 – Wait 24 Hours

If you can’t cut back on your spending – completely – consider waiting 24 hours before you purchase something you want. Giving yourself that time might make your think and perhaps, realize that your money would be better spent elsewhere. Once the 24 hours have lapsed and you find yourself still itching to have it, then go ahead and just buy it. At least in the end you didn’t purchase on impulse.

Reboot

Doing a financial cleanse next month will help you reset and recharge your financial life.

Try some of the ways to cleanse financially and try to hang on to them if you see great progress by the end of the month. Also, don’t limit yourself to only these – get creative, have fun and importantly, improve…improve every day on your financial habits.

Image: Top by Raw Pixel via, Pexels.

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Disclaimer: The information contained in our website, blog, guest blogs, e-mails, videos, programs, services and/or products is for educational and informational purposes only, and is made available to you as self-help tools for your own use.

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6 Financial Moves To Make This Year To Grow Your Wealth

By
Irene Makanga
-
0

2019 should all be about making smarter moves and getting more done. It however isn’t the year to take bigger risks when you aren’t feeling peachy. That being said, if you haven’t reviewed your income against your spending and saving, set aside a portion of your day to do so. Take a closer look at everything and see what you can cut immediately and what you enjoy spending on. This should free up some money to fund your other accounts for the future.

At the end of the day, we should be consistently trying to save more and spending less on discretionary items (that’s if you are following the 50-20-30 rule). So, here are some financial moves that you can make this year to grow your wealth.

1 – Boost Retirement Contributions

It is wise to get a great head start and stash more into your retirement accounts. This is a great way to ensure you take advantage of the tax-free compounding and have more upon retirement and perhaps, even have a chance to retire earlier.

Retirement savings is critical for everyone to have and being proactive about it as early as possible will guarantee you a hustle free retirement.

2 – Boost Your Savings At least 10%

Not many of us save a substantial amount of our income for the future. So, if you are already saving the minimum recommended 20% of your income, this year, increase it to about 30 – 50%.

The point is to make steep sacrifices so that you can stash out more of your wealth towards investments that are right for you. After all, if you are reading this, your goal is to gain financial freedom within this lifetime. Am I, right?

3 – Pay Down Your Debt

Once of the best things you can do for yourself this year is tackle your debt. If you have the extra cash, pay down your debt quickly. Just make sure that the money forgone to pay down your debt in the short-term doesn’t jeopardize your ability to meet your financial goals this year.

What I mean is that the difference in what you pay in interest on the debt versus what you are likely to earn on savings/investments should be larger to warrant you to prioritize your debt. So, if you are paying a debt of 12% and you are earning a meager 7% on savings, then it will make more sense to prioritize your debt.

4 – Build A Better Portfolio

There is general rule of thumb that your stock stake should be 110 minus your age. This is quite an aggressive strategy that should push you over the mark and grow your overall wealth by more than 30%.

While you are at it, build safeguards by rebalancing your portfolio and taking profits along the way.

5 – Lock in A Low Mortgage Rate

Interest rates at 12% is quite good compared to the past. So consider this a great time to grab cheap home financing before the interest rate cap is removed.

Make your move now and own that home.

6 – Start A Business

This year, steal a page from the wealthy and start a business. Starting a business is a smart way to generate revenue and creating a diversified money making-machine for yourself will ensure you don’t place all your eggs in one financial basket.

While you are at it, exercise patience. Don’t expect to get rich quick, be patient for profits and focus on the long-term end game. After all, we are really after value and capital appreciation to last for a long time.

Ensure A Better Financial Future

Let’s Recap.

Whether you need to look hard at your budget or save more, 2019 provides an opportunity to set yourself up financially. However, while you are at it, don’t make your budget so restrictive that all you do is focus on the future rather than enjoying the present. Maintain a healthy balance and do more this year for yourself. Play for something bigger than yourself and ensure to follow your values, passions and greatest competency while you are it.

Image credits: Top by Breaking pic,via Pexels.

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Disclaimer: The information contained in our website, blog, guest blogs, e-mails, videos, programs, services and/or products is for educational and informational purposes only, and is made available to you as self-help tools for your own use.

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With The NSE Drop, Is Now A Good Time To Invest?

