smiling woman throwed the ball at the bowling lane with her supporting friends
From the book, Richest Man in Babylon, these are the lessons of building wealth from the oldestcivilizationin the world.
Just like in bowling, there is a perfect technique for delivering the striking shot. And perhaps that is why some wise guy once said that “You are the root of your financial success or failure. If you work on the roots, the fruits will take care of themselves.” That means taking care of the little you have by adopting wealth building habits and adopting a well-heeled state of mind.
I intend to share the tried-and-true tested 10 laws of building wealth, which will completely transform your life, as they have for many over the years and inch you closer to financial prosperity.
Here we go…law no. 1…
Adopt a Well-Heeled Mindset
Did you know that rich people always knew they would be rich and because of that mindset, they became rich? Don’t think about money like a broke person or a person in debt. Adopt a different mindset like a billionaire, it will not only open your eyes to new possibilities but will steer you in the right direction. So, you may be asking, “How can I do that?” I would say, “Read. Read. Read.” There is a wealth of finance knowledge out there. Seek it out.
Give
It is the oldest tale told, but a true one. We can’t be a financial success unless we give some of our money away. The more we have, the more generous we ought to be. The Bible says to tithe 10% but, I think we should not only stop there, giving other things like money, talent and time to the less fortunate would also be great too. By doing so, we will never fall short of what we need and in addition to that, we will have an abundance of things.
Pay Yourself First
For every shilling we earn, we pay ourselves at least a tenth of it and place it into savings, investments or retirement before paying anyone else as the reverse never works. This is the first rule that governs wealth building and the greatest difference between rich stable people and broke poor people is abiding by this rule. When our pay comes in every month, we should have a standing order to transfer money automatically giving us no room to think or plan for it when we get paid, as it is already done like clockwork!
Live Beneath Your Means
If we have paid our 10% tithe and 10% to ourselves, that leaves us with 80% or less to live on. Our means at this point lies at 80% of our income, and the ideal is to live well below this 80% margin. This calls for us to just ditch excess spending habits and live by spending less than we earn. However, all this is just talking unless we adopt a well-heeled mindset that clearly defines what money really is for us and differentiating needs from wants. With this, we can track our expenses, and maintain them well below our income, which we will be increasing over time thereby accumulating sustainable wealth over time.
Increase Your Earning Power
The best way to increase our earnings power is to invest in knowledge and skills that will make us more valuable to us, employers or business. We can do so by always continuously learning, and striving to improve ourselves in areas we may fall short. For instance, mastering new technologies and skills will always translate to more wealth. Your finances will thank you later!
Put Your Money to Work
While you go on vacation, your money should not. We can put your money to work through the three paths of wealth accumulation infused into a proper wealth plan which starts with building up a savings nest, a 6-8 months emergency fund and serious investment plan into various investment vehicles. This allows you to take advantage of the power of compounded interest by building sustainable wealth in mutual funds, real estate or even your own business.
Invest Wisely
Two aspects jump out here, firstly, what sort of investments will we make? Will we make risky investments or conservative investment choices? How much wealth would we like to have accumulated at the time of retirement? These are some of the questions we will have to ask ourselves when investing. But my advice would be, don’t place your money in securities you do not understand, and if you must, get an investment manager to oversee your portfolio.
And secondly, being that homes are the greatest investments that anyone can make; will we buy a home or comfortably rent? If you must buy, then make your home a profitable investment, with everything that is happening in the real estate market, be wise and live beneath your means.
Get Insured
Insurance protects our wealth and allows us to guard our treasures against loss. There is a wide array of assets like our cars, homes, businesses, health and even our income, but first, we should safeguard ourselves the greatest asset, by absorbing any potential loss from the unseen eventualities and mitigating our financial situation by getting some life insurance.
Beware of Unwise Debt
It is the parasite that will latch on us serving as a drag on our finances and life. Living debt free is the most liberating thing ever, so make a plan to get out of it and work that plan to completion.
Track Your Wealth
In order for us to know where we stand, we must be brutally honest about our current situation. This we can do by tracking our current net worth and lack thereof, a particularly very difficult exercise but we must face our income versus expenses, in order to know where we are headed. If you have not done so, it’s an eye-opening experience which will empower you to make better plans and decision that will eventually land you in the land of the financially free.
