HOLIDAY SPENDING ... Cynthia

Well, December is here and this is the holiday season. This is the month for merry making, get aways, partying and generally just having lots of fun. Granted Jesus was born during this month and for Christians, this is pretty significant; He is after all the son of God and our Savior. But we all know most of what we do has little to do with Jesus.

I love the holidays/ December because it is the month families get together and catch up. It is the time most people get time away from work or school and can distress. It is Christmas season so there is lots of cheer and a general atmosphere if fun. But it is also a time when we spend the most and due to poor planning; most of us end up having financially stressful Januarys and Februarys.

How do we go about our December spending and reduce the level of financial stress in the first months of the next year? As usual, my fist point of any ‘how to’ is planning.  Without planning, you are almost a lost cause and maybe have to wait until the next December after reading this article to reap from my two cents advice. What do I mean by panning? December is always eleven months away from January. So think eleven months prior. What would you like to do for your next holiday season when you have enough time away from work or out of school?  What does it entail? How much will it cost? Is it a group thing or an individual thing? How can you start saving to reach that target? The sooner you start planning for this the better.

Let’s say you have been ahead of the game this year and planned for December? You have your holiday fund nicely tucked away and are ready to party and make merry? First of all good for you because let’s face it, most of us cannot afford the December spending spree on our regular income because holiday or not, the bills still have to get paid. So how do you go about spending so that you get the maximum benefit out of your money while making sure you do not overspend and end up eating into the non-holiday fund? Remember the non-holiday fund has to untouched because January bills still have to be paid.

First and foremost, spend within your means. Don’t blow it all in one day at a pricey place that is way out of your league and be back at square zero the next day. The holiday season is generally from 20^th December to 3^rd January. That’s two weeks so pace yourself.

Being December, everyone is out to make some money. Be very careful that you are not overcharged or taken advantage of just for this reason. Pay for goods and services at their fair price and if you feel you are being overcharged, consider changing shop or venue. You do not want some establishment eating a big chunk out of your holiday fund in its quest to make mad profits during the season.

Go Dutch. Yes I know it is Christmas and you are feeling generous and want to treat your friends. But who will treat you when you are already out of cash and still have a number of days before the end of the holidays. Treat your friends once in a while, it is allowed. But also split the bill as much as possible. This way your holiday fund will last as intended.

Look for good deals. Just like you are feeling generous, most shops and establishments will be bitten by the generosity holiday bug and will be giving away good deals. Look out for offers such as buy one get one free or free drinks for first 20 patrons etc. This is a great way to ensure your holiday fund stretches out.

Make early bookings. I know we are proudly Kenyans but this culture of last minute rushes does us more harm than good. Remember my point about businesses being out to make mad profits? There best way for them to manage this is catch you when you are desperate and the last minute rush makes you desperate. Book your tickets, venues, supplies etc. in advance so that you get them at the normal price.

Last but not least, give back to society. It is Christmas, you have had a long year, worked hard and God has sustained you throughout the year.  Be thankful to Him and celebrate His Son’s birth by sharing with the less fortunate. As Jesus said, whatsoever you do to the least of my brothers…that you do unto me.

Happy Holidays!

INVESTMENT 101... Cynthia

What is investment? Investorwords.com 
http://www.investorwords.com/2599/investment.html defines it as “The purchase of a financial product or other item of value with an expectation of favorable future returns” in general terms it is spending money to make money.

Personally I think investment is one concept that should be knocked into a person’s head as soon as they start understanding the value of money. 

  Unfortunately this is not usually the case and most of us go through life without ever understanding this concept. If we are lucky , we get in our adulthood and more often than not it is too late.

If you want to invest you must have observed the first golden rule of any successful venture. Plan. Without a plan you are more or less shooting in the dark and chances of hitting a target are low.  The first step of planning is researching on what kind of investment is best suited for you. Best suited means affordable; what can you fund comfortably without breaking the bank, rate of return; what kind of return do you want on your investment? Remember the higher the return the higher the risk and finally term of return; are you looking for a short-term, mid-term or long-term return on your investment.

The second step is getting your funds together (I hope you have read the articles on Savings 101  http://v3rcity.blogspot.com/2012/08/saving-101-cynthia.html and Loans 101  http://v3rcity.blogspot.com/2012/07/loans-101-cynthia.html on this same blog to have some clue on how to get those funds). You have to spend money to make money. I am yet to hear of an investment that didn’t require money. The most advisable way to fund an investment is through savings. This is because it is your money and therefore has no cost (read interest). This is not to say loans cannot be used for investment. The key here is to ensure the return on your investment is enough to cover the cost of the loan and also give you a return.  I will not go into inheritances and lottery winnings as sources of funds but if these ever come your way, think investment as this is also money without a cost.