By
Irene Makanga
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0

If you are going to buy shares, EFTs, index funds or mutual funds the answer is yes. In March 2018, the NSE market capitalization was sitting at 2,817.36, and today it is at 2,108.78. Broadly speaking the market is low. As such, you should buy stocks when they are undervalued.

I spent the initial days of December, pouring through financial statements to find myself good buys. It has been quite a fun and rewarding activity – lucrative too, provided I buy stocks that will increase in price. Of course! My approach to stock selection this time, is focused on value – given the prevailing market circumstances.

Here are my five tips to help you out during this exercise and have you a  good chance of making you money in 2019:

Buy Low, Buy Quality

The whole idea of buying when the market is low is the find quality stocks that are undervalued. At this point in time, there are more stocks trading at a lower price relative to their fundamentals than in March this year.

If you choose to purchase individual stocks from your broker, you have to be very selective about it. It is best to buy quality stocks when they are undervalued.

To learn more about how to identify quality stocks read: How to Evaluate The Quality of a Stock for Long-Term Value Investing

Do the Math

To identify an undervalued stock, you’ll need to study the company financial statements. You can also use online financial tools such as Rich Data, Mystocks.co.ke or Financial Times Markets Data to study company fundamentals.

There are so many metrics that you can use to evaluate stocks and here are some of the great ones:

  • Price-to-Earnings (P/E) Ratio: Useful for comparing companies within the same business. It is found by dividing the current share price by the annual earnings. A lower P/E means that stock is relatively cheaper, but P/E alone isn’t a good measure to conclusively determine whether to buy a stock or not.
  • Price-to-Book (P/B) Ratio: Since our goal is to find undervalued stocks, the P/B ratio is a good measure that is calculated by dividing a stock’s price by its equity per share – where a book value less than one implies that the stock is trading for less than the value of a business’s assets.
  • Price-to-Earnings to Growth (PEG) Ratio: Useful for further assessment of companies that may have a high P/E but earnings are growing quickly. It is found by dividing a stocks P/E ratio by its projected growth rate over a certain time period i.e. the next 5 years.
  • Return on Equity (ROE): A must use to measure a company’s effectiveness in using invested capital to generate profits for shareholders. It is an expression of annual net income as a percentage of shareholders’ equity.
  • Debt-to-Equity Ratio: Basically, you don’t want a company that is too heavy in debt – exception of banks – Kenyan banks can have over 4 times the amount of debt to equity. Can be found by dividing a company’s total debt by its shareholders’ equity.
  • Current Ratio: Allows us to determine how easily a company is able to pay off its short-term debt obligations and is found by dividing current assets by its current liabilities.

Most of these metrics are already calculated for you on the websites I  mentioned above. However, some of the figures maybe trailing figures up-to 12 months. So, if you want exact up-to-date information, you may want to consider doing your own evaluation.  

Understand the ‘Why’

The idea of investing in undervalued stocks is based on the premise that the market has underpriced the stock. Thus, we need to understand ‘why’. Understanding the reason why will help you determine if a stock is mispriced or simply just doing badly.

So here are some of the common reasons why stocks are miss-priced:

  • Bad News: Bad news in Kenya can be no dividend declaration, election results, court rulings or simply stocks failing to meet expectations of certain analyst. It can cause investors to suddenly sell off shares, sending the stock into a plunge.
  • Industry Fluctuations: Certain industries do not perform well all the time. There are economic cycles and other undercurrents that affect performance. Therefore, certain industries that are out of favour are great places to find bargains.
  • Missed Expectations: If a company reports miss certain targets in their quarterly earnings, shares can drop. It can drop more than required as investors express their disappointment.  
  • Market Corrections: Every now and then the entire market will drop or crash (like now) as it tried to correct itself. This creates a great time to look for undervalued stocks.

Look Beyond Fundamentals

A great rule of thumb when it comes to investing, is investing in a stock that have:

  • An easy to understand product/service
  • A sustainable competitive advantage that will protect it from an economic downturn – for example, Safaricom has M-Pesa.
  • A company with whose products/services are likely to last for more than 20 years.

Great companies have been known to have easy to understand products/services,  have a wide economic moat and great growth prospects. Since we are seeking value, we need to look beyond what the numbers tell us. This way, we can further determine whether a company is a considerably valuable going concern.