In Greek mythology, Caerus was the personification of opportunity, luck and favorable moments. Since he only had hair at the front, so that when he comes up close it is easy to grab a hold of it but when you let go it is impossible to grab it again.
That is the reason why it is not possible for you to grab an opportunity that has already gone by. Now is the opportunity….grab it, apply and hit the nail on the head with these 7 laws of building wealth.
Happy Building!
Here are some other related articles you may be interested in:
The single season is the best time take big strides towards adopting the best financial planning practices that will set the foundation for financial freedom.
Your single season is a great time to put into perspective and lay the foundation of what is to come but, best of all a time to enjoy the only time you will ever truly be alone. So be a boss and build a small sizable empire for yourself because, during this time, you can do whatever you want but a wise woman will do so with the future in perspective.
I believe these are the basic five things that single ladies should be doing with their money right now.
1. Keep a Ledger
You need to track your spending now more than ever and build yourself sizable savings. With this, you can ensure that your money is also making money by making some very wise and calculated investments. Do not just spend your precious single-hood time, (just) selling your time. Use the time to improve yourself financially as well, alongside your other personal improvement projects.
[bctt tweet=”Spend your time maximizing the most limited valuable asset you have – Time. ” username=”beyondsixzeros”]
2. Set up an Emergency Fund
You need an emergency fund that spans up to one year. Why? Because nowadays, with the high unemployment rate and preferences of some employers or even other risk factors such as a downturn in your business’ activity, it could take up to 6 -10 months to secure a new job or recover. Just as an age-old adage goes, ‘It is better to be safe than sorry’.
3. Maintain a Good Credit Score
Debt can hurt you, even if you wind up with Mr.Perfect who will come and take care of everything. A man is and can never be a financial plan. For your own sake and the sake of the happiness of your marriage, maintain a good credit score at all times. In the event you both need to take on some much-needed debt or even mortgage, a good credit score will make things happen more smoothly when the time comes. Word of advice, never enter marriage with debt – be wary of Mr. Perfects activities as well.
4. Get a Life Insurance Policy
You will still need a life insurance policy even if your single with no dependents – be it children or even siblings, it is safer to have a life insurance policy. Reason being, should anything happen to you today, you do not want your family to be left behind with a pile of expenses with no money to take care of them i.e. car loans, HELB loan or other debt obligations. Having a life insurance policy is the responsible thing to do and also a wise investment as a young woman because most life insurance policies nowadays also cover disability.
5. Save for Retirement
You need to save for retirement. I cannot stress this more than enough because time is the only limited valuable asset you have and the more time you have before retirement, the more you are likely to save before then. During this time you are single, try and save as much as you can for retirement. Being a woman, you are more likely to live longer and therefore will need more money to take care of you for a longer period of time. There are some amazing pension products that will pay you until you go to heaven but to enjoy that time even more, save as much as you can now.
[bctt tweet=”Investing is about risk minimization & an emergency fund is the most basic contingency plan against risk” username=”beyondsixzeros”]
Bringing it All Together
I came across this message/quote randomly on the internet sometime back and it said that instead of placing a ‘single‘ status on your social sites, it is better to place ‘independently owned and operated‘. I believe that is what being a boss is all about. So as a single lady adopt an independent mindset and be independently operated before you find your King – who will appreciate you even more if you got your own.
Happy Single-hood!
Meanwhile, You can click on the following links to read more about financial planning:
Financial planning for uncertain times, can mitigate risk and bring peace of mind.
We live in harsh economic times; our government is facing serious cash-flow problems, interest rates are high and our currency has depreciated. During these times, job security may be a luxury. It is the kind of situation that financial plans are made for – to mitigate risk and bring peace of mind. Since the challenges we face are beyond our control, we need to manage what we have. This way losing the one thing that keeps us grounded – both financially and mentally won’t threaten to destroy everything that we have built.
Financial Planning For Uncertain Times
To help you with this difficult process, consider the following as bare bones needed to start managing your finances.
