Saving for Raining Days: Why, How and When?


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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