On some occasions it is advisable to seek professional advice before undertaking investments. There are people who are experienced and learned in this field and therefore can more or less make sure bets on your behalf. The downside to this is that you have to pay for this advice and it cuts into your returns. Nonetheless, if you are investing in something like shares, bonds, land etc. it is highly advisable to get the right professional advice. On the other hand if you are investing in a clear cut venture, advice from family and friends who have experience in the similar ventures is usually enough and often free. Thorough research on your own is also less costly. No one knows exactly what you are looking for except you. Luckily in the current times, there are unlimited sources of information.

There are many kinds of investments. They vary from small business ventures, shares and bonds, land, mutual funds etc. Please note a personal car is not an investment. This is because the value starts depreciating as soon as you turn the key to start the car yet as we know from the definition, there must be an expected favorable future return for it to be termed an investment. The jury is still out on daughters (with the dowry and all)…

One golden rule of investment is diversification. Don’t put all your eggs in one basket rings very true when it comes to investment. Investment is a risk, meaning you could win or lose. Therefore it is better to spread your risk so that if some lose, you have others that are winning. You can start small with a plan to work your way to the big leagues. If you have a plan everything else is bound to fall into place.

INSURANCE 101… Cynthia

What is Insurance? InvestorWord.com defines it as “A promise of compensation for specific potential future losses in exchange for a periodic payment” In layman’s terms, it is money you are paid by your insurer (insurance company) if you lose something you had insured and paid a premium for.

Insurance is a lifeline.  Most people do not appreciate this because it is a cost and more often than not it has no return. It only pays off if sh*t hits the fan and you had been wise to pay those periodic installments called premiums. Truth is no one knows the future. You may use this argument to mean you really don’t need to protect yourself against the unknown. My advice is DON'T!  This in fact should be the reason you protect yourself against that unknown. Life in itself is a risk. If you can, protect yourself to the best of your ability and insurance is one way of doing this.

So what are the ABC’s of insurance? There is the specific potential future loss meaning you have to identify a likely risk that is yet to come that you want your insurer to compensate you for: if it ever happens. Examples of these are accidents, illnesses, fire, theft, damage to property etc. Secondly, there is the periodic payment to the insurer i.e. a premium. As I said above, it costs to be insured. Basically, the insurer requires you to pay a certain amount to him over an agreed period of time so that you are eligible for that compensation if the need arises.

Let us take the example of medical insurance. No one wants to fall sick, yet it happens to the best of us. Good treatment is expensive and most people cannot afford the cost of good treatment from their normal earnings. This is where taking out a medical insurance cover becomes vital. There are many Insurance companies that offer very good medical covers at very competitive rates. Let’s take a cover that allows a maximum limit of say Kshs 25,000/- for outpatient treatment and a maximum limit of Kshs. 250,000/- for inpatient treatment. Such a cover in the current market will cost you on average Kshs. 700/- per month coming to about Kshs. 8,400/- per year (please note my figures are not exact but thereabout); Now look at the benefit here. You can receive outpatient and inpatient treatment up to the maximum limits and your insurer will cover all your bills. You basically pay only Kshs. 8,400/- for Kshs. 275,000/- worth of treatment. That is what I call a good deal! 

Most people get skeptical about insurance because there is the possibility of the risk you have insured yourself against never happening during your insurance period. Well, this is how the insurance companies make their revenue. So unless it was an investment cover (this is a topic for another day), the money does not return to you if the risk does not occur…but what if it does? This should be the question you ask yourself whenever you are tempted to ignore taking out that insurance cover. Can you imagine having to pay the whole Kshs. 275,000/- from your pocket if God forbid you fall ill? You may be forced to seek cheaper treatment and that my friend is taking a gamble with your life. Alternatively, you will pass on the burden to your family and friends to raise the money to cover your bills. To this I say most people have enough financial problems of their own. If you can help it, spare them additional burdens.

Insurance without a doubt takes a huge financial load off your shoulders. You essentially pay less for a bigger benefit when you need it the most. There are many types of insurance covers; any foreseeable risk you can think of can be covered. The starting point is to figure out which risk is most likely to happen to you and cause a financial impact. So if you are in a financial position to insure yourself, do it. Always remember to ask yourself, what if it happens?