Conduct an Honest Financial Assessment
Essentially, take stock of your finances through budgeting – listing all your income and spending as the first step in order to maximize your money after losing your job. Initially, it may seem like a daunting task, but it will help you keep track of your actual spending. It will also help eliminate non-essential spending that will save you a lot in the long-haul.
Cut-Back on Spending
With a clear picture of how much you spend a month, you can be able to estimate how far your income/savings. This will give you an indication of how long you have until you might be required to increase your capacity in earnings.
However, before that, tactics of managing spending need to be adopted. Ask yourself the vital questions, carefully considering and distinguishing between needs and wants. Do you really need that expensive handbag or pair of shoes? Or perhaps, you can consider getting a cheaper handbag/shoe before your income kicks back again. Cutting back allows you to run an extra mile on limited funds.
Debt is the Devil, Control it!
Having a job or a steady stream of income tremendously increases your credit score and as such it would be prudent to seize the moment when you still have that steady stream of income to scrutinize your debt, leverage and negotiate for better options. As such, you can manage debt in the following ways:
Switching lenders to get the best rates in the market – seek lower interest rates and easier payment terms.
Paying off as much of the debt as you can, however, watch out for early repayment charges.
Paying off priority debts first such as a mortgage or rent arrears are however highly advised.
Do not take a random walk, ensure you’re covered
Nowadays more and more people are taking up insurance cover for a variety of reasons ranging from short-term income protection (in the event of job loss, disability), mortgage, loan or credit card debts to reduce risk. In this gorilla money warfare, when the odds are stacked against you it’s prudent to have all your bases covered in the event you’re asked to engage.
Be sensible and build-up some savings
Before, the potential big cut, it would be sensible to save up-to at-least three to six months of your living expenses. You can stash away your savings in an easy to access, high interest earning account. This may be a simple savings account or merely a money markets fund which most local financial institutions offer. This will help you get through until you secure another job.
Engage in money generating activities
Don’t wait until you lose your job to receive the wake-up call that you need other sources of income to tap into. Seek out other income sources to ease your financial burden for example, you can use excess capacity of what you have to generate more income for yourself, for example, if you have spare room in the house you could easily rent it out and makeup to KES 3500 per night or you could sell of unwanted items laying around the house.
If there is such a thing as the Law of Luck describing the set quantity of Luck, in which you will receive a bad fortune in the future equal to the amount of fortune you currently face, then it would be okay for me to say that the bad times only come for the season.
Investing is a serious game, and requires your full attention to avoid making avoidable mistakes.
When I was young, I was a curious kid always looking for adventures and doing everything I was not supposed to., particularly fighting authority – mainly the help. Home Alone sequel being the greatest influence on my childhood and being a firstborn of boys you can imagine the hell that would reign in that home when mum and dad were not home. So naturally, there were some experiments that my brothers and I conducted that taught me a few things about life. The first being, that you should never stick sharp objects in the socket and the second being that, it’s always better to learn from others mistakes rather than your own – listen to your elders. It spares you a lot of time, loss and aches.
I bring this up because both these lessons are important to remember when trying to decide how to invest in the three paths of wealth accumulation. The fact is that when it comes to investing we all act like kids trying to figure out what would happen if we stick sharp objects in sockets. Where ultimately, we experiment ignorantly and wind up making some horrendous mistakes that send us reeling across the room in financial shock.
I hope that as we study other peoples mistakes, including mine – you will be able to avoid the painful experience of having to learn these lessons on your own.
Overlooking Your “Big Picture”
Not planning, not having goals and not being organized. The oldest tale told but most of us would rather indulge in some mental accounting on your state of things. However, in order to become a successful investor, we first must have our values and goals written down on paper in clear terms and have your finances organized. It is imperative to know clearly where you currently stand, where you want to be and establishing what you need to do to get there. Only then can you intelligently evaluate the opportunities around you and figure out what might make sense for you.
So it is necessary for your investment plan to find out what you are trying to accomplish, what risks are relevant to you and how much can you handle, set parameters to measure your success, what percentage of you total portfolio will you allocate to the various asset classes and finally, address the question of diversification.