Buy & Hold

This is assuming that you have studied all the company metrics and identified great stocks that has been undervalued. Do not assume that the stock you bought will rise in value immediately. Remember that It can take time for a stock to trade up to its true value or even surpass that.

Take the case of Safaricom. It traded well below its IPO price for a very long time, even as people expected its price to increase dramatically.

Don’t give up and sell before you can realize your investing goal. Over-time the market price of an undervalued stock will catch-up to reflect its actual value and perhaps even surpass it.

Learn to Invest

Learn how to invest, market drops are normal, the key is to remain calm, and do your homework. Don’t wait to start investing – invest today!

Did you enjoy reading this article? If so, I encourage you to sign up for my newsletter and have these articles delivered via e-mail once a month…it’s free!

Image Credits:  Top by Pixabay, via Pexels. 

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Disclaimer
The information contained in our website, blog, guest blogs, e-mails, videos, programs, services and/or products is for educational and informational purposes only and is made available to you as self-help tools for your own use. 

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How To Make It To Jan Without Breaking The Bank

By
Irene Makanga
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0

November was intense. Black Friday and all. It is so tempting to just buy everything you need and think you’ll need in the near future. Then, comes December. More deals and price cuts. If you aren’t careful, you might spend yourself into debt and spend the next year paying back your holiday debt.

This season, how do you plan to bounce back after the holidays? Do you have a plan for your holiday spending?

Here are FIVE things you can do to avoid breaking the bank this festive season.

#1 Be Accountable

It is important to some level of accountability for everything you spend. Set goals and achieve those goals, exactly – not overspending. Without accountability, you’ll just find yourself swiping your card everywhere. This can really set you back in the new year as you run your balance low or create more debt to pay in the next year.

Accountability can be taken by:

  • Setting goals that matter to us – realize that only you can bear the consequences of your own failure.
  • Having a strong rational plan of success i.e. setting clear goals that specific, measurable, attainable, realistic and time-bound.
  • Surrounding yourself with people that encourage you to succeed – share your goals with people who are supportive of you, and they will hold you accountable for everything that you set out to do.
  • Take pride in all your achievements and successes – the same way one might share about losing 15kgs, and even taking a before and after pictures, is the same attitude you need to adopt for your personal finance.
  • Consistently review your progress and interpret your successes and failures – letting go gives room for goals to fall apart. Thus, reviewing successes and setbacks allows for learning opportunities that increase chances of more successes.

At the end of the way,  we all don’t want one moment of weakness to undo all that we have achieved during the year.

#2 Have a Budget

If you don’t already have a Christmas fund and a budget to go with it, then consider budgeting the recommended 1% of your total annual income for Christmas gifts. That is to say, if you earn KES 100,000 per month, after tax, you should spend no more than KES 12,000 on Christmas gifts.

Many of us go all out this season and just spend and spend, forgetting that at the end of the month there is rent, utilities etc., and in January, school fees needs to be paid.

Setting a specific amount that doesn’t cause a serious dent on your finances is the first step to not breaking the bank. Then, whatever the amount you have come up with or decide upon, make sure that you stick to it and not overspend.

#3 Pay With Cash

Impulse buying can be quite hard to control when everything is out on display, nicely presented and on discount.

Leaving your credit/debit card at home will allow you to only spend as much cash/Mpesa as you have allotted in your budget. Also, make sure you don’t have excesses in your Mpesa, while you go shopping. This way, you will be able to stay on budget and leave things that you can’t afford behind.

#4 Shop Online

If you can’t resist the temptation to impulse buy, then try shopping online for a change. This way, you select what you want without the holiday hullabaloo. After all, you can’t buy what you can’t see and the total in the cart will surely be a deterrent to keep adding stuff.

While at it, don’t forget to factor in shipping costs when calculating your holiday spending.

#5 Consider Alternative Gifting

Many of us may have a lot of people to gift and the budget just won’t allow you to buy things for everyone. Consider these alternatives for less expensive gifts that are just as meaningful as store-bought holiday gifts.

  • Consider giving handmade gifts such as crafts or baked goods.
  • For friends, consider organizing a potluck lunch/dinner or dessert gathering. Saving money and spending time together, sometimes is worth more than gifts.
  • Play Secret Santa – buying gifts for each person can easily wipe out your budget. Consider asking relatives in your family to buy one gift for a select person rather than everyone buying gifts for everyone else.