Saving 101 ... Cynthia

What is saving? Investopedia (Yep. You read right, investopedia) defines saving as “the amount left over when the cost of a person's consumer expenditure is subtracted from the amount of disposable income that he or she earns in a given period of time” In layman’s terms, it is money that you can set aside from your earnings after you have taken care of your expenses.

Most of us never really realize how important it is to save until the time comes when we are in a bind and the regrets kick in. Did I need those extra pairs of shoes? (I am a girl, shoes will always be my first reference)…Did I really have to buy my friends three rounds of drinks or whatever else that can be bought in rounds last weekend? We live for the moment and leave tomorrow to take care of itself. After all, the Bible says it will. Right? Wrong! Because the same Bible also talks of God helping those who help themselves (I know this is nowhere in the Bible but it is implied).

So how do we go about saving? I always find that is helps to imagine the worst possible ‘rainy day’ and start from there. This will be your motivator because we all know if the universe has anything to do with it, there will be a rainy day. Secondly it goes without saying that you need to have a plan. An idea of where you want to be in future. This target will also act as a motivator.

To start off, you should save a minimum of 10% of your regular income. Key word, minimum. Start by doing this diligently. To ensure this happens without fail, have a standing instruction with your bank so that the money is deducted and sent to your saving account as soon as your income hits your regular account. Alternatively, you can have an arrangement with your employer where the 10% is deducted from your pay and sent directly to your saving account or scheme. The reason for avoiding touching your money before the10% is off is that once you can access your money, all reasoning kind of flies out the window. Not if those shoes, jeans or whatever else you have had your eye on is still on display.

Other than the 10% another way to save; especially if you are on a salaried gig; is to join a co-operative society. These are mostly company enabled hence it is much easier for funds to be deducted from you pay and put in your co-operative account. Another avenue is the famous ‘Chamas’. This is where a group of like-minded people come together and contribute an agreed monthly amount. Chamas are a great saving culture in Kenya; they vary from one to another in so many different ways but they are all geared towards the same goal; saving; (This is a topic for another day).

Do not stop at the 10%. As I said, this is the minimum. Start looking at the areas in your spending that you can cut back on and divert the money spent on these to your saving. Everyone wants a fridge stocked with ice-cream, wine, bacon etc…but this is not a necessity. Divert those funds to your savings. Is that 30^th pair of shoes really necessary? Divert those funds to your savings. Do that pair of jeans really need to be added to your wardrobe? Divert those funds to your savings and deposit it in your savings accounts…banks accept deposits from as low as 50/-.

Loans 101 ... Cynthia

What is a loan? Oxford dictionary defines it as “a thing that is borrowed, especially a sum of money that is expected to be paid back with interest”. There is a feeling you get when loan money gets in your hand or hits your account. It is euphoric. You feel like you won a jackpot and can buy anything you ever wanted; regardless of the amount. You spend the money in your head and the excitement remains at peak level until you have paid for and acquired whatever you decide to spend on. This is when reality checks in. It downs on you that you are in debt.

We learn about loans early in our lives. Most of us begin borrowing at a young age. Remember asking your brother, sister or friend for some money and promising to pay back? It could have been as little as twenty shillings, but the point was you had to pay it back.  Luckily, loans from our family members and friends do not usually come with an interest rate so we are spared the pain of having to pay a percentage more than what we borrowed.

As you get older and start making a life for yourself, chances are you will need loans to enable you achieve some of your goals. To start that business, buy that plot of land, build that house, buy that car and so on. This is where you need to get smart before you take out that loan.

Before taking a loan, make sure you have a solid plan on what you want to use the money on. Most financial advisors advise you take a loan only to use the money on something that will generate income hence pay for itself. A business or investment is highly recommended. The solid plan will reduce the chances of squandering the loan. There is nothing worse than repaying a loan; with interest; yet you can not put your hand on exactly where you spent it.

The key factors to consider when taking a loan are interest rate and the repayment plan. Interest so that you can know exactly how much more you are binding yourself to pay compared to what you are getting. There are periods when the interest rates are extremely high. These are also the times financial institutions are more that willing to give loans. They know exactly what they are getting out of it. It is wise to window shop and find out the interest rates offered by different lenders in the market. The differences can be quite substantial. 

The repayment plan is key to enable you plan your finances going forward. You need to know how much of your periodical income will go towards repaying your loan so that you can adjust accordingly. Reality of the cost of borrowing hits home during the repayment period. If you did not plan from the onset it will be a trying period. You will either struggle to make ends meet because of the payments or you will be unable to meet your obligations and this opens the door to a whole different angle of the relationship with your lender. A not so good angle.

Avoid loan sharks at all costs. Yes they do exist and yes they are exactly like is shown in mafia movies. Okay, they might not break your legs like in the movies but they will take you for everything you have got. They will give you a loan in the shortest time possible; I have been told in some instances you can have the cash in your hand within half an hour; but their interest rates are ridiculous. As the saying goes, when the deal is too sweet, think twice. Reputable financial institutions are much safer.

All in all, do not fear to borrow because more often than not, if you want to develop yourself, you will need to borrow at one time or another to get there. Just be smart about it.

Saving for that so called rainy day… Naomi Gathirua

 We all want to do it, but where to start is the main question we are faced with. A major reason for financial trouble is caused by unsound habits of money management, starting early may save you a plethora of money troubles. Here are some few basic steps to help you to save:

-           Pick a great young adult’s account; this ensures you get the best deals. Most bank accounts have freebies, factor in the freebies but always read the small print. Do have a savings account, as well as a current account, ensuring every month a substantial amount of money goes in your savings account. In addition to that, do not carry around the savings ATM card, this enables you not to be tempted to indulge while out there. Do seek professional advice at a bank or financial institution. Financial advisers are built to understand that all people come from all walks of life and have different incomes and spending patterns. Thus helping you to map out a sound savings plan, be it for an emergency fund or money you could use to invest, either in shares or bonds.

-           Post-pone self indulgence; Manage your money by eliminating all unnecessary things, which you can actually live comfortably without, say cable subscriptions oh yes, it is possible to live without a weekly dose of Keeping up with the Kardashians or the series that you dash home like a cheetah to watch. Try downsizing your subscription package, that way you still have some choice over your entertainment.

-           Partying; it is part of a lifestyle. But one thing I have learnt is you better budget for this one before you actually leave the house, that way you don’t get an eerie feeling the morning-after, as you peep into your wallet or handbag, hoping you didn’t use as much as you thought you did..I know it has all happened to us.

-           Contemplate before you spend; This means really thinking about if you need it and if it is within your means, even better try get it elsewhere for cheaper. There is always a cheaper option, just look for it. 
      
     Unsound habits of money management are the root cause in not being able to save, follow these simple steps and before you know it your savings account will be looking rather pretty.

Financial freedom...The art of budgeting..... Naomi Gathirua.

Well, being young and being extremely spend thrift can be thrilling, when it occurs, though there comes a time in the month when we realise that money management might not be such a horrible idea to acclimatize to. [A budget is basically a written plan on how one will spend their funds], thus helping you to spend it wisely. No matter what your level of income is, creating a realistic budget and trying to stick to is the most significant step to financial planning. After all we do have to think about rainy days and those are plenty. But having that money available means being able to solidify ways in which you can plan ahead for your expenses and the events that are inescapable can still be handled.

For many of us, budgeting means fiscal restraint and not being able to purchase the things we think we essentially need. Though a good budget plan, allows us as consumers to meet our needs and desires, while still trying to save money and plan for the future.

Incidentally, [the first step to financial freedom,] is to write down every expense imaginable you may incur for the week- should it be that latte every other day, the ever so scrumptious lunch, the takeaway dinner or even drinks, impulse purchases as well as entertainment, then adding it all up at the end of the month, which then leads to cutting back to many unnecessary expenses. Surprisingly, one should be able to notice how much money can escape from one’s purse or wallet unnoticed. This is a very simple exercise in fiscal discipline but it is indeed the first step of learning how to create a budget plan to define the art of financial planning.

Once your baseline weekly spending is established, by tracking your daily living expenses, add in your recurring bills like the rent be it the mortgage, phone bill, electricity bill, gym payments etc. That will be your estimated monthly expenditure. One can track your expenses and bills for a few months to come up with an average, which goes extremely far, when one needs to plan their income.

These are just a few ideas that you can use to start living a more frugal life, and to successfully manage your budget. Learning how to manage your budget while young will take one a further mile when it comes to dealing with ones’ income in the future. The decisions you make early on will affect you later life. So to conclude this, I would say, learn early how to use your time and money wisely.