Savings, Thrift & Investment | |
Savings, Thrift & Investment | |
2302 VIEWS | |
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Thursday, October 31, 2019 / 06:00PM / Otunba 'Debola Osibogun* / Header Image Credit: Workforce
Saving money remains one of the oldest and smartest
route to wealth creation. This is one of those concepts that have enjoyed an
overwhelming consensus across generations and other societal classifications.
Even though the coinage has evolved over the years and options to ensuring
security for raining days have undergone tremendous changes, the core of the
concept remains intact. For example, saving money in the early 90s involved
storing physical legal tender in "piggy banks", safe or under mattresses.
Today, this can hardly pass as forms of saving money given that the human race
has evolved and wealth creation has been enhanced such that savings has become
an integral part of the modern day financial services industry and players have
managed to create links between savers, the liquidity providers, and
users of these savings, the deficit units.
Notwithstanding the medium, the
central theme underpinning saving has not changed. Saving a portion of what you
earn has been proven to be one of the best ways to take charge of your finances
in today's uncertain world. First it is intuitive that when you save, you
accumulate both for raining days and depending on the quantum, for generational
wealth that can transcend seasons and periods. It is physically and emotionally
exhausting to live from one paycheck to another and knowing that you are one
major ailment or two away from financial disaster owing to absence of money to
fall back on when life happens. Saving provides a financial "backstop" for
life's uncertainties and increases feelings of security and peace of mind.
Secondly, saving leads to happiness.
There is evidence from a recent study by the Northwestern Mutual insurance
company that savings is linked to increased happiness. Actually, what the study
found was that people who are "planners" and do future-oriented things such as
setting financial goals and making savings to achieve those goals feel happier,
and better about their lives, a lot more than those who either fail to make
plans or fail to save towards actualizing those plans. On a related note, the
Consumer Federation of America found a strong relationship between saving and
increased life expectancy. Particularly for low-income individuals, those with
spending plans are far more likely to have saved money for emergencies and far
more likely to be less exposed to illness from stress and anxiety. These
findings make intuitive sense given that not putting in place funds to meet
eventualities can lead to higher level of anxiety that ultimately may develop
into serious health challenges if not addressed.
Economists and psychologists
attribute findings like these to the sense of control that people have when they
plan ahead and know what they need to do to get from where they are now to
where they want to be. It is well established by research that people who feel
a sense of control over life events are often happier, cope better, and are
more resilient in times of stress than others. Conversely, people are
especially unhappy in situations where they perceive themselves to have a lack
of control. It is, therefore, no surprise that medical emergencies rank high on
the list of things that stresses people the most. The combined impacts of not
knowing when a medical emergency will crystalize and the cost of meeting those
obligations make people extremely uneasy and when there is no savings to meet
these obligations, families come under immense pressure.
From a macro standpoint, even though
consumption is usually the largest component of the GDP, saving is equally
important in driving development. Aggregate savings help to fund private
investment and government expenditure via financial system which is the vehicle
for channeling resources from the surplus unit to the deficit unit. Critical
component of the GDP, using the expenditure model, are funded through savings
from individuals, households, institutions and corporate bodies. Even though
there is no broad consensus on whether saving support or hinders growth, it is
pertinent to highlight that saving provides buffer and social nets for
individuals which support government interventions and social security
frameworks in ensuring continued functioning of the society.
As we strive for a better future and as we take steps to achieve
financial independence, a few popular quotes on the art of saving come to mind:
1. "Beware
of little expenses; a small leak will sink a great ship." - Benjamin
Franklin
Keeping track of your daily expenses can be one of the greatest reveal
of all-time. Spending N500 a day on things you really have no use for, sums to
N3,500 a week and N182,000 a year. Discounting this sum over a 10-year period
at the FGN Treasury Bill rate amounts to N647,714 and over 20 years you end up
with N2,501,315. If you increase the amount by additional N500 for example, it
takes a geometric growth, resulting in a 20-year savings of N5,016,374. This
amount of money could go toward augmenting university education for your
children or down payment for a family home in decent locations.
2. "Stop
buying things you don't need, to impress people you don't even like." - Suze Orman
This is a quote for everyone and my absolute favorite. Not many will
admit to this behavior, but given how many people go into debt and plunge life
savings to impress others with their big cars and latest fashions, it is a
quote everyone needs to keep to mind. If you feel you have to maintain an
elaborate lifestyle to impress a specific group of people, you need new
friends. Learning how to live on less will help you acquire something a lot of
people strive for - a bigger bank account.