Lastly,

Just avoid overspending…

There is nothing worse than closing off the year in the red after all the hard work you have put in throughout the there. Don’t spend your new year cleaning up last years mess and paying for mistakes that could have been avoided.

Happy Holidays!

Image credits: Top by Rawpixel via, Pexels.

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How to Avoid Lifestyle Inflation – More Money, More Problems

By
Irene Makanga
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0

From the popular song by Notorious BIG, the phrase “more money, more problems” comes to mind. In the song, he seeks to illustrate that more money doesn’t automatically solve all problems, rather it compounds them. If you haven’t learned from not having enough, then you’ll face the exact same problems and others that never existed before.

For most, more income is often followed by more spending. Celebrities and lottery winners are prime examples of lifestyle inflation – they serve as proof that more money doesn’t always translate to financial stability.

So here is how to avoid lifestyle inflation or at least how to reduce it to manageable levels to minimize the negative effects.

1. Plan Ahead

It is extremely tempting to raise your spending when your income increases. Don’t. Instead, plan ahead for any extra money – a raise or lottery win. This isn’t to get you to spend your time daydreaming of winning a lottery or getting a raise but to get you to adopt good practices to establish a plan for earnings.

Consider whether you want to buy new gadgets, house, car or just save or invest it. When you plan ahead, you are more likely to put your money into better use.

2. Pamper Yourself

There is no point to working hard if you aren’t going to at least treat yourself once in a while. However, while you are at it, maintain a balance between what you save and spend to ensure that financial stability and happiness isn’t at risk.

So, indulge only within reason. Being financially responsible is a lifestyle that requires continuous hard work and discipline.

3. Rebalance Your Budget

With more money coming in, you’ll need to adjust your budget and determine where to place the extra money. This way, you’ll be less likely to waste it.

However, it should be stressed that an increase in income may not have a significant impact on your budget after accounting for taxes and expenses. This is why it is important to adjust your budget and determine the real changes to your budget to get a healthy perspective of your current financial position.  

Once the math is done, you can now consider whether that new car or shopping spree with friends is a good idea, depending on what actually lands into your account each month.

4. Mind Your Friends

Spending time with people who spend more, will result in pressure to spend more. Therefore, mind your friends and keep those with a similar budget and lifestyle to yours.

When you keep a friend with similar financial goals to yours, they will not give you pressure to spend more or make you feel bad about where you live, the car you drive or even the phone you got.

If your friends are modes, you will match their behaviour and, are more likely to spend less.

5. Redefine Goals

Redefining your goals helps you stay focused on your financial goals. With clearer objectives, given the change in your life i.e. a new job, a raise or promotion, you’ll be able to know where the extra money needs to go.

In short, a redefined and a sketched out game plan will only bring you closer to your financial goals – be it travelling more, buying a home, paying off debt or even paying for your children’s education.

6. Eschew Debt

To some people, more income is synonymous with more borrowing ability. They believe that an income increase provides more opportunities to rack up more debt than before – thus ‘afford debt’ mentality. Getting into debt when you earn more, is actually a step backwards not forward.

In truth, more debt only spreads your budget thin, even when you are earning more. Therefore, instead consider paying off more of your debt with the extra income and save on interest expense. After which, consider having a savings account to save for things you want such as a car or home.

7. Change Gradually

There is nothing wrong with changing your lifestyle as you achieve more in life. However, this does not mean that you blow all the extra money you make.

To achieve success in this, gradually increase your spending on things little by little. This way, you are more aware of the impact of this increases on your expenses over the long haul. An increased lifestyle expense translate to an increased long-term expenditure i.e. a bigger house requires more upkeep and maintenance or a more expensive car needs to best mechanics.

Ultimately, just celebrate modestly and plan your next move, remembering that small things quickly add up; small incremental changes are more sustainable than huge ones.

Final Word

All in all, make a plan and remember that success isn’t tied to material things, but rather how well you put your money to work for you and your long-term financial goals.

By and large, don’t spend all your extra income before it makes a meaningful difference.

 

Image credit: Top by Kaboompics via Pexels.

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