Not Taking Debt Seriously
I have met people who live on so much debt that even their income has no effect on how much debt they have. They spend so much money on month to month and borrowing to cover debt immediate outstanding debt. They are miserable, anxious, unable attain any goals and even have broken marriages as debt hangs over your head like a dark cloud that strikes lightning and hail at the end of the month.
So my advice to you is:
♣ Don’t wait to find out about your credit score/record/rating.
♣ Pay all your debts on time or sooner if it helps.
♣ Always try to negotiate for better deals that will help you clear up your debt sooner.
Putting All Your Eggs in One Basket
Or putting too many eggs in one basket is one of the biggest mistake most investors make. When building an investment portfolio it is imperative to have a diversified investment as there is no single investment that is perfect or risk-free. Therefore, when looking out to invest ensure that your investments compliment each other and when bundled up together reduce overall risk, cushioning downturns in investments and also softening the spikes as well.
I have a friend who invested all he had in the Safaricom stocks, thinking that the share price will shoot-up upon listing and he would make a killing on sale. Only later to realize that the stock would not perform as he had expected and he had to wait. However, his greatest problem was that he let pride get the best of him and he bought, even more, shares of the same stock since it was much cheaper. Remember at the time, Safaricom was and still is a great company with great future prospects and it is important to note that, sometimes the price of company shares has really nothing to do with the future prospects of a company. With that said, had he assessed his investment goals clearly he would not have invested in a stock like Safaricom that is best suited for long-term investors.
So what does diversification mean? It means that you should have exposure to a wide array of investments ranging from bonds, shares, commodities, properties – across various sectors/business industries and even different parts of the world. To achieve this, you should not have more than 10% in one fund and hold between 10-20 funds.
Waiting to Save for Retirement
People usually put off saving for retirement until later, perhaps thinking that they will have more money or maybe until their financial obligations decrease. In all honesty, can you predict the day and time you will have more than enough to save for retirement or when your financial obligations decrease or seem to stay the same in the face income increase. Hardly, ever happens. The problem is not complicated, the longer you wait to get started, the more you need to save for retirement.
Let’s take a hypothetical case for a moment to assess the benefits of being an early bird – assume we have, Jane and John. Jane decides to start saving KES 20,000 a year at age 19 and John starts saving the same amount at age 27 when he finally has a great paying job.
If Jane stops saving at age 26 for various reasons – maybe she gets married and kids come along quickly making her a stay at home mum, at an annual return of just 10% per year, she will manage to accumulate KES 10,351,480 by the time she is 65. On the other hand, John saves continuously KES 20,000 until he is 65 but in contrast to Jane he only manages to accumulate KES 8,831,850.
It is clear that Jane manages to accumulate much more over time by saving only KES 20,000 for eight years and surpassing Johns investment with a significant difference of KES 2,139,630.
Jane has only invested a fifth of the amount but has 25% more to show for it. Your take home here is that the sooner you start saving for retirement, the sooner you will be able to achieve financial freedom and go play hard!
Speculating & Trying to ‘Time the Market’
Leave this to the speculators as its a sure way of getting inferior returns because over the long-term does anyone really beat the market when the market behaves like a casino. Everything is about choice and risk but true investing relies on investing on regular intervals in both rising and falling markets, to a thoroughly researched and diversified portfolio of basket securities which are given a chance to perform over years, not minutes with regular adjustments and monitoring.
So how long should you keep a stock? Market Champions like Warren Buffet say that “only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”. So unless the company is facing obsolescence or a situation it cannot recover from, then you can consider holding a bit longer.
So what are the common ways to speculate – avoid them!
♣ Investing in non-profitable stock or stocks that everyone believes will make a lot of money – also known as ‘hot stock’. Don’t be caught up in the frenzy, it is always wise to invest in profitable companies.
♣ Putting more money into an investment that has suffered a drop in price in an attempt to buy a stock at a so-called ‘bargain’ or even try to dilute your initial investment.
♣ Actively trading your account in an attempt to make quick gains within the shortest time – similar to betting and gambling.
♣ Speculating on the future price of a given stock, commodity or currency – without sufficient research and information to grapple the complexities of options trading, to bet on price and date, your option could expire worthlessly.
Failing to Re-balance Your Portfolio
Two aspects jump out here – re-balancing your diversified portfolio and allocation. Read More here on asset allocation. It is important to re-balance your portfolio regularly because your assets keep growing over time but not at the same rate. Some are growing more rapidly than others and maintaining the balance is important in order to keep the portfolio diversified at all times and preventing concentration of wealth in some areas over others.
It takes a different kind of investor to reward losers, an intelligent and extremely focused one at that. As it is hard, but works because it ensures that you sell high, and buy low which beats the investors snare of buy-high-sell-low in an attempt the chase performance.
Chasing Performance and Investing In the Short-Term
Most investors are seeking to invest in the short-term chasing the illusion of getting rich quick schemes. I have always believed that the quickest get rich quick scheme is starting your own business – no other. Otherwise, if you looking for big wins by betting you money on gut feelings, try Sports-Pesa or some other betting/gambling game out there but, don’t gamble your future away with short-term shaky investments.
In 2014, I invested someone money in a stock that I had monitored the previous year and based on that 52-week performance, I decided to place some money into that stock. I thought I could make some quick money in the short-term but I lost. A lot. So, I sold it off at a loss and I bought a more promising stock. I am glad I did because I recovered my loss and even made more. Through this experience, I learned to be patient. Very patient.
Patients pays and as an individual investor when you pad your investment portfolio with rational investment strategies that you comfortable with, take pride and in the long-run, your investment decisions will grow and reflect the soundness of your decisions.
Underestimating Your Abilities
Some investors tend to believe that they cannot excel in investing as it is only for professionals or sophisticated investors. That is not true at all, as most professionals money managers underperform the general market. It only takes learning and research to equip yourself to develop and manage your own portfolio of investments and be profitable. The only thing you need to stick to is to be rational and adopt some common sense when going about it.
Some years back, I embarked to understand the currency market, so I opened a foreign currency trading account, top it with money and started trading. Concurrently, I was attending an investments class and the semester assignment was trading virtually in the Kenyan stock market and a way of learning. So by day, I was trading virtually locally and by night when the market was most active, I was trading in currency. It was a thrilling experience. I lost some money and gained some as well, but overall I most importantly I gained the knowledge to do it all on my own.
I am not asking you to follow my direction, but I am hoping that you will take the time to develop your own investment strategies and if you don’t have the time, get a money manager to manage your money. At the end of the day, only you can keep your best interest at heart, not some money manager looking to make commissions.
Throwing in the Towel
If you have ever put all you had in an investment and then it tanked or even been a victim of the pyramid schemes in the earlier years of 2007, do not give up. Realize that sometimes, the problem is not the market, the problem is with your inexperience with investing. I have lost much too and so I decided to become a smarter investor and to do it right each time. So for me, going back to school to equip myself with the knowledge to make me a better investor is and will always be the best decision I have ever made in my life.
In the words of Warren Buffet, “Never invest in a business you cannot understand,” or simply, if you don’t understand it, don’t bet on it! So when something is too good to be true, I always try to find out what it is all about and then decide calmly and rationally to invest or not to invest. Realize you are not alone, take the example the 26,000 victims of the pyramid scheme – people will always make financial mistakes, get bad advice, meet bad people who will rob them blind and then give up on their dream of financial security, don’t let that happen to you! The show isn’t over until it is.
By reading this, you know more than most people about how to avoid the pitfalls of investing. Although there is much more out there, by reading this you can avoid the most common mistakes people make putting you in a better place than you were before. However, I believe that the greatest mistake you can make is not being an investor in the first place.
So don’t Give up, Happy Investing!
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Tracking your income and expenses every month is the first step to getting your spending under control. But for those, who are having a problem sticking to their initial spending plan, here are 5 tips and tricks that will help you get your spending back on track.
Adopt a Cash – Only System
The easiest way to reduce your spending automatically is to start paying everything with cash. When you use debit cards, credit cards, m-pesa and check you typically don’t fell the significance and weight of how much is leaving your pocket.
I dare you to keep in wallet KES 50,000 and try spending it frivolously on an impulse purchase like a new dress, a pair of shoes or even a few a handbag – trust me, you won’t be able to. With a price tag of KES 18,000 on a bag for instance, does not seem like much when all you have to do is present a card or m-pesa but when you start counting the thousands up to 18! – It will make you rethink the purchase.
That is because with actual cash in your pocket, as you count those thousands and actually hand it over – it provides you more time to think more about exactly how much you are spending and for what. I can tell you with all assurance that each time I start paying for everything with cash, I spend less and less dropping my spending by 20% in a single month.
Place a KES 10,000 MAX. On Spending
The idea here is simple. Never spend more than KES 10,000 on anything without taking 48 hours to think about it. Most people purchase things on impulse and taking some time out to think about it enables you to take back the power over your spending – giving you more time to decide rationally whether the purchase is necessary.
So I suggest you set a spending ceiling –KES 10,000 is reasonable, but you can set any amount that makes sense to you. Once you have set this ceiling, do not allow yourself to purchase anything above this amount without taking some time out to think about it. If after the 48 hours you still want to buy it – go ahead. But, if not then you just saved yourself more money.
I know how important this exercise is, as each time I went out for shopping I started to realize that the things I thought I needed and must have were not really that important. For me shopping has stopped being a pass time like for most people but a way to buy things I really need.
Take Shopping Breaks
Go shopping for 90 – 120 minutes at a time and then take a short break. Have some coffee and relax. By the time your done, you will realize how exhausted you are and will put to a halt any unsystematic unplanned spending.
Confine your Shopping to once a Month
Always make a shopping plan/ budget plan every month before going shopping. Select an appropriate shopping date in a month and avoid going shopping any other time of the month to avoid temptation. Oscar Wilde famously noted that he could resist everything except temptation. In reality, most of us differ in our ability to exercise self control and the best tip I could give is simply avoid anything form of temptation that will deter your from achieving your live long goals.
Hence, it is extremely necessary to plan and stick to this list. Also not that, the more time you have to plan, the more comprehensive your list is and the more likely you are to buy only the thing you actually need.
Justify Really Expensive & Unnecessary Purchases
I always justify really expensive and unnecessary purchases by buying things only when I seek to reward myself for something really difficult done. The point is, to use shopping as a way to reward yourself for very important tasks completed. However, this must be within the budget – do not go over budget just because you are trying to reward yourself for something. Instead just plan for it and set a side a sum which you may put into a ‘reward fund’. For instance, saving for a very expensive car, piece of jewelry or a phone.
It is important to always try to justify our spending habits each time by attaching meaning to any lavish expenses. That way we won’t regret, be in debt or feel spiritually empty like most impulse buyers. For example, If your seeking to get a promotion in your new job and to get there you must complete a certain project, task or bring in a ultra high net worth client for instance, once you achieve this you should feel free to indulge in whatever your heart pleases and reward yourself with whatever.
When we attach hard work with pleasure, we will always work hard and achieve anything. That is just the additional benefit to it but what do you really have to lose. Nothing. Ultimately we may simply end-up saving more.
Overall, making small changes to your shopping habits can help you build the infrastructure of enormous returns over a lifetime – so do not stop trying.
Oh! I feel you. The stress of it is overwhelming. Sifting through receipts, retrieving pocket change and pouring out pages of excel sheets as you try to tack your expenses can be daunting. However, making a budget can be quite easy. No stress really.
So you may ask….
What is the best way to start a budget?
Let’s be honest, there are many of us who hardly know how much they spend within a month. The way they know for sure is checking the account balance plus change in the pocket. So, if you’re like most people, then the best way is to first track and understand your spending.
You can do this by downloading an app to help you with this. Some of the best free apps out there are Mint, GoodBudget, Mvelopes, BillGuard, Pocket Expense, Homebudget and Expensify. With these apps, you can easily track your expenses and compare it against your income every month.
Income must always be more than expenses, so after tracking all your expenses establish your current position. Be honest about it and further probe your spending. Are you spending more than you earn? Would I like to spend less? What items are taking up most of my cash? Can I do something about it?
Back to Making Our Budget…
Probing your current situation will help you establish where you want to be and from there, can you build your desired budget. The great news is that anyone can do this – no matter their income level or how your expenses compare to your income.
Let’s Make a Budget
We already know how our income compares to our expenses. If your income is less than your expenses, you must a rare bird in great financial health but sit tight for a minute.
For anyone whose income is less than expenses – know you’re not alone and do not stress. We can fix it. It’s never too late. The fact that you are here means you are willing to do this. All you need it a nudge in the right direction.
So from here, all you need to do now is to jot down the major budget items from the app and the amount adjacent. Compare and contrast each item and ponder on your spending habits. Establish which items you can do without or would like to reduce spending on. It is always wise to live beneath your means. Always.
After shaving off unnecessary spending, establish how much income you have left. Is it satisfactory?
The Easiest Budget Ever Made!
There are only two very simple rules to do a simple budget:
You cannot spend more than you earn – short-term debt is not allowed i.e. credit.
As soon as you get paid – money should move to the right budget categories – no procrastination and no spending on un-budgeted items.
The Way It Works
Instead of having over 12 items in your budget, simply group your budget items into 3 broad categories and allocate the necessary resources to each.
Assume, your paycheck amounts to Kes. 100,000, You can break down your budget items as follows:
Paycheck
Recommended %s
Kes. 100,000
Tithe
10%
Kes. 10,000
Savings
10-15%
Kes. 15,0000
Everything Else
75-80%
Kes. 75,000
It is extremely vital that the money gets taken out for these budgeted items. If not, then I cannot guarantee that the full amount may not be used for its intended use at the end of it. Therefore, it is always highly advisable to make the process as automatic as possible. Instruct the bank to deduct Tithe and Savings and send to the relevant organizations.
This budget is very simple and can easily be used by people who do not want to budget at all. It allows you to save money, give and live well beneath your means. As simple as this budget may be, it is not efficient as it still leaves plenty of room for foolish spending.
It is also called the mental budget as you can do it in your mind or the lazy budget. So if your willing to put in some more work into your budget and save much much more than read on.
The Money Saving Budget
This budget takes much more time, as it is more thorough and considers everything. This type of budget is the kind that allows you to achieve more saving and greater financial stability. To do this, we will expand on the mental budget adding as money budgeting items as possible – which is already easy to do as we have the data from the app.
Here are some generally recommended budget percentages, which you may use as a guide to get you started off:
Budget Item
Percentage
Budget Item
Percentage
Housing
25-25%
Savings
10-15%
Food
10-20%
Insurance
10-25%
Transport
10-15%
Personal & Discretionary
5-10%
Tithe & Charitable Gifts
10-15%
Debt Repayment
5-15%
Clothing
2-7%
Recreation & Entertainment
5-10%
Utilities
5-10%
With the app data, open a spreadsheet at input the data in all the correct categories. Additionally, add any other expenses that you may think of – even the seasonal or annual ones eg. driving license fee. By doing this, we will be able to budget for every possible scenario and avoid surprises along the way – it is also here where we add a category for any surprise expenses i.e. the emergency fund.
Sticking to Your Budget
The surest way to stick to your budget is to budget for entertainment, clothing, personal & discretionary items and taking everything in moderation. For instance, you can budget for dinner with friends every weekend at some popular joints. Also always give yourself some wiggle room with these budgets.
So, this is how budgeting truly becomes more fun as now you do not have to feel guilty spending money as you have already saved, paid bills and now your money is just sitting in the bank account waiting to be spent.
Other Budgeting Options
There are numerous budgeting options that you can use, some are very systematic, such as the 25% budgeting strategy and other are built to instil discipline i.e. the envelope system. Whatever system you choose to apply, the only thing that matters is that you are budgeting and well on your way to build some wealth and achieve your dreams.
Homework:
Create a Budget
I would love to hear all about your budgeting process, strategies, difficulties and the challenges you face while drawing up your personal budget, let us know in the comments below….
Meanwhile, You can click on the following links to read more about budgeting:
Investing for the long-haul may take various shapes and forms. The tried and tested traditional methods of asset allocation by portfolio managers seeks to strike an equilibrium, utilizing the three paths of wealth accumulation, which are stocks, cash, and bonds. Getting the right mix of these three while taking into consideration your own risk aversion is the first step to developing a proper wealth plan.
Are you looking to develop your own financial plan?
The table below shows the main paths of asset allocation depending on the investor type. You can use it as a guide to allocate your savings to build wealth.
In simple terms, stocks are basically company shares and give returns in terms of dividends, share price growth and outrunning inflation.While bonds, on the other hand, are fixed income for the duration of investment, usually low risk and is best for retirement savings. Cash is the most common and the most easily accessible and hence, it is best for your emergency funds.
What Else Should You Consider
Take on minimum 10 -15% savings of which you should move through the three asset classes and ensure you strike the right balance.
As you develop your wealth plan, try to integrate strategies that seek to preserve the wealth you have accumulated over the years as you grow older. This is basically, moving from a more aggressive approach to a more conservative approach.
Consider investing more in any assets that outrun inflation i.e. equity, real estate and bonds.
Stocks/ Equity does not limit you to only invest the NSE, opt to start your own company or take stock in start-ups you may be familiar with.
Final Thoughts
“In everything, the middle course is best: All things in excess bring trouble to men” – Titus Maccius Plautus, a Roman comic playwright. If you enjoyed this post, I would be very grateful if you’d help it spread by emailing it to a friend or sharing it on Twitter or Facebook. Thank You.
Happy Investing!
Meanwhile, You can click on the following links to read more on building wealth:
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.
Workplace Table Support Give Help Donate Charity Concept
A persons feelings’ is like a cold – once it starts, no matter how much you try to resist being ill, it will only end once you go through the necessary pain. Selfishness is such a feeling, born out of insecurity from unmet needs, it results in fear of giving anything away, as when you give you are reminded of your own lack of control over your life.
Thankfully, there is a powerful antidote to selfishness – giving and in this article I am dishing out some of my favorite reasons why you should give. If you follow my advice, your life will be at least a zillion (not an actual statistic – but whose checking!) times more interesting.
Sometimes, the only way to get more sweets is to share the ones you already have
Giving helps you build self confidence in dealing with your own problems as the inherent fear of losing control slowly diminishes over time. People spend more time worrying about money, then implementing strategies that actually facilitate wealth building. To build wealth for yourself, you need the power over your money to make decisions that sometimes maybe risky and confidence to achieve your goals without fear of losing control which in more times than not, is the greatest hindrance to building wealth.
Therefore, the more you give, the more control you take back – thereby taking worry from money by building confidence that you can achieve anything you set out to do.
[bctt tweet=”The more you give, the more control you take back – thereby taking worry from money.” username=”beyondsixzeros”]
Fear cripples and prevents you from being the best version of yourself
Giving kills the fear of lack geared towards self-preservation and fear of depleted resources, also known as the “bag lady syndrome”, which drives you to horde in fear of being poor so much so, that it plaques your waking thoughts and as a result, drives you to make very very poor investment choices.
Therefore, do not misplace your fear. Instead, let it be the greatest motivator, rather than a handicap. Let it serve as a strength that drives you to increase and multiply your wealth, and all the more give because you can.
[bctt tweet=”Fear cripples and prevents you from being the best version of yourself!” username=”beyondsixzeros”]
Have you ever heard of an artist, who paints and never lets the world get inspired from their work?
Giving is strength and selfishness is weakness. God gives us things – money, talent, time – and we have to make the choice of what to do with those things. Giving does not only encompass financial resources. We have an abundance of unexpected resources that we can tap into and share with others.
[bctt tweet=”By giving, we are made vulnerable & as we open our hearts to others we get better and stronger.” username=”beyondsixzeros”]
But in the meantime, here’s a tip you can use right away. You’ll have vastly improved your current state and inched closer to freeing yourself in just 20 minutes by following these two simple steps:
a. Take out your notebook and jot down all the things you things you think you want and absolutely need.
b. Take out everything you may consider as a ‘want’ by digging deep and ask yourself if you really need/want those things.
By doing so, you will find out that: all those things that you could not live without were actually adding unnecessary stress to your life, your life will be much simpler/happier and you will learn the great skill of compromise.