3. "You can
be young without money, but you can't be old without it." - Tennessee
Williams
This quote
reminds us that the time to plan for retirement is when we are young and are in
our productive age. Saving when younger
might mean fewer vacations, just-enough shoes and bargain buying. But it also ensures
enough income to live comfortably in our later years when we are too old to
earn income. If you start saving for your retirement when you pick up
your first real wage, irrespective of the quantum of money, you will look
forward to retirement with relatively no anxiety. The corollary is true for a
large number of us and you would have qualified for that exclusive 1% of the
global population who have retirement anxiety under control if you have saved
enough to meet retirement. A number of products have been developed today to
help you manage retirement expenditure including annuity and other retirement
saving plans.
4. "If
saving money is wrong, I don't want to be right." - William Shatner
Saving money
is cool, and do not let anyone tell you differently. Some people might attempt
to derail your savings plan by tempting you to spend outside your budget, or
they might snicker because you never shop on impulse. The reality remains that
savings is not only good for your financial health, it is a good measure
of your level of discipline on very many areas of your life.
5. Do not save
what is left after spending, but spend what is left after saving - Warren
Buffet
Globally, the
name Warren Buffet is synonymous to money and his wisdom in the art of money
making is unrivaled. This partly explains why this quote is very popular and
respected across the world. However, the brand 'Warren Buffet' is not the only
reason why this is a potent quote and a favorite for a lot of people. This
quote is powerful beyond measure and sits at the heart of the concept of
saving, dealing with the discipline required to attain the mindset. If you
continue to wait till when it is convenient to save, you may wait your entire
lifetime given that outflows always have the propensity to exceed inflow. Once
the inflow increases, you suddenly get the justification to buy that extra car,
take one more vacation, expand the family unit or out-rightly increase demand
to meet the incremental income.
In my 31
Years' experience as a banker, I have seen the best and worst of both worlds:
how saving little money can lift families out of penury and I have seen also
how very large income has proven not to be enough in many cases where the
discipline of saving is not maintained. Constantly saving and taking informed
decision on what best option there are for your money will ultimately prove
valuable in the long run, irrespective of the quantum of money being saved at a
time. When you build this out constantly over a stretched period, the results
are usually worth the effort and that ultimately is a necessary condition to
wealth creation.
Given that
saving requires a high amount of rigor and discipline, it is important to have a
documented plan and make effort to adhere to the plan. Consequently, I have
detailed below some of the effective ways to execute a saving plan:
1.
Track your expenses: The
first step to start saving money is to figure out how much you spend. Keep
track of all your expenses: routine expenses must be detailed and known,
one-off expenses must be included in this bucket. Once you have your data,
organize the numbers by categories: food, groceries, transportation, loan
repayment. Use your statement of account to track expenditure. Also, as much as
possible, do all your expenses via your bank cards to allow for tracking.
2. Use
automatic savings methods. Set up an
automatic transfer from your current account to a savings account each
month. This automatic method can be done via a standing order with your
financial institution. This ensures the process is seamless and the temptation
to indulge is significantly mitigated
3. Save
all or part of a certain type of income. Certain
incomes are not your regular or routine incomes. Such incomes should be saved
in its entirety or a large proportion saved. These incomes include: annual
bonus, monetary gifts, tips and proceed from sale of items.
4. Establish
savings buckets and watch these goals get closer as
savings grow: Education for children and dependents; holiday shopping;
vacation and retirement
5. Create
an emergency fund: start small and increase your emergency
fund to cater for eventualities such as illness, accident or loss of job. Keep
this savings separate from other savings and ensure the money is used for
emergencies. Also try to replenish once you get back on your feet after the
emergency.
6. Seek the best investment options and track progress: review your budget and check your
progress every month. Not only will this help you stick to your personal
savings plan, but it also helps you identify and fix problems quickly.
Understanding how to save money may even inspire you to find more ways to save
and hit your goals faster.
In conclusion, it is important to highlight that
saving money is a difficult thing to do. Not only do we have a raft of expenses
seeking to deplete the savings, as Nigerians and Africans, our communal nature
of living leaves us with large number of dependents in the absence of social
nets. Notwithstanding these challenges, it is important that we make a habit of
saving for the raining days to ensure we can meet our needs whether in
retirement, to fund education or to meet emergencies. Only 1% of the global population
has imbibed the culture of saving and I charge you to aim to join this
exclusive club of individuals. The benefits outweigh the pain at the end.
*Otunba 'Debola Osibogun is the
President of the Consumer Awareness and Financial Enlightenment Initiative
(CAFEi)